Dell
...-commerce since there are numerous people who question the safety of it, yet they have take measures to ensure their customer’s security. Strategic alliances are also a major threat, but referring to the merger between Hewlett Packard and Compaq, Michael Dell said, “I think there are better ways to build a company than smashing two companies together.” Competitive Profile Matrix Dell IBM HP Apple Gateway Key Success Factors Weight Rating Score Rating Score Rating Score Rating Score Rating Score Brand Recognition 0.15 3 0.45 4 0.6 4 0.6 3 0.45 2 0.3 Quality 0.14 4 0.56 4 0.56 3 0.42 4 0.56 3 0.42 Customer Loyalty 0.09 4 0.36 3 0.27 3 0.27 4 0.36 3 0.27 Market Share 0.11 3 0.33 4 0.44 4 0.44 2 0.22 2 0.22 Financial Strength 0.09 4 0.36 3 0.27 3 0.27 2 0.18 3 0.27 Advertising 0.11 4 0.44 4 0.44 4 0.44 3 0.33 3 0.33 Price Competitiveness 0.12 4 0.48 3 0.36 3 0.36 2 0.24 4 0.48 Global Expansion 0.11 3 0.33 4 0.44 4 0.44 4 0.44 2 0.22 Management 0.08 4 0.32 3 0.24 3 0.24 2 0.16 3 0.24 TOTAL 1 3.63 3.62 3.48 2.94 2.75 Ranking: Dell 3.63 IBM 3.62 HP 3.48 Apple 2.94 Gateway 2.75 It can be concluded that Dell is the leading company among these other four companies offering similar products and services. Dell’s score of 3.63, out of a maximum of four, shows that the company has a slight competitive advantage in comparison to its competitors since IBM is right behind with a score of 3.62. Next in line is HP with 3.48 points, followed by Apple with 2.94 point. Finally, is Gateway scoring 2.75 points. Dell is a successfully company, but as it can be noted from the CPM, they need to increase their position on a global scale as well as their brand recognition. 5+1 Forces Models Dell Computer Corporation’s products and services can be categorized into the following groups: desktop computers, notebook computers, enterprise systems, refurbished systems, third party peripherals and software, consulting, installation, Internet access and systems integration. Desktop Computers Low Medium High Comments: Rivalry * Negative Barriers * Average BP of Suppliers * Negative BP of Customers * Negative Substitutes * Positive Supplementary * Positive Notebook Computers Low Medium High Comments: Rivalry * Negative Barriers * A.Average BP of Suppliers * Negative BP of Customers * Negative Substitutes * A.Average Supplementary * Positive Rivalry is high because there is a lot of competition among a number of market leaders, while there is lack of differentiation and low switching costs for customers. Barriers to entry are also high due to a large part of the market is controlled by the market leaders of the industry, in addition to high start up costs. The bargaining power of suppliers because suppliers are few and there is a heavy reliance on them. The bargaining power of customers is also high because of the availability of many high quality computer companies, all products are perceived as similar and well as the ease of switching. The threat of substitutes is low because they are virtually non-existent. Furthermore, there is a high availability of supplementary products available. Enterprise Systems Low Medium High Comments: Rivalry * Negative Barriers * A.Average BP of Suppliers * Negative BP of Customers * Average Substitutes * Negative Supplementary * Need more Refurbished Systems Low Medium High Comments: Rivalry * Negative Barriers * Positive BP of Suppliers * Negative BP of Customers * Average Substitutes * Negative Supplementary * Need more Third-party Peripherals and Software Low Medium High Comments: Rivalry * Negative Barriers * Positive BP of Suppliers * Negative BP of Customers * B.Average Substitutes * B.Average Supplementary * Need more Granted that for enterprise systems, refurbished systems and third-party peripherals and software there are different target customers, but in the model, there are many similarities despite obvious discrepancies. Rivalry is high because of competition, market leaders, similarity in products and the low cost of switching. Barriers are high because high capital is necessary and advanced technology. The bargaining power of suppliers is high because they are limited, in addition they are very vulnerable to cost variables. The bargaining power of customers is average because of the standardization of the market. Substitutes are plenty because of the many possibility but also because of the transparency of price and how indistinguishable products are. There aren’t many supplementary products available, yet it is difficult to create supplementary products. Consulting Low Medium High Comments: Rivalry * Negative Barriers * Average BP of Suppliers * Average BP of Customers * Average Substitutes * Positive Supplementary * Need more Installation Low Medium High Comments: Rivalry * Negative Barriers * Average BP of Suppliers * Average BP of Customers * Average Substitutes * Positive Supplementary * Need more Internet Access Low Medium High Comments: Rivalry * Negative Barriers * A.Average BP of Suppliers * Negative BP of Customers * Negative Substitutes * Positive Supplementary * Average Systems Integration Low Medium High Comments: Rivalry * Negative Barriers * A.Average BP of Suppliers * Average BP of Customers * Average Substitutes * Average Supplementary * Need more The picture that we get from these models is that although rivalry is high, there are many positive aspects to the market. Barriers are quite high, while both suppliers and customers have an average bargain power. In most case there are few, or some, substitutes available. Overall the industry is quite attractive, in the services sector, while in the products sector it is not very attractive. Internal Environment Analysis Internal Factor Evaluation KEY INTERNAL FACTORS Weight Rating Weighted Score Internal Strengths 1. Brand recognition 0.08 4 0.32 2. Large market share 0.05 4 0.2 3. #1 Seller of personal computer 0.06 4 0.24 4. JIT (Just In Time) production 0.09 4 0.36 5. Close relationship with suppliers 0.05 3 0.15 6. Economies of scale 0.08 3 0.24 7. Selling directly to consumers 0.06 4 0.24 8. Industry leading growth 0.07 4 0.28 9. Internet sales leadership 0.08 4 0.32 10. Michael Dell 0.06 4 0.24 Internal Weaknesses 1. Integrating separate parts from different vendors 0.05 2 0.1 2. Limited availability 0.04 2 0.08 3. Global market doesn't prefer direct model 0.07 1 0.07 4. Limited R&D 0.05 2 0.1 5. Cost of goods sold very high 0.03 2 0.06 6. Job reduction 0.04 2 0.08 7. Close relationship with suppliers 0.04 2 0.08 TOTAL 1 3.16 Dell Computer Corporation has a total weighted score of 3.16 indicating that it is in good position. Generally companies with scores above 2.5 are considered to be in a good position. There are a number of strengths that Dell Computer Corporation has. It is not only have brand recognition and a large market share, but they are the number one sellers in personal computers. Dell’s product shipments rose 15% last year versus a 5% decrease in the industry. In addition, the company has successfully launched “Just in Time” production, keeping inventory on record low, about 6 days worth of product. This success is owed to the close relationship with their suppliers, which have also allowed the to realize economies of scale, operating expenses were a record low, less than half that of its nearest competitor. Dell has a direct model allowing it to have direct customer relationships where customers decide what sort of computer they want because of Dell’s effective “made-to-order” system which provides high velocity and low cost distribution. In 1999, Dell’s web site surpassed $18 million per day, accounting for 30% of overall revenue. In addition, Michael Dell is an important strength to the company because it was his vision that has lead the company to the position it is. His enthusiasm and vision have guided Dell to become one of the main computer manufacturers in the world. He was the first to realize and act on the customized built, direct marketing of computers in the 1980’s. Yet among its weaknesses is integrating separate parts from different vendors, giving suppliers a very high power. In addition, one of Dell’s weaknesses is limited availability, from the Internet and phone. Furthermore, direct selling is not the preferred approach to selling PCs in Europe. Europe has a very large market, and Dell need to be able to sell to the customers in a manner that they would approve of. A minor weakness of the company is the limited research and development conduced as well as very high cost of goods sold. In addition, global economic weakness resulted in the reduction of job. Dell cut its workforce for the first time ever. Financial Ratios FINANCIAL RATIOS Ind. Avg. 2002 2001 2000 1999 1998 2002 LIQUIDITY Current Ratio 1.00 1.05 1.43 1.48 1.57 1.32 Quick Ratio 0.96 1.01 1.38 1.40 1.50 1.13 LEVERAGE Debt-to-Total Assets Ratio 0.03 0.04 0.04 0.04 0.07 Debt-to-Equity Ratio 0.10 0.11 0.09 0.10 0.22 0.62 Long-Term Debt-to-Equity Ratio 0.10 0.11 0.09 0.10 0.22 0.49 ACTIVITY Inventory Turnover 115.70 112.12 79.72 64.62 66.82 34.86 Total Assets Turnover 2.29 2.30 2.33 2.20 2.65 1.39 PROFITABILITY Growth Profit Margin 17.93% 17.67% 20.21% 20.65% 22.51% 30.27% Operating Profit Margin 8.03% 5.74% 8.35% 8.96% 11.22% 4.54% Net Profit Margin 5.99% 4.00% 6.83% 6.59% 8.00% 3.41% Return on Total Assets 13.72% 9.21% 15.93% 14.52% 21.23% 5.49% Return on Equity 43.55% 26.54% 38.27% 31.39% 62.90% 20.42% GROWTH Sales 13.59% -2.26% 26.21% 38.49% 6.44% Net Income 70.30% -42.77% 30.67% 14.11% By comparing the financial ratios of Dell Computer Corporation to those of the industry average, it can be established that the company’s ratios are quite different that those in the industry, sometimes with big differences. The company’s liquidity is somewhat similar to that of the industry’s however Dell has a lot more leverage in comparison to industry, although the ratios do indicate that there is plenty of leverage in the industry, Dell has even more leverage, with a debt-to-equity ratio equal to 0.10, while the industry average is 0.62. In terms of activity, the company’s inventory turnover is about 3 times more than the industry average that is due to Dell’s just in time production system, while total assets turnover is slightly higher with regard to that of the industry average. The company’s profitability ratios are all quite higher, almost double, with reference to the industry average, with the exception of gross profit margin, 17.93%, which is significantly less than the industry average, 30.27%. As for growth, Dell had a major comeback because in 2001 it experienced negative growth in sales as well as negative growth in net profits, yet this year; sales grew by 13.59% and net income by a massive 70.30%. Valuation METHODS VALUE (in millions $) I. Outstanding Share $ 735.47 # of outstanding shares 30,824,533 Price of share 23.86 II. Net worth Company $ 6969 Common Stock 5605 Additional Paid in Capital 0 Retained Earnings 1364 Goodwill 0 III. 5 Times Average Net Income $ 9001.25 2002 2001 2000 1999 Net Income 2112 1246 2177 1666 Average Net Income (4 years) 1800.25 IV. 1.5 Times Average Revenues $ 46396.875 2002 2001 2000 1999 Revenues 35404 31168 31888 25265 Average Revenues (4 years) 30931.25 Average Market Value for Dell $ 15,775.65 Altman’s Z-Score Z = 1.2x1 + 1.4x2 + 3.3x3 + 0.6x4 + 1.0x5 X1 Working Capital/ Total Assets X2 Retained Earnings/ Total Assets X3 EBIT/ Total Assets X4 Market Value of Equity / Book Value of Total Debt X5 Sales/ Total Assets Working Capital = Current Assets – Current Liabilities 2002 2001 2000 1999 Current Assets 8924 7877 9726 7681 Current Liabilities 8933 7519 6778 5192 Working Capital -9 358 2948 2489 (in millions$) 2003 2002 1999 1998 Working Capital -9 358 2948 2489 Total Assets 15470 13535 13670 11471 Retained Earnings 3486 1364 839 1260 EBIT 2844 1789 2663 2263 Market Value of Equity 735.47 760.5394 1154.341 1354.298 Total Debt 506 520 509 508 Sales 35404 31168 31888 25265 X1 -0.000582 0.02645 0.215655 0.216982 X2 0.2253394 0.100776 0.061375 0.109842 X3 0.1838397 0.132176 0.194806 0.19728 X4 1.4535047 1.462576 2.26786 2.66594 X5 2.2885585 2.302771 2.332699 2.202511 1.2 1.4 3.3 0.6 1 Total Z2002 = -0.000698 0.315475 0.606671 0.872103 2.288559 4.082109 Z2001 = 0.0317399 0.141086 0.43618 0.877545 2.302771 3.789322 Z2000 = 0.2587857 0.085925 0.64286 1.360716 2.332699 4.680986 Z1999 = 0.2603783 0.153779 0.651024 1.599564 2.202511 4.867257 Score: 2.99 < 4.08 This score indicates that the company is financially strong meaning that there is a low probability that the company will most likely not go bankrupt within the next 3-5 years. Operation Audit Dell Computer Corporation is performing extremely well indicating that the operation of the company is excellent. Dell has a very effective and efficient operation. Despite the few assembling facilities, inventory costs are kept very low, more specifically inventory costs are the lowest in relation to the rest of the companies in the industry. In addition, Dell is very quick to adapt the newest technology to their facilities, keeping up with their excellent reputation. Concerning Dell’s human resource department, it too seems to be efficient. For the first time in about 20 years in the industry, Dell had to reduce its workforce due to global economic weakness. The fact that the company didn’t reduce its workforce before shows how Dell is people-oriented within the company as well. Research and development is limited at Dell. The company could gain an even greater competitive advantage if they had a strong R&D department or if they affiliated with such a company. Furthermore, Dell needs to looks differently at its marketing strategy and try to reach more people as well as emphasize their direct model approach. The company’s online site is performing very well. Aside from being an Internet sales leader, Dell was one of the first companies to reach dot.com stardom, completing 90% of its purchases entirely online. Most companies would like to have the majority of its business done online because this way a company doesn’t have to pay for the sales personnel, or the normal labor that is involved in regular brick and mortar companies. This allows Dell to be even more price competitive, decreasing price even more. Top Management Audit Dell has been one of the very few computer companies that have been able to put the direct model into effect so successfully. Even though Dell has grown considerably since it sold its first computer, the style of business has not changed. Dell began with the notion to be close to the customer, and even today that is what top management strives to do. Michael Dell is the youngest CEO to be ranked in the Fortune 500 roster. He is also the computer industry’s longest-tenured chief executive officer. Somehow, Dell’s top management team has been able to take full advantage of the Internet. The Internet is considered to decrease customer relationship, the very core and ideology of Dell business. Yet Dell has managed to use the Internet to enhance its relationship with their customers. In addition, Dell does not have as strong position in Europe as it does in the United States. Recently, Lycos Europe signed on agreement with Dell to supply servers and storage systems to support its Internet presence in Germany, Denmark & Sweden. Top management can utilize this opportunity to penetrate further into the European market, as well increase brand recognition. The profits that Dell brings in prove the success of top management’s select...