Case Study: Dell

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Dell Case Study

Challenges facing Dell's leadership

Dell's leadership faces a host of challenges impeding the company from attaining the top position in the market. Therefore, the company must address the following three challenges in order to enjoy a prominent position in the market. First, brands produced by Dell have been eroded because of the rising perception of decline in customer service. While Dell continues to boast of superior customer service, recent surveys indicate that Dell's results are declining in the market (Besanko, 2010). The leadership of deal is quite aware that the key to success is quality customer service and the company must take strides towards overcoming this problem.

The financial decay of Dell Corporation worsened in the last financial quarter as it slashed its prices of personal computers in response to the increasing popularity of tablets and smartphones (Lewis, 2007). This dismal performance is the latest evidence of technological advances making it difficult for Dell to sell its desktop and laptop machines. Consumers are increasingly replacing such machines with faster devices. Consumers are spending much of their money in more convenient mobile devices like tablets and smart phones. Dell's leadership has been forced to cut prices sharply and this has obliterated the company's profits. This trend continues to hobble the leadership of the company (Bamford & West, 2010).

The third problem is Dell's ineptitude to serve all market needs because of the present system of limited vendors in its production network. Dell puts up not many items for sale to the public and powers engineering made by different organizations adequately and effectively. Dell likewise remains submitted to cheap suppliers. In spite of the fact that this empowers Dell to offer Pcs at high worth to purchasers, it likewise points of confinement the company's capacity to supply differing clients (Ignatiuk, 2008). The organization might as well recognize empowering itself to offer more altered items by expanding associations with additional assorted suppliers.

How these challenges influence the firm's strategy

Dell is one of the biggest players in the computer industry. Moreover, the industry boasts of potential market segments in personal computers like notebooks, servers, printers and other computer accessories. The leadership of Dell understands the challenges in decision-making and has shaped the marketing strategy to thrive in the threatening environment. The key for Dell to succeed in the changing market is to adapt to the environment through modifying its marketing strategies and mix. Dell's leadership must change the company's strategy depending on the economic climate where containing inflation levels, consumer purchasing power, consumer credit conditions and employee levels (Gunderson, 2006).

With the ever-changing environment, Dell's leadership must take into consideration consumers who have the purchasing power to support their desire for the products. This is an integral factor in the current computer industry. In addition, variables like company prestige and brand name are significant grounds for competitive advantage of Dell for computer products (Lewis, 2007). Besides, the retail price changes have not had a positive impact on the market share; the unpredictable changes could be extremely risky for Dell in the current economic downturn. These economic challenges have begun to affect it sales for companies such as Dell, which continues to expand globally. Nevertheless, Dell's leadership has kept a keen eye on economic pressures such as inflation that pose as threats to the company. Reports indicate that, last year, Dell recorded a 40 million loss attributed to lower sales worldwide courtesy of economic crisis (Kouzes & Posner, 2010).

The company believes and is confident in its reorganization plan that provides global companies with an opportunity to standardized services and products. In addition, such objects have enabled Dell to balance the geographic income differences and open opportunities to recover loss experienced the previous year (Ireland, Hoskisson & Hitt, 2012). Because of the impacts of the economic crisis, the company has surpassed its earning projections by reducing employees and cutting prices. Company Reports indicate that it intends to increase its annual earnings by $2 billion by 2014. The company leadership notes that this demands additional layoffs. Dell has also requested employees to take a compulsory (unpaid) leave in the economic down turn, a move intended to reduce costs, possibly avoid the losses to increase and better position the company for permanent competitiveness (Harpst, 2008).

In terms of economic growth, Dell's leadership has focused on the home currency value that all brands are imported where prices vary according to the changing exchange rates. During the crisis, customers are expected to purchase products of higher quality than to purchase simply based on their incomes. On the other hand, technological inventions and improvements have created more market opportunities and new products. Therefore, Dell must prove that it is highly competitive than its rivals. In addition, Dell must advance its competitive advantage by reducing the product size, increasing efficiency, and improving the quality of products (Ignatiuk, 2008).

The changing political environments have also constrained varying government regulations and policies across different countries. These have made the market environment too complicated for Dell thrive and adapt to the new laws. This entails the field of safety, advertising, investing and pollution demands by different governments. The culture climates pose as a challenge to the company and the larger sphere of influence. In the case of Dell, if the culture is too intense that pose as a barrier for customers, then consumers might switch to unknown local products, which they find cheaper or affordable (Besanko, 2010).

Why Michael Dell want to take the firm private

After a prolonged period of speculations, Michael Dell has cleared the air by announcing plans to take the company private in collaboration with a private-equity company known as Silver Lake, as well as other backers. This business deal will see Dell sold out at an approximately $24.4-billion. This is the largest leverage buyout after the 2010 global economic crisis (Gunderson, 2006).

Michael Dell created the business and was the reckoning force behind the rapid growth becoming the leading PC manufacturer globally. This success has been attributed to Dell's lean and flexible business model, its efficient supply chain, and the emphasis on sell to companies directly. However, Michael Dell stepped aside from the daily operations of the company. This saw a decline in Dell's fortunes that prompted him to come back as the CEO to turn things around (Kouzes & Posner, 2010). The company's expertise in direct marketing to U.S. firms was ill-equipped for the shift towards retailing of PCs to markets in Third World Countries. Dell was wrong footed due to the emerging segments such as tablets and smart phones that overtook the PC for a series of functions. In response, Dell followed the example set by rival firms such as IBM by shifting its strategy from low margin PCs to high margin services and systems for corporate clients. From early 2009, Dell, which has remained profitable, has spent more and more money on acquisitions in this sector (Flanagan, 2004).

Michael Dell became optimistic about the move to change its strategy; investors have not shared this interest. The company's share price hit its $54 peak during the boom but dropped to below $10 recently. The CEO's prediction is that Dell's shares have become undervalued. This is the driving force behind purchasing the shares back and making the company private. The CEO reckons that this move will enable him have a free hand in restructuring Dell without subjecting the shareholders to about quarterly fiscal reports. This will enable the CEO to refloat Dell at a high price after turning it around. Silver Lake is experienced in such a move as it pulled a similar transformation in the case of Skype (Ireland, Hoskisson & Hitt, 2012)

Dell's shareholders must approve this recent scheme. It is one of the examples of how the gravity in the world technology market has gravitated away from PCs to mobile devices. Currently, the number of tablets and smartphones in use has surpassed the number of desktop and laptop PCs. For this reason, it is worthwhile for companies such as Microsoft to keep an eye on the deal. The software giant has been chipping in over $3 billion without announcing the strings attached. The aim could be to make sure that Dell maintains its commitment to making tablets and PCs run its Windows Software. However, Dell's involvement could be a threat fro Microsoft to hedge in the post PC era (Besanko, 2010).

How the firm will benefit

From the company CEO's perspective, taking Dell private will give the company more investment, time, and patience it requires to turn itself around. Out of the web of fretting about quarterly earnings, the company will be able to generate in-depth cuts it its trailing PC area, still accounting at least half of the sales. Similarly, Dell will be able to devote maximum energy towards high margin corporate computing segment. Dell has already invested billions of dollars on targets like Wyse Technology and Quest Software as it pursued a software-and-services empire to compete with IBM and… [END OF PREVIEW]

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