Business Model Innovation at Dell


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Case Details:

Case Code : BSTA058
Case Length : 15 Pages
Period : 2004
Organization : Dell
Pub Date : 2004
Teaching Note :Not Available
Countries : Global
Industry : Computer

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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The magic formula in figuring out what stage of the evolution given technology is at and when it is right for Dell to use its business model and customer relationships to make a product that's much higher volume and much lower cost1

Michael Dell

Introduction

Dell (formerly Dell Computer) had emerged as one of the leading players in the PC industry through its direct selling model. Dell's build-to-order format got a big boost with the arrival of the Internet. The company maintained momentum in a rapidly commoditising industry, where most other players were struggling. In 2001, Dell made a profit of $1.8 billion on revenues of $31 billion2, even as rivals like Gateway, HP-Compaq and IBM struggled. During the period 1997-2002, Dell's global market share of PCs went up from 5% to 15%. In the US, Dell had a market share of 27%3.

Dell's growth had been phenomenal. Founded in 1984, sales crossed $1 billion in 1992, $10 billion in 1997 and $25 billion in 2000.

Dell was the clear cost leader in the industry. The company had concentrated on activities where it could add most value and on market segments where profits were highest. Dell had taken care to ensure that customer service was not diluted in the process of cutting costs. Indeed in many product categories, Dell set the standard for customer service. For example, the industry average downtime for a PC was 16 hours, but only 8 hours for a Dell PC. For servers, the industry average downtime was 5 hours compared to 1 hour for a Dell server. A March 2001 Fortune and Trilogy survey of senior officers of Fortune 1000 companies ranked Dell first in managing customer relations.

In addition to the www.dell.com site, which offered various services to customers, Dell offered customer-specific sites called Premier Pages. These sites provided facilities such as paperless purchase orders, real-time order tracking and purchase history...

Excerpts >>



1] Chief Executive, 30th November 2003.

2] Fortune, 28th October 2002.

3] Fortune, 28th October 2002.

 

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