case study , please read the case and answer the questions:

Rising, Then Falling Innovation at Dell

Dell the PC maker, started by Michael Dell in his University of Texas dorm room, was one of the great suc- cess stories of the 1990s and early 2000s. Between the mid 1990s and 2007 Dell grew at an astonishing rate and was far more profitable than competing PC makers. However, from 2007 onward Dells profitability declined, while several of its competitors, including most notably Apple and HP, im- proved their performance. Why did Dells performance start to erode after 2007 and what actions is Dell taking to arrest the decline in its performance?

Dells competence was based on selling PCs direct to customers and cutting out wholesalers and retailers so that it could give part of the value created back to customers in the form of lower prices that led to higher sales. Moreover, Dells website allowed customers to mix and match prod- uct features such as microprocessors, memory, monitors, internal hard drives, DVD drives, keyboard and mouse format, and so on to customize their own computer sys- tem. The ability to customize orders kept customers com- ing back to Dell.

Another reason for Dells rapid growth was the way it found innovative ways to manage its supply chain to minimize the costs of holding inventory. Once again Dell took advantage of the WWW to feed real-time informa- tion about changes in its demand for inputs to its suppli- ers so they could alter their production of components to match Dells needs in the next weeks. Also, Dells suppliers used this information to adjust their own pro- duction schedules to obtain the gains from just-in-time production, which also allowed Dell to drive down costs and prices.

What happened to Dell in the latter half of the 2000s that has helped lead to its current declining performance? First, a large proportion of Dells sales came from business customers and during the 20082009 recession demand from business slumped. Second, during the 2000s HP had also learned how to outsource PC making to reduce costs and it was also able to sell business customers a bundle that included not just PCs, but also advanced servers, storage devices, network equipment, and the consulting services that helped businesses install, manage, and service this equipment. Dell lacked the competences in research and development needed to compete with HP and Apple. And, to increase demand for its PCs it was now forced to sell through regular bricks-and-mortar retailers like Walmart and Best Buy, which lowered its performance and profits. Finally, Apple was gaining market share from Dell by dif- ferentiating its products through their performance, design, and ease of use, and it created the impression that PCs from rivals such as Dell and HP were just old fashioned. From being the leader, Dell is now playing catch up in the industry and it is struggling to find innovative ways to turn around its performance as its profits continue to decline.

Questions for Discussion

1. What were the keys to Dells success as it grew? How did entrepreneurship help the company grow?

2. Why has innovation at Dell been falling in recent years? Search the WWW for information that discusses how Michael Dell is making innovative changes to strategy and structure to turn around his companys performance.