Essay: Understanding Strategic Management by Examining DELL [/b]
Computer Corporation
Introduction
Strategic management is a crucial function in business companies and/or organizations large or small. It involves the analysis, decisions and actions that a business organisation performs to create and sustain in the market and to gain competitive advantage. The processes in strategic management such as market analysis, decisions and actions are ongoing. These processes are seen as key business drivers that help the organisation to realise its business goals. An organisation is governed and bound by certain business objectives, goals, vision and mission by which it positions itself in its business area and in the environment. An analysis of the internal and external environments is vital to achieving and realising business objectives and this is a crucial strategic management activity.
Strategic management deals with answering questions like, who are our competitors and what are their strengths? What strategies should we execute to compete with them? This type of questions helps the management to understand how business should operate and arrive at certain logical decisions. These decisions in turn result in establishing business processes. These processes are finally acted upon because in business, strategies are implemented through actions. Implementation of an action requires leaders/managers to allocate resources in order to realise outcomes of the action in real time. Hence strategic decisions involve a great deal of interaction between these three processes: analysis, decisions and actions (Dess, et al, 2005).
The key to successful strategic management is the study of why and how some business firms are able to lead markets, capture more customers and outperform their competitors. The management leaders have to determine on how the company should compete in the market so it can have business advantages over lengthy periods of time. This important activity mainly focuses on finding answers for how the company can compete in the market to create competitive advantage for itself. The company’s managers can determine if they will develop products or services that are unique or if they can position themselves as a low-cost producer or a combination of both. This activity results in strategic planning.
Strategic planning is an exercise conducted regularly in corporate business organisations and strategic management is the term mostly used in academic circles. Strategic planning may sometimes be used in strategy formulation. Management practitioners use strategies to formulate plans, implement and analyse them for effectiveness to derive the intended results. However, the purpose of strategic management is to leverage the firm for various potential opportunities in future, and at the same time optimise existing business outcomes using current market trends. David defines strategic management as an art and science of formulating, implementing, and evaluating cross-functional decisions that enable an organisation to achieve its objectives. This implies integrating the functions of marketing, finance, operations, research and development and IT to achieve organisational success. (David, 2007).
A Brief Review of Literature
Organisations around the world are driven by strategies that are formulated, implemented and controlled and at the same time a comprehensive assessment on internal and external factors are carried out in order to understand the implementation of business objectives. It is important to note that changes in one stage of the strategic management processes will have implications in other stages in operations. Hence it is important to plan strategies and create rules for execution in a flexible manner so they work well in changing market conditions. For an internal employee who performs certain actions may view the strategies as a single integrated and ongoing process that is required by business (Singer, 1994).
The concept of strategic management spans wide and large and has a long history of theoretical analysis to result in practical application. This is coupled with conflict of interest to interpret in best ways possible on what is the right approach, methods, processes for making decisions along with complexities, organisational factors, strategies for implementation and commitment. All these factors compliment and conflict with each other (Datta, et al., 1993). Naisbitt quotes: strategic planning can be worthless unless there is a strategic vision (Naisbitt, nd). Bryson argues that organisations are different and hence there can be no one strategy that will work correctly in every situation. Hence it is apparent that strategic planning is an ongoing activity (Bryson, 2010). The concept of strategic planning and decision making is very important for business and hence every manager shall involve themselves in this activity in a business scenario at some point of time (Harrison, 1996).
Strategic planning is a formalized process that encompasses great amount of efforts at all levels in the organisation. To garner support from all levels in the organisation for the implementing of short term and long term decisions, policies and actions are required to help the business grow in the long term. Strategic planning activity shall also look into the aspects of stake holder appreciation, employee satisfaction while encompassing financial objectives along with moral and ethical considerations in the decision making process (Brammer, et al., 2010).
Strategic planning process is a key factor in successfully implementing business plans. This is a formal
process and plays a significant role towards contributing to the overall satisfaction of the members in
the process (Dye and Sibony, 2007). Developing a strategic plan is the most important step in the
business planning process. For an organisation to be successful the implementation of a strategic
planning process should include the key activities of monitoring the key objectives. The perceptions
of the plans should be measured through measurable methods that may readily be available for review and for making further decisions (Anthell and Spinelli, 2011). In the next section, the strategic management practices followed in DELL Computer Corporation is examined to better understand the concepts.
Dell Computer Corporation
Dell Computer Corporation founded in 1984 is globally ranked number two in manufacturing computer hardware, and their distribution with market share is around 16%. Dell is based in the US and manufactures computers and IT equipments, mostly hardware. During the last three decades the company has achieved the status of the biggest MNC's operating in 190 countries with 9 manufacturing bases located in 6 continents. It manufactures a range of products related to computer systems that include storage systems, servers, network switches, laptop, desktop computers and related services, supported by a strong and efficient online support along with high global standards for retail customers. Dell offers services that are unique, for instance on-site product service is done within one day. This service is unique and first of its kind in the IT industry initiated by Dell. Dell has transformed business operations by bringing innovative breakthroughs that result in very short product lifecycles (Merminod, et al., 2007). Dell contributes towards technology development. It has a R&D centre that employs 600 scientists and technical specialists for developing new products. Presently the main customers for Dell include major business companies, large enterprises, government and SMBs and individual customers.
Dell has understood and realised the tremendous benefits that can be derived from usage of information technology, since demands for better technology is constant. IT is used to create a competitive advantage by business and to introduce information management in a strategic way, well utilised by Dell. Dell's ability is in its ‘built-to-order’ manufacturing process that takes advantage of market scenario and to position itself during important technology transitions. Though there are other IT manufacturing organisations such as HP, IBM, Lenovo, etc., Dell is successful because it has been able to transform itself into a sustainable enterprise in a very challenging and competitive computer manufacturing ecosystem. The company’s business model is developed for its direct sales approach, low-cost, and its focus is on leveraging its core-competency in supply chain management. The major success is attributed towards leveraging the commonly available industry and making available the technology at low-cost manufacturing framework as the approach for staying ahead in the competition. This is evident in Dell’s market share of >15% in personal computer segment (Villarreal, et al., 2003).
The approach by Dell computers is to target corporate business houses that had a predictable budget and those that require computer equipment and products that are predetermined. The company also caters to individual customers with requirements for early technology adoption. Dell is able to capitalise on corporate customers and individuals customers alike and achieves this by determining stable and predictable patterns in customer behaviour. Using this approach, the company is able to make its build product-to-order system work. Handling customer operations require the knowledge and technical capabilities of customer’s organisation, their work processes, and their set of barriers which other computer manufacturers could not overcome. Using this capability Dell was able to develop its capabilities to have substantial rise in customer market share, by the use of internet as the medium. Using these capabilities Dell is able to establish better customer intimacy by feasible and efficient approaches. Further, Dell has developed customer-specific intranet web sites that are extremely effective and unique which is another innovative strategy. Each site was customised to suit customer needs to their individual preferences. For this purpose the company worked separately with each customer to specify configurations for their system that works best in their network. Simultaneously, Dell made use of its direct links with both corporate and individual customers to obtain real time insights on latent customer need to identify new products and services.
The Business Model
Dell effectively manages market changes by understanding customer segments, their requirement and expectations from its products and services. Consumers look for multiple options or alternatives in equipment that deliver content with low price options. Many supply-chain strategies offer significant advantages that are unique or have the ability to control cost through direct customer relations which is a key element of channel strategy. Customer operations are maintained by new dimensions and the internet opens up new opportunities for achieving superior levels of customer service. It is important to note that these new channels have to maintain a balance between a company’s account set and its business model. Many of the companies in IT industry are not able to capture and pursue on incremental revenues. Dell with its business model of direct-to-customer channel strategy has created a breakthrough in IT industry. The company sells directly to customers bypassing distributors or dealers, and hence the customers are able to have direct access with the company. This innovative and direct channel strategy gives Dell its powerful business model to include the following unique features,
- Customer feedback and market insights are obtained in real time
- The company sells what it has by using day-to-day pricing
- Sales incentives are shifted to products that are feasible and makeable
- Product life cycle management is robust and extremely crisp
- Obsolete and excess stock is eliminated
- Prices are controlled on real-time basis
The capabilities were firmly held in the company’s core business process and many of them are focussed on supply management. The supply chain method consolidated their business strategy to form more effective partnerships.
Business Strategy Implementation
The use of team based approach helps Dell to successfully implement new business model. The company ensured that the key functional counterparts coordinate with each other in creating and implementing the business model to achieve the intended results jointly. The business units share common performance objectives that span their functional areas and are organized by way of periodic meetings and force them to focus systematically on their joint progress. Managers in the company are provided with detailed information that provides insights to identify the reasons for good or poor performance in their respective subunits. In this organisational structure they are able to have coordination and flexibility to make the tradeoffs and adjustments to overcome complexities while implementing the business strategies.
Dell uses the team approach effectively to create and implement its strategic plans along with ensuring business model alignment on an ongoing basis. Further, Dell manages its customer demand by using day-to-day price changes and sales representative incentives to drive customer orders to makeable product sets. The senior management staff in the company share a common set of performance objectives and compensation measures to focus on their common problems and to jointly analyze information needed to develop a common issue resolution mechanism.
The company uses flexible-response capabilities by outsourcing component-part manufacturing. Dell does not have substantial resources or stock in their physical facilities dedicated to producing a product quickly because technology is changing rapidly. Dell invests heavily on IT infrastructure that supports real time communication among its customers, its manufacturing facilities, component suppliers, and airfreight carriers. Most of the operations are streamlined and rely on suppliers to ship their product directly to the customer. For instance, the monitor supplier is allowed to ship their monitor directly to the customer. The other strategy is, as long as a supplier retains strategic position, Dell collaborates to achieve mutual success, but when the supplier loses edge, Dell responds quickly to ensure its continued competitiveness. As customers are very important Dell treats them as important assets and the company adopts a direct model by which it remains in close contact and communication with all their customers. This trend helps the company to match supply with demand. Also, information related to pending customer needs are further translated into opportunities for innovation of their products and services. The feedback, comments and opinions received from customers are also used to create a knowledge base. This knowledge is used to create new innovative product designs are and this further drives their business model. In order to build customer intimacy and loyalty, Dell leverages customer knowledge, their products are shaped by customer knowledge. Their business strategy is focused, asset-based balanced scorecard measure that enhances their customer value proposition.
Strategic Process
The strategy of collapsing profit margins strategy applied by Dell helps it to stay ahead of its rivals throughout the personal computer market. Dell faces a very tight competition with its major competitor HP. Dell faces challenging market forces from its competitors in IT sector and it uses a tool very effectively to establish a tight linkage between its suppliers and customers.
Dell evaluates itself regularly to determine its future path of action, and this is a regular activity in its strategic planning process. Strategic planning process managers call this the SWOT which stands for Strengths, Weaknesses, Opportunities and Threats. Applying the SWOT technique managers in Dell are able to analyze and assess the exact resources and competing priorities. For instance,
Threats: Dell feels that the threats are rapid technological changes and feels that as technology gets better, there is increased and heavy competition in terms of pricing and also in terms of innovation
Opportunity: With growing population, global markets, opportunities are immense and offers potential for more IT demands in overseas markets
Weakness: The major weakness of Dell is its single sourcing, new product market and over reliance on corporate clients
Strengths: Dell’s core strength is its cost strategy and its internal capabilities that use the direct business model approach. Dell cuts costs on intermediaries as the company feels it can understand the customer needs better and can provide the most effective computing solutions to meet their needs.
Factors that Contributed to Dell’s Success
Dell’s implementation of strategic business plans has provided immense benefits and gains in both financial and qualitative process outcomes. From the perspective of strategic management, Dell is able to realize the following,
- Establishing a strong connection with its customers by way of offering services and products that enable the best in class solutions for the right value
- Reducing complexities for users while operating Dell’s products and also eliminating overhead costs and wastage in the supply chain
- Enhancing internal collaboration by providing an environment for more interactions between business units, centralizing global operations, cross product designs, and so on
- Reducing costs by leveraging the capability and sale of suppliers. The net result is in the development of new capabilities for customer with reduced complexity
- Improving accurate forecasting by resolving challenges, reducing complexities and establishing a better connection to demand
Dell’s success factors are attributed to some major factors that the company feels it as critical for its success (Matthew Davis, 2010). Some factors include,
- Customer value is important: Dell has segmented customers under different verticals, such as government, corporate, SMEs, etc. Based on this segmentation, the individual and shared values were identified and this was reflected in its product features and supply chain capabilities.
- Business strategy is unified and is end-to-end: The key to this is the company’s adaptability to manage and embrace change. In Dell’s case this transformation is complete and truly corporate
- Executive support: the potential benefits achieved from strategy implementation were shared with entire senior leadership team to promote and enable cross functional alignment. This is highly important for success in organisations.
Conclusion
In this essay the key aspects and the components of strategic management are explored. A brief on the available literature related to strategic management are also provided. It can be seen that the best strategy is not to engage in pricing or getting into a compromise with competitors, instead there are a variety of ways by which companies can benefit and achieve competitive advantage. Some methods include, trading with customers directly, low margins, improved service delivery and establishing long term relationships with customers and stakeholders for a mutual win-win situation which is evident by understanding Dell’s business strategy. Strategic management involves analysis, decisions and actions. While applied in business scenario it involves planning, implementation and monitoring for performance. This is important to achieve business goals which are again justified by understanding Dell’s business model.
References
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