Restructuring / Turnaround Strategies Case Study

Dell Inc.: Time to Discard its Direct Selling Model?

Abstract:

Dell Inc., the world’s largest computer manufacturer achieved revenue of $55.9 billion (by January 2006) and it set the target of $80 billion revenue world-wide by 2010.Michael Dell’s innovative low-cost, direct-sales strategy had been successful in allowing his company to sell computers at lesser cost than its rivals. Dell held a leading 18.2% (in FY 2005-06) share of the world PC (personal computer) market and grew much faster than competitors.

However, according to the industry sources, it was the fourth time (Q4 of FY2005-06) Dell said the company could not achieve quarterly earnings or sales forecast since the beginning of financial year 2005.Its stock price decreased by nearly 10% to $19.91, the lowest in five years (FY 2001 - FY2006) which pushed down the stock prices of other computer companies bringing down NASDAQ to a 14-month low. In many fast-developing markets, including India and China, Dell’s market share had increased marginally over the past years (Up to 2005). In desktop and notebook PCs segment, which contributed 80% of sales world over, PC sales for Dell had slowed down.

Repeated missing of targets, declining sales and decreasing share prices led industry analysts to raise questions about the business model followed by Dell Inc. Was the direct-sales model struggling for survival? Stock exchange of U.S.A

Pedagogical Objectives:

• To understand how Dell had achieved growth through its unique business model
• To understand the supply chain process in Dell
• To understand the challenges to the direct-selling model
• To analyse the future of the model.

Keywords : Dell; Direct sales model; Restructuring / Turnaround Strategies Case Study; business model; Michael Dell; Supply chain; Challenges; Customer Centric