Dell Inc. is leading computer companies in the world. Michael Dell founded this computer company in 1984. The company develops, sell, and support a wide array of products in the computer industry. In the Fortune 500 list, Dell Inc. is at position 41 (Shetty, 2010). In the computing industry, Dell Inc. comes third after the giant Hewett Packard (HP) and Lenovo. The history of Dell’s computer company borders on the business model developed by this entrepreneur. For over 28 years the company has been operating, it has attracted the interest of considerable population of consumers across the globe. The company has seven plants across the world and dominates the computer market with its product. The company became a leading vendor in computing product, in 2001 (Shetty, 2010). The road to this success has been fraught with challenges. Nevertheless, the response of the management team of this firm has proved worth in steering this company to this highest height.
Dell Business Model
Dell Inc. has stuck to its original business model plan that is direct sales – manufacturing products and selling directly to consumers without involving intermediaries and build to order production (Jones, 2003). The build to order production entails manufacturing computer products as per the demand and the orders received in the market. Its venture in the retail channel was not successful prompting the company to drop it. While one may view the business model of Dell Inc. as simple, its execution tends to is quite complex.
Dell Inc. carries the burdens of marketing and selling its products. Dell Inc. has established a marketing department in the company. This department takes the trouble of looking for consumers for the company. It identifies the needs of consumers and develops a product that specifically meets the demand of the consumer (Jones, 2003). Dell Inc. has two types of distribution channels, which are quite simple. In the first distribution channel, the product moves from Dell Inc. to the consumer. In the second model, the product leaves the company to the supplier then to the consumers. Dell Inc. maintains close ties with the consumers. It uses technology to build constant communication with its customers. The company receives its revenue directly from the consumers. However, when it sells its product through the suppliers, it would receive the revenue through the suppliers. The sale of products through the suppliers leads to sharing of the product between Dell Inc. and supplier.
Dell Inc.’s key partners are Microsoft Corporation and Novell. Dell Inc. has tasked the partners to innovate and its designs the products. The partnership between Microsoft Corp. and Dell enables it to acquire software products design by its partner. Dell acquires power edge and power vaults from Novell. These resources are critical components of the computer products manufactured by Dell Inc. Dell has 95 key Suppliers including Akustica, Alpha and Omega, American Power Conversion, Amtek Group, Analog Device Inc., Astec, Atlas Box & Crafting Co. among others.
Dell Inc. uses its human resources, and its infrastructure to position its products in the market. The marketing department of the organization and the production department liaise in order to build products that meet the direct needs of the consumers. Through the distribution channels, the company gathers information about the products demanded in the market. Further, company links its activities directly with consumers.
Dell Inc. works towards meeting its business goal, which is to offer computers to consumers at irresistible prices, and to cast the burden of risks associated with innovation to other companies. The company minimizes the production cost by limiting the number of intermediaries that would reduce the amount of profit the company would make. Largely, as the number of intermediaries increase, the cost of the product would also increase. The result of this development is the high cost of product that reduces the ability of consumers to buy. Arguably, the business model of Dell tends to embrace pricing strategy in attracting and retaining a large market share. Owing to the economic trends in the target market, competitive pricing is critical in influencing the number of consumers that would buy products (Osterwalder and Pigneur, 2013).
The model limits the trouble associated with inventories. Since the concept of on-order-production enables the company to manufacture when it has orders from its consumers, it does not incur the cost on maintaining the inventories. Additionally, model enables the company limit the challenges associated with preference and taste. In normal production, a company would produce products irrespective of the amount the target market is demanding. The assumption that influences such a model is that the intermediaries would market the products produced by the company. Sometimes product innovation such as rebranding or product position affects the over production. Fortunately, Dell has been able to avoid the risk of manufacturing products that consumers have not ordered.
The Challenge of Dell Inc.’s Model
The major challenge that Dell Inc. is facing is moving into the market where it does not know its trends. While, in one, market, the company business model may be successful, in another the model may not work. The specialty of Dell limits its ability to survive in a market that requires innovation as diversification. Dell’s model of providing good hardware at unbeatable prices limits the ability of the company to survive in markets, where consumers have changed demands or are prone to environment adjustments. To survive in this volatile environment, Dell Inc. has to change its model to accommodate the new trends experienced in the market.
Proposed Business Model for Dell Inc
Dell Inc. should embrace product innovation in order to respond the challenges associated with initial business model. To realize this business model, the company has to own proprietary technology, which its competitors such as IBM, HP, and Lenovo own. Through the efforts of developing its proprietary technology, the company would not wait for consumers to order for a product; instead, it will allow the company to diversify its ability to manufacture products to the target consumers. Largely, by extending the ability of the company to manufacture varied products it would attract, a large consumer base, as opposed to the present limited number of consumers. The new model will also elicit the exodus from the de facto company standards into a flexible standard, which allows the business to set new plans for the business. The company would utilize this opportunity to manufacture more products that it does present.
The model does not change the relationship between the company and the consumers, but it exposes the company into diversifying its ability to manufacture more products. When the company diversifies its product design, it does not only utilize the opportunity to create more products, but it opens its ability of the company to expand its market share. The company will be able to attract new consumers into its web by diversifying its products (Osterwalder and Pigneur, 2013). This approach would cushion the company from the risk associated with developing products on the order. Arguably, companies that have specialized in manufacturing a given product often suffers when the products in the line of specialization suffers in the market. On the other hand, companies that have diversified their designing and products often have a cushion in times of economic constraints or risks.
In conclusion, Dell Inc. business model entails direct sales and build to order. In this model, the company concentrates in manufacturing products ordered for by the consumers. Additionally, Dell Inc. takes the trouble of marketing and selling the product. However, this model limits the ability of the company to compete in a challenging market. Thus, the proposed business model for this company would enable the company to embrace innovation an aspect that would enable it to develop more products than the present number that it can develop. Diversification of the company products is strategic because it cushions the company from the trouble of depending on a single source of income, especially when a given product is not performing in the target market.
Pigneur, Y. & Osterwalder, A. (2009). Business Model Generation. Self Published.
Shetty, R. (2010). Dell Business Model. Retrieved on 18 Feb, 2014 from http://www.slideshare.net/rakshaShetty70/dell-business-model
Jones, K. (2003). The Dell Way Michael Dell's famous business model made his company the world's premier computer maker. Now he's branching into new fields and taking on virtually every other hardware manufacturer. Can "the Model" stand the strain? Retrieved on 18 Feb, 2014 from http://money.cnn.com/magazines/business2/business2_archive/2003/02/01/335960/
Osterwalder, A., and Pigneur, Y. (2013). Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers. New Jersey: John Wiley & Sons