DELL COMPUTER Michael Dell founded Dell in 1984 while he was still a college student at the

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DELL COMPUTER Michael Dell founded Dell in 1984 while he was still a college student at the University of Texas in Austin. From the beginning, Dell sold directly to the final customer and built PCs to users' specifications. This basic business model has not changed over the years, although it has been modified and refined as the company has grown. Dell started with telephone sales of upgraded IBM-compatible PCs, and then shifted to assembling and marketing its own brand of PCs in 1985. It provided customers with a 24-hour hotline for complaints and guaranteed 24- to 48-hour shipment of replacement parts. As its customer base grew, Dell also implemented a direct toll-free technical support line. In 1990, Dell shifted course when it began selling through retail outlets such as CompUSA, Circuit City, and Price Club. Revenues grew rapidly, but problems arose in managing what had become a billion-dollar company, and Dell experienced its first quarterly loss in 1993 (Dell, 1999). In 1994, Dell concluded that even though it was successful in selling through retail channels, it was not making money doing so. Dell decided to withdraw from the retail market and return to its roots as a direct seller, a move that not only helped the company's profitability but also enabled it to put all its efforts into executing the direct model. Dell also brought in a new chief operating officer, Mort Topfer from Motorola.

Topfer led Dell's efforts to refine its internal operations and tighten its integration with suppliers and business partners. Dell has focused on improving service and support to its large business customers by installing custom software, keeping track of customers' PC inventory, allowing individual business users to order PCs directly rather than having to go through a central purchasing office, leasing computers, and allowing electronic payment via the Internet. As put by Michael Dell, "We are becoming the PC outsourcing company, not just the PC supplier" (Heidrick & Struggles, 1997).The company also revamped its design, manufacturing, procurement, and logistics processes to reduce costs, and speed up the entire supply chain. Finally, it expanded its markets internationally and developed successful notebook and server product lines. The result has been an extraordinary run of growth in revenues, profits, and market value for the company. Sales reached $18.2 billion in 1998, with profits of $1.46 billion, and Dell's share of the worldwide PC market grew from 3% in 1995 to 9.2% in the first quarter of 1999. Dell's stock price grew by over 40 times from 1994 to 1999, and the company's market capitalization topped $100 billion. Dell's success has garnered the admiration of Wall Street and made it a favourite subject of the business press, which has offered a variety of explanations for that success. Michael Dell himself has weighed in with a 1999 book titled Direct from Dell: Strategies That Revolutionized an Industry. Most of these explanations have focused on the advantages of Dell's business model, yet the analyses fail to explain how Dell executes that model and particularly how it uses IT as a key competitive tool to do so. The remainder of this article uses a case study approach to look more closely at exactly what constitutes the Dell model, how the company continues to improve its operations, and how it uses IT to refine and extend the direct model.

The case study utilized literature review, buttressed by interviews with key Dell executives, interviews with selected Dell customers and suppliers, and plant visits. Such an approach runs the risk of being caught up in the optimistic views of the business press and Dell itself (or himself), but we sought to maintain healthy skepticism about what we heard and read. Some of the data in the case relies directly on Dell as a source, and we made every effort to check and confirm it with other sources. Other data come from analyses of the PC industry and of Dell's strategy and performance by IDC, McKinsey, Dataquest, Forrester Research, and Hoover's Company Profiles, or public documents such as annual reports and audited 10-K reports filed by Dell. Descriptions of Dell's IT practices and organization were provided by Dell IT executives (current and former). Finally, because Dell is sometimes a source for independent news stories, we evaluated all stories in terms of what we knew from industry studies, our interviews, and our personal knowledge of the PC industry—having studied the industry in the United States and the Asia-Pacific region for the last 8 years (Dedrick & Kraemer,1998b) It is difficult to attribute specific performance results to specific IT initiatives in any company, and this case is no exception. We have reported as accurately and objectively as possible how Dell uses IT, what benefits it reports, and what problems it has experienced. We also acknowledge that it is difficult to isolate the specific effects of IT from Dell's business model or its execution. However, we have tried to develop concrete examples that show logical linkages with IT that permit attributing some results to IT. DELL'S BUSINESS MODEL Other than its unsuccessful venture into the retail channel, Dell has stayed faithful to its original business model, which combines direct sales and build-to-order production. This business model is simple in concept but is quite complex in execution. While other PC makers rely on resellers, retailers, and other agents to carry much of the burden of marketing and sales, Dell must reach out to customers largely through its own efforts. And while other PC makers can run high-volume assembly lines to achieve economies of scale, Dell must fill each order to meet customer specifications, a process that puts heavy demands on shop floor employees, suppliers, logistical systems, and information systems. It has taken Dell 15 years to achieve its present skill in making the direct model work, a point driven home by Michael Dell himself and by the difficulties other firms have had in trying to imitate parts of the model.

A closer look at the direct sales and build-toorder processes helps illustrate how Dell makes them work individually and in concert with each other. Direct Customer Relationships Dell's use of the direct approach reportedly provides it with nearly a 6% cost advantage compared to indirect sellers (Kirkpatrick, 1997). It also provides Dell with detailed knowledge about its customers. Vendors that sell through resellers and retailers often don't know who their final customers are, so they must rely on secondary market research to identify their own customer base. The direct approach also allows Dell to identify customer trends early so it can respond with the desired products before its competitors can. The direct approach allows Dell to build a relationship, which makes it quick and easy for customers to do business with Dell. IT staff at Boeing report that Dell has adapted its IT systems, user interfaces, and procurement processes to Boeing's, making it easy for Boeing employees to buy Dell computers because they can use a familiar process. Delluses EDI for processing orders directly into its order management system because Boeing is required to operate that way (rather than using the Internet) as a federal government/Department of Defence contractor, and because Boeing staff are familiar with EDI. Dell also has incorporated its product information into Boeing's in-house procurement catalogue, again adjusting to Boeing's way of doing business. As a result, Dell can capture new and replacement PC business because it is easy to do business with Dell and contracting with another vendor would involve switching costs. The drawback of direct sales is that Dell lacks the extensive reach of the channel, which has thousands of large and small firms providing sales, marketing, service, and support to customers of all sizes in all markets. To overcome this problem, Dell has segmented the market by size and focused much of its own marketing efforts on large customers who could be reached directly by Dell's sales force. Only after establishing a strong brand name with larger customers and developing the online infrastructure to reach new customers at a low marginal cost, has Dell seriously targeted the widely diffused small business and consumer markets. Dell also sells to resellers and integrators in some cases and works with distributors to offer non-Dell products such as software and peripherals. For example, Dell is reported to be the second largest reseller of Hewlett-Packard printers (Schick, 1999). This flexibility helps Dell expand its marketing reach while maintaining its direct sales strategy for the bulk of its business. Global Centralization of IT The need to balance control and flexibility in the organization has been evident in the evolution of Dell's information technology systems. In the early 1990s,

IT was so decentralized that management lacked even the basic information needed to make decisions and run the company. There were a data center and some common applications, but most of the applications had been developed independently in various user departments. This extreme IT fragmentation was at odds with Dell's organizational structure, which was centralized globally on a functional basis, with sales, manufacturing, service, and other functions all reporting directly to Austin. The company's growth was outpacing the ability of IT to provide information needed to manage the business. To bring some order to its IT house, the CIO moved quickly to implement an information system,called Information to Run the Business, or IRB, as a first step in giving Dell's managers some basic indicators such as product quality, financial performance, and product margins. The CIO then developed a three-phase plan for evolving IT in the company. Phase one was to stabilize the current environment by installing common hardware and operating systems, and software and tools to manage it. The new infrastructure was composed of Tandem and Sun servers, with the overall network controlled by Tivoli network management software. Phase two was an interim upgrade aimed at building capabilities, including DellNet, a virtual private data network owned and operated globally by AT&T; new data centres in Austin, Ireland, and Penang, Malaysia; and upgraded staff skills to operate in the new environments. Phase three was the development of next-generation applications that would achieve tighter integration of data to allow better integration of business functions. At the core of this process was the decision to adopt an enterprise system—SAP/R3—as a means of developing a unified application environment throughout the company. The attraction of SAP is that it offers a full suite of tightly integrated applications, including finance, human relations, sales and marketing, manufacturing and distribution, and customer service and support. Dell was hoping to bring its disparate IT functions together into one seamless system through SAP. The SAP implementation was dubbed the Genesis Project and involved a 140-member staff pulled together from corporate and regional information systems units. The team had gone as far as implementing the SAP human resources component when a change in business strategy caused a reconsideration of the whole project. Following the above case study, answer all the questions below.

QUESTION 1 Dell's use of the direct approach reportedly provided the company with a cost advantage. It also provided Dell with detailed knowledge about its customers. Discuss the role of customer relationship management (CRM) systems, the phases in CRM, its benefits, and the challenges with reference to Dell.

QUESTION 2 With reference to the case study above discuss a business-impacting and business-aligning approach to Dells Information Systems strategy.

QUESTION 3 "Internetworking is the practice of connecting a computer network with other networks using gateways that provide a common method of routing information packets between the networks. The resulting system of interconnected networks is called an internetwork, or simply an internet." Many applications of telecommunications can be classified as inter-enterprise networks. Discuss the reasons as to why many organizations such as Dell use internetworking.

QUESTION 4 "Major changes and expansion are taking place in traditional MIS, DSS, and EIS tools for providing the information and modeling that managers need to support their decision making." Discuss these changes and how it has affected Dell's decision-making processes.

QUESTION 5 Dell computers used next-generation technologies to promote better integration of the company's data. About the case study, formulate a comparison between the uses of such technologies, within an organization to that used by Dell.