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Data : 16-12-2003 Autore : Andrea Mencarini
Tipo : TutorialSettore : marketing
Titolo : E-Business: Dell Case Study

Il presente caso aziendale è stato presentato dall'autore circa un anno fa alla Strathclyde Business School (UK) durante il corso di E-Commerce & International Marketing.

"Critically evaluate the e-business strategy of a company of your own choice and make strategic recommendations for improvement –
Dell Case Study"

Mr. Andrea Mencarini

Prof. Jim Hamill

Dell’s e-business strategy is a cloning of its direct model applied offline.
Its strategic milestones are:
1 – A Porter’s generic cost-led strategy;
2 – A virtual supply chain where all key processes are integrated and delivered electronically across all partners network;
3 – A customer-led production process leading to lower SKUs and JIT production.

The success achieved by its e-business strategy does not represent a sustainable competitive advantage (SCA) because:
a) Key competitors (HP and IBM) are moving online benchmarking Dell’s direct model;
b) Dell lacks both product and service differentiation; it lacks product differentiation because of its standardization strategy and it lacks service differentiation because the actual differentiation is based on non-proprietary e-business software.

Key e-business strategic recommendations concern:
I – Reshape its value-chain internalising key R&D activities that may lead to technological breakthrough within PC industry;
II – Internally develop e-business software to keep it proprietary and enjoy a SCA;
III – Shifting from a generic cost strategy to a differentiation strategy.




1.1 - E-business strategy: a model for evaluation
1.1.1 - Strategic Analysis - Demand Analysis - Competitor Analysis: Porter's Five Forces Model - Internal Audit: Value Chain Analysis
1.1.2 - Strategic Objectives
1.1.3 - Strategy Definition
1.1.4 - E-business Functional Strategies - E-procurement - E-supply-chain - E-logistics - E-marketing - E-crm - E-commerce


PART III - CONCLUSIONS……………………………………………………………...………22


The following report deals with Dell Corporation e-business strategy.

The aim is, first to evaluate current e-business strategy, making an overall analysis concerning both the generic e-business model and the functional e-strategies (e-CRM, e.SCM, e-Marketing, e-Logistics and e-Commerce), then make strategic recommendations for the future.

The report is structured as follows:
- Part I, concerns with Dell’s e-business model evaluation;
- Part II, deals with key strategic recommendations;
- Part III, sums up both key findings and insights.


1.1 - E-business strategy: a model for evaluation

To evaluate Dell’s e-business strategy, it is been used the following strategy process model (adapted from Chaffey, 2002 pp.168).

Two points of the above process have to be underlined:
1. An E-business strategy evaluation begins with a clear audit and strategic objectives;
2. Following S. Hart and S. Tagg’s approach (University of Strathclyde, E-business course), E-business strategy as a whole is made by the overall e-business model as well as its functional strategies concerning e-procurement, e-marketing and the other value chain activities.

1.1.1 - Strategic Analysis - Demand Analysis

Demand analysis in computer industry has spotted the following key trends:
a) Global demand drop especially after 11th September;
b) “Fast Customers”: both business customers and consumers ask for faster and faster purchase processes;
c) Increasing preference for standard products (source: Dell 2002 Annual Report);
d) Increasing customers “e-readiness” : more and more consumers buy on the internet as well as business clients;
e) Increasing PC expertise: all customer segments are getting more expert about PC features and components thus asking for customized products;
f) Increasing trust on online transactions and data exchange: customers feel more secure to both make online payments and exchange personal information.
g) Increasing liberalization of government organizations purchases: especially in the EU equipment purchasing has been opened to a truly free market; no formal advantage given to local competitors.
h) Still huge differences in e-readiness on a global scale: still many countries show a demand towards traditional (off-line) channels. - Competitor Analysis: Porter's Five Forces Model
Internet and e-business models have sharply changed the PC industry dynamics and structure as follows.

Source: adapted from Porter (HBR, March 2001 pp.67). - Internal Audit: Value Chain Analysis
This analysis briefly outlines key strengths and weaknesses concerning Dell’s “virtual value chain” (VVC)
Resources/Activities Key Specific Strengths
Operations JIT and customer-led production
Firm infrastructure Virtual Networked company
Key Strengths Logistics Merge-in-transit system
Intangible High brand awareness
IntangibleMarketing and After Sales Service Strong relationships with key accountsService customisation and innovative database mktg;No key account represent more than 2% Dell’s sales

Resources/Activities Key Specific Weaknesses
R&D No relevant proprietary technology
Key Weaknesses Mktg No product differentiation

Summing up, Dell is really good at operational level decreasing its cost structure at any level.
The downside is that, nevertheless customized services, it has no differentiation because of:
- Its e-business cost strategy;
- Its lack of product innovation (outsourcing R&D in key components).

1.1.2 - Strategic Objectives
Vision: Dell believes that its direct model based on an e-business platform is applicable everywhere and for any customer.
Mission: “We make computing easy. We do business directly with customers, one at a time, and we do it better that anyone in the world”.
Objective: “Being the premier provider worldwide of computing products and services” using our e-business direct model.

1.1.3 – E-Business Strategy Definition
Business Model.
Dell’s direct model is based on a breakthrough thinking for computer industry, that is creating a customer-led process where computers are built after the order has been processed through the internet. Key advantages of this e-business model are:
a) Products are customized;
b) Inventory levels are very lower;
c) No components technological obsolescence.

All the above advantages come from substituting physical products with information travelling on an e-business platform.

Computer Industry Business Model before Dell (Build-to-stock model)

Dell E-Business Model (Build-to-order model)

System notation:

Fig. 1 – Dell’s Business Model vs. computer industry ones (adapted from Wild, 1995).

The e-business model is also based on a “first mover strategy”; Dell has been the first to use the internet to sell directly to customers.
Moreover, Dell has shift from a “product-only based strategy” to a “solution provider strategy” where it sells both hardware and IT consulting services. However, Dell’s e-business competitive strategy seems too much based on cost leadership.

Market and Product Development Strategies.
Dell has been playing a “total game” applying all four Ansoff’s generic strategies.

Source: adapted from D. Chaffey (2002, pp.194)

Dell as Virtual Networked Company: the “Strategic Symphony”.
A key feature of Dell’s e-business strategy is its extreme outsourcing that make fundamental the tight organization among Dell and all its partners both upstream (i.e. processor manufacturer) and downstream (i.e. after-sale service providers) and the flow of information which is granted by Dell e-business platform.

Dell turns out to be a perfect “orchestrator”, whose role is within its e-network is to:
a) Assure effective product design and delivery based upon customers requirements;
b) Integrate and align partners’ value chains around customers needs.
1.1.4 - E-business Functional Strategies - E-procurement
Dell has signed an agreement with PartMiner ( which is a vertical portal in electronic components industry, providing info and making meet the demand and supply of these components. Dell leaves to PartMiner even the management of SKUs surpluses. This agreement has been signed for managing excess of demands or Dell’s suppliers delivery delays. - E-supply-chain
Dell cost strategy asks for an efficient management of its global supply chain. We said global because Dell needs to exploit location economies and spot best technologies on a global basis.
The above objectives have to be achieved by minimizing the lead-time to market and having close relationships with key suppliers worldwide. Dell’s strategy has been to transform all the traditional processes in electronic-digital format so that the flow of information is ubiquitous within any Dell’s department or divisions and within any partner’s department. Dell has built a total “Virtual Supply Chain” (VSC).

Fig. 2 From PSC to VSC (source: adapted from McKinsey 1996 No.1, pp.21)
In practical terms, Dell launched in 1997 a software system that for the first time connected supply and demand data systems across all its network partners.
This has allowed Dell to:
- Keep very low stock-keeping units (SKUs);
- Applying a real Just-in-Time production process;
- Delivering higher customer value. - E-logistics
E-logistics has completely changed Dell distribution flow; like the founder says “We substitute information for inventory and ship only when we have real demand from real end customers.” (Magretta, 1998).

The traditional approach was:
1. Picking up components from suppliers’ warehouse;
2. Then collecting them in central or regional Dell’s distribution centres;
3. Finally merge the components in stock to deliver the final product to customers.

Thanks to its e-logistics platform Dell now is able to:
1. Picking up components from suppliers’ warehouses;
2. Leave the merge of components made during the transit by logistic-service providers (either USP or Airborne Express).

The results are:
- No stock-keeping units (SKUs);
- No product technological obsolescence;
- Less fixed costs spent in distribution/warehouse centres. - E-marketing
Premier Pages.
They are personalized intranets for key accounts (more than 200), where they can choose the product features they want among thousands of solutions.
Permission-based E-mails.
To avoid problems with spamming, Dell sends regular e-mails concerning new product launch and prolotions only to those customers by whom it had the permission to do it (ADWEEK Southwest, Nov 11 2002 pp.5).
The most challenging advertising issue is how to target the hybrid customer base where large and small private and government institutions merge with consumers. Off-line they had big problems when they launched “Steve” campaign which was targeting consumers but alienating business customers (Advertsing Age, 11 November 2002 pp.24).
Dell uses lots of banners (the latest has the slogan “Easy as Dell”) in a very traditional manner however their target is consumer segment.

E-Database Marketing and E-segmentation.
Dell currently uses a database software called “Interactive + Marketing” (by Tocquigny Advertising) that allows a much better profiling though direct marketing activities carried out on the internet. This “best practice” has allowed a much better segmenting than off-line approaches. - E-crm
Premier Pages.
Key accounts can access these intranet customized pages and ask their product technical features without making the usual phone call; it is fast, easy and cheap.

“Resolution Assistant”.
It is the new e-tool allowing Dell to move phone calls on the internet, thus the key touch point will be on the internet. It is cheaper for the consumer and for Dell whether it is used a tool free number.
According to Bill Peterson, Dell Service Strategy and Marketing Director, the company saves $1 million per day and at the same time increases customer satisfaction (

Dell Online Community (
One of the most powerful tools to use internet to increase customer relationship is online community.
Dell has set up a community where customers can (McWilliam, 2000):
- Exchange common interests (boards are organized by Dell in topics);
- Encourage participation;
- Instill a sense of affiliantion (“Dell’s tribe”).

But what is really fundamental is the positive and incremental effects brought by the community to Dell explained by J. Hagel III and A.G. Armstrong in the below figure.

Source: adapted from Hagel and Armstrong (1998, Net Gain – Italian edition, pp.48) - E-commerce
Dell e-commerce business model is:
1. An “E-shop” according to Timmers (1999) classification, that is a company own website;
2. Based on a cost leadership strategy mixed with a differentiation strategy based on customer services.

Dell uses e-commerce to:
a) Entering new geographic markets; wherever the customer is products will be delivered from closest suppliers, distribution centres and plants;
b) Provide e-commerce services like tracking orders, online ordering and payment, etc.

Business Model: Why actual Dell’s e-business model is not a SCA.
Dell’s e-business model does not represent a sustainable competitive advantage.
So far, Dell has won the e-business battle for one main reason:
– Dell was “playing alone because competitors are, at the moment, trapped with their traditional off-line channels and they can’t move because they would loose all their actual sales; they are trapped in what Lester Thurow defines “Hobbesian choice” (Sloan Management Review, 2001, Vol.42, No.2 pp.112).

But, as customers are moving on the internet, the competitors will be forced to abandon traditional channels and move online.
When key competitors will play the same e-game (HP and IBM have just start doing it according to McKinsey), it will happen that Dell’s e-business operational advantages will disappear and the winners will be those able to differentiate themselves.
Dell needs to improve its product differentiation by:
- Controlling R&D patents in key industry technologies, thus abandoning its extreme outsourcing and standardization strategy;
- Introducing innovative services (so far it has launched standard services based on software packages of which it does not have any patent).
The strategic positioning of Dell’s actual and suggested e-business models are well summed up by the following McKinsey’s matrix.

The strategic meaning of McKinsey’s matrix is that Dell actual e-business model will grant neither cost advantages nor product differentiation, thus Dell would affiliate with other players in e-malls and competing using the synergy coming from the huge range of products of several malls partners.
A company web site would be unsustainable.

Rethinking Its Virtual Network.
So far Dell e-business strategy has been based on outsourcing almost all the value chain activities basing on a short-term (tactical) cost view.
It is time to reconsider the “make or buy” decision upon a strategic thinking spotting those activities and components that are going to introduce future technological breakthroughs in PC industry.
From Hardware to Software.
Its time that Dell starts developing proprietary software concerning supply chain and integrated solutions (E-crm, e-commerce, etc.) in the same way some appliance makers are producing “turn-key” production plants. In e-business the “plant” is your e-platform; if you do not keep it proprietary both cost and differentiation advantages are not sustainable in the long term.

Functional Strategies.
Some very brief suggestions concerning functional strategies.

Online “Platinum Councils”.
Dell regularly organizes regional face-to-face meetings between key accounts’ IT executives and its executives and engineers to spot problems, clarify uses of Dell’s products. A good strategy would be adding a board on their intranets by which sharing ideas and problems day by day when they occur.
From “Internet CRM” to “Ubiquitous Marketing” .
Dell should exploit a wider array of “touch points” like:
- UMTS phones;
- Interactive TV;
- Internet-enabled POS terminals;
- E-wallets.
Any media needs a customized approach that so far has not been developed.

Co-marketing with Microsoft.
Negotiate an agreement with Gates to have a Dell logo or a window in Windows desktops displaying latest Dell’s e-ads any time customers connect on the internet.

Enhancing customer purchase experience.
There are several strategies to do that:
a) Providing link to complementary products (i.e. Microsoft software);
b) Proving customer with a system of product selection based not on product features (i.e. processors, screens, etc.) but based on customer’s needs (i.e. I am a consultant and I use my PC to deliver presentations and writing reports).

Dell’s e-business strategy is the transposition of its direct model on an internet platform. The strategic pillars are the same:
1. Customer-led production process;
2. Cost strategy;
3. Vitual supply chain across its entire partners network;
4. Product (and components) standardization.

Dell’s success enjoyed so far has been based on both external and internal factors:
a) Competitors’ trapped with their traditional off-line channel partners because most of the revenues come from there;
b) Dell’s unique direct model.

Our strategic recommendations are based on the assumption that Dell’s actual competitive advantage is no longer sustainable.
The key e-business strategy is based on:
I - Rethinking its virtual network, internalising key R&D activities that may lead to industry technological breakthroughs;
II – Internally develop e-business software to keep proprietary delivering superior efficiency and services across the whole virtual value-chain and make it a real SCA ;
III – Shifting from a cost to a pure differentiation strategy highly based on patented services.

- Chaffey, D. (2002), E-Business and E-Commerce Management, Pearson Education Limited, Harlow (UK).
- Friedman, L.G., Furey, T.R. (2001), “The Channel Advantage”, Butterworth-Heinemann, (UK).
- Hagel, John III, Armstrong, A.G. (1998), Net Gain – Expanding Markets Through Virtual Communities, Harvard Business School Press, Boston (US).
- Janal, D.S. (2000), Marketing on the Internet, Wiley, New York (US).
- Johnson, G., Scholes, K. (1993), Exploring Corporate Strategy – Text and Cases, Prentice Hall, Hertfondshire (UK).
- Mandelli, A. (1998), Internet Marketing, McGraw-Hill, Milan (Italy).
- Timmers, P. (1999), Electronic Commerce Strategies and Models for Business-to-Business Trading, Wiley, Chichester (UK).
- Wild, R., (1995), “Essentials of Production and Operations Management – Text and Cases”, Cassell, (UK).

Articles & Consulting Reports
- Barua, A., Konana, P., Whinston, A.B., Yin, F. (2001), “Driving E-Business Excellence”, Sloan Management Review, Vol.43, No.1 pp.36-44.
- Berryman, K., Harrington, L.F., Layton-Rodin, D., Rerolle, V. (1998), “Electronic Commerce: Three Emerging Strategies”, The McKinsey Quarterly, No.1 pp.129-136.
- Chesbrough, H.W., Teece, D.J. (2002), “Organizing for Innovation: When Is Virtual Virtuous?”, Harvard Business Review, August 2002 Vol.80 No.8, pp.127-134.
- Child, P., Dennis, J.D., Gokey, T.C., McGuire, T.I., Sherman, M., Singer, M. (1995), “Can Marketing Regain the Personal Touch”, The McKinsey Quarterly, No.3, pp. 112-125.
- Colella, I.G., “Customer Relationship Management: Vicino al One-to-One”, Mark-Up – Economia, Produzione & Politiche della Distribuzione, No.90 pp. 30-39 March 2002.
- Feeny, D. (2001), “Making Business Sense of the E-Opportunity”, Sloan Management Review, Vol.42, No.2 pp.41-51.
- Gilchrist, T., Kleinhans, B.A., (2001), “Successful Management of Customer Relationships: Accenture and Ford”, Accenture.
- Hayes, M.F. (2001), “The Message Must Go Through: The Future of Customer Care”, Accenture.
- Jaya-Ratman, D., McNamara, P.G., Uusitalo, T., (2001), “The Dynamics of European Broadband”, The McKinsey Quarterly, 2001 No.3 pp.9-11.
- Kenny, D., Marshall, J.F. (2000), “Contextual Marketing – The Real Business of the Internet”, Harvard Business Review, Vol.78, No.6 pp.119-125.
- Kinder, T. (2002), “Emerging E-Commerce Models – An Analysis of Case Studies from West Lothian, Scotland”, European Journal of Innovation Management, Vol.5 No.3 pp.130-151.
- Kotorow, R.P. (2002), “Ubiquitous Organization – Organizational Design for E-Crm”, Business Process Management Journal, Vol.8 No.3 pp.218-232.
- Lancellotti, R., Ruffini, C. (2000), “New Economy: una rivoluzione nei costi d’interazione con pochi, grandi vincitori”, McKinsey, Milan 19 June 2000.
- Lee, H.L., Whang, S. (2001), “Winning the Last Mile of E-Commerce”, Sloan Management Review, Vol.42, No.4 pp.54-62.
- Magretta, J. (1998), “The Power of Virtual Integration: An Interview with Dell Computer’s Michael Dell”, Harvard Business Review, March-April 1998.
- Manget, J. (2002), “Competitive Advantage from Mobile Applications”, Boston Consulting Group.
- McWilliam, G. (2000), “Building Stronger Brands through Online Communities”, Sloan Management Review, Vol.41, No.3 pp.43-54.
- Meyer, L., Consonni, P. (2000), “Ricerche sul Consumatore e Marketing 1 to 1 – Conflitto oppure Sinergia?”, Web Marketing Tools, Maggio 2000.
- Motwani, J., Larson, L. Ahuja, S. (1998), “Managing a Global Supply Chain”, Logistics Information Management, Vol.11, No.6 pp.349-354.
- Porter, M.E. (2001), “Strategy and the Internet”, Harvard Business Review, Vol.79, No.3 pp.63-78.
- Proverbio, S. (2000), “Opportunità e Must-DO per gli Incumbent, McKinsey” – Milan 19 June 2000.
- Raman, K. (2001), “Application of Fuzzy logic and Control to Customer Relationship Management”, Katholieke Universiteit Leuven – Belgium School of Management.
- Rayport, J.F., Sviokla, J.J. (1996), “Exploiting the Virtual Value Chain”, The McKinsey Quarterly, No.1, pp.21-36.
- Rifkin, G., Kurtzman, J. (2002), “Is Your E-Business Plan Radical Enough?“, Sloan Management Review, Vol.43, No.3 pp.91-95.
- Serve, M., Yen, D.C. (2002), B2B Enhanced Supply-Chain Process: Toward Building Virtual Enterprises, Business Process Management Journal, Vol.8 No.3 pp.245-253.
- Solomon, H. (2002), “CRM disappoints enterprise executives”, Computing Canada, March 15, v28 i6 p10.
- Thurow, L.C. (2001), Does the “E” in E-Business Stand for “Exit”?, Sloan Management Review, winter 2001 Vol.42 No.2, pp.112.
- Tjan, A.K. (2001), “Finally, a Way to Put Your Internet Portfolio in Order”, Harvard Business Review, Vol.79, No.2 pp.76-85.
- Williams, R.L., Cothrel, J. (2000), “Four Smart Ways To Run Online Communities”, Sloan Management Review, Vol.41, No.4 pp.81-91.

Company Reports
- Dell 2002 Annual Report

- Helm, C., (2001), CRM Overview, Inc.


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