Case Study 2: Dells brilliant model that lost the steam

Michael Dell started his career from assembling PCs in his dorm room as an undergraduate to heading the largest PC firm on the planet. Dells highly efficient, vertically integrated manufacturing and direct-to-consumer model combined to help the company earn seven times more profit on its own systems when compared with comparably configured rival PCs. Dell could often start a price war and still have better overall margins than rivals because Dell PCs were usually cheaper.

The business model adopted by Dell was brilliant model that for years proved resistant to imitation. Dell sold direct to consumers but at the same time competitors had to share a cut of sales with the less efficient retail chains responsible for the majority of their sales. Dells competitors could not move toward direct sales because any retailer sensing its computer suppliers were competing with it through a direct-sales effort could easily chose another computer supplier that sold a nearly similar product. In fact HP, IBM, Sony, and so many others saw the advantage of Dells model but they could not imitate the Dells model they were already entrenched in their business models

However Dells story had a turning point and Dells successful model, began to lose steam. The contract manufacturers serving Dells rivals had been observing Dell for nearly two decades and had learned to improve manufacturing efficiency. The assembly time for contract manufacturers fell dramatically when component suppliers located themselves near the contract manufacturer. Also when the cost of computing fell, the price advantage Dell enjoyed over rivals also shrank in absolute terms. Consequently it reduced the savings from buying a Dell as compared to the past.

Apart from that there was a change in customers preference for Notebook PC away from the commoditized desktop market. Due to this the direct-to-consumer model also suffered because Notebooks can be considered to be more differentiated than desktops, and customers often want to compare products in personlift them, type on keyboards, and view screensbefore making a purchase decision. These shifts in the customer preference created an opportunity for competitors to replace Dell from its ranking as the worlds number one PC manufacturer.

In the emerging and changed business market even Dell has stopped its direct-only business model and sells products through third-party retailers. The lesson learned from Dells struggle is that it is crucial to continually keep on assessing a firms strategic position among changing market conditions. There is no surety that what strategy is successful today it will dominate forever.

Question 1. Evaluate the successful business strategy adapted by Dell that allowed it to remain at the top for two decades. Why no other company copy could imitate its business strategy for so long?

Question 2. Why Dell could not sustain its position among the competitors? Discuss the major reasons behind it. Use the resource based view to justify your answer.