Dell Hbr Case Study
INTRODUCTION
Dell Computers was started by Michael Dell in 1984. Dell’s primary differentiator was its business model.
It sold primarily on the B2C market and custom built personal computers on demand. Therefore, it had very low inventory by comparison to its competitors. As a result of this, Dell was able to operate quite efficiently and profitably in its niche market. By the late 1980’s – early 1990’s, Dell noticed that its market share was only 1% of total and that industry amalgamations could potentially force Dell out of the market. It was time to make a decision; it could remain status quo or pursue an aggressive growth strategy. The latter option proved to be favourable and Dell expanded into the B2B marketplace through a growth plan that focused on selling to retailers to improve its market share. The plan worked and Dell saw subsequent revenue increases of 268% within two years, compared to industry growth of 5%.1
The good times came to an end in 1993 when Dell posted its first loss after eleven subsequent quarters of profit.2 Dell decided to more efficiently manage its liquidity, profitability and growth and was exited the indirect retail channel where margins were exceptionally low . The retail channel had served its purpose, however, in assisting Dell as a brand to become well known throughout the market place. Following these measures, and the fact that Dell had exceptionally low relative inventory, they were able to become the first company to launch the new Pentium chip computers and maintain first mover status with subsequent upgrades. Michael Dell was now in a position to forecast future growth for his company.
STATEMENT OF PROBLEM
Michael Dell predicted that the company’s growth rate for the next year would again outpace the industry. Dell needed to focus on how its working capital policy could assist in financing future growth.
Further, what other internal and external financing options might assist Dell in reaching their
Dell Computers was started by Michael Dell in 1984. Dell’s primary differentiator was its business model.
It sold primarily on the B2C market and custom built personal computers on demand. Therefore, it had very low inventory by comparison to its competitors. As a result of this, Dell was able to operate quite efficiently and profitably in its niche market. By the late 1980’s – early 1990’s, Dell noticed that its market share was only 1% of total and that industry amalgamations could potentially force Dell out of the market. It was time to make a decision; it could remain status quo or pursue an aggressive growth strategy. The latter option proved to be favourable and Dell expanded into the B2B marketplace through a growth plan that focused on selling to retailers to improve its market share. The plan worked and Dell saw subsequent revenue increases of 268% within two years, compared to industry growth of 5%.1
The good times came to an end in 1993 when Dell posted its first loss after eleven subsequent quarters of profit.2 Dell decided to more efficiently manage its liquidity, profitability and growth and was exited the indirect retail channel where margins were exceptionally low . The retail channel had served its purpose, however, in assisting Dell as a brand to become well known throughout the market place. Following these measures, and the fact that Dell had exceptionally low relative inventory, they were able to become the first company to launch the new Pentium chip computers and maintain first mover status with subsequent upgrades. Michael Dell was now in a position to forecast future growth for his company.
STATEMENT OF PROBLEM
Michael Dell predicted that the company’s growth rate for the next year would again outpace the industry. Dell needed to focus on how its working capital policy could assist in financing future growth.
Further, what other internal and external financing options might assist Dell in reaching their