Dell Technologies
SWOT and Five Forces Analysis
Abstract
The development and deployment of the new product portfolio are determined, in part, by the level of industry competition in the potential marketplace. For technology-based products, with the case of the personal computer (PC), the level of competition is of the dynamic, and thus uncertain. Competition is strong as industry players engage in price wars and a swift moves to the low-end section of the personal computer market. As the market expands, new entrants vie for new market segments, suppliers providing a wide array of products, and new substitute portfolios expand. With intense product differentiation, PC manufacturers have to evaluate their strengths, weaknesses, opportunities and threats through SWOT analysis to promptly counter the threat of new entrants and substitutes, and negotiate on the position of strength with buyers and suppliers. For this analysis, a focus on Dell Technologies seeks to identify the company’s competitive advantage through SWOT and Porter’s five forces analyses and demonstrate, through recommendations, how the Dell can utilize the analysis to forecast competition and enhance its competitive advantage.
Keyword: SWOT analysis, Porter’s five forces, competitive advantage, PC industry
Table of Contents
2.1. Threat of New Entrants: Low.. 5
2.2. Bargaining Power of Buyers: Moderate. 6
2.3. Bargaining Power of Suppliers: Low.. 6
2.4. The threat of Substitutes: Moderate. 7
2.5. Level of Industry Rivalry: High. 7
4.1. Value-Adding Recommendation #1. 15
4.2. Value-Adding Recommendation #2. 16
Dell Technologies
SWOT and Five Forces Analysis
1. Introduction
Dell Technologies is a US-based company that designs and markets personal computers and other information technology structures such as servers. Its product portfolio includes but not limited to desktop and laptop computers and data storage devices. Also, Dell provides consulting services, such as data center optimization, virtualization, and exploration.
The personal computer (PC) industry is highly competitive. For this reason, the company focused its business strategy on direct customer model and lean manufacturing to compete favourably with other business rivals such Apple and H.P. With the passing of time; the corporation has expanded its strategy by incorporating new distribution channels to develop its global reach strategy for commercial and individual consumers of its products around the world. Also, the company has embarked on the targeted acquisition and merger strategy, for example, the acquisition of EMC, is designed to supplement the select business areas with expanded product and technology portfolio. Dell’s goals for the future provide unique customer experience and support through product differentiation to compete favorably in the PC industry and beyond.
2. Porter’s Five Forces
The core business model employed by Dell is the elimination of middlemen and allowed customers to have their say concerning the products they want. The strategy employed by the company complements others that are used to maintain its competitive position as outlined in Porter’s five forces analysis below.
Figure 1: Porter’s five forces for Dell Technologies
2.1. The threat of New Entrants: Low
The personal computer (PC) business is relatively hard to venture, making the threat to the new industry relatively low. The main reason for this because of the huge capital investment and the requirement for highly skilled serve as barriers to the industry. Also, brand image is necessary to make the PC business successful. A combination of these and other factors makes it hard for new entrants into the business.
For the PC in industry, Dell is a well-established player with a good brand reputation. While new players may not afford the level of brand reputation enjoyed by Dell, entering the business would require intensive capital investment and the requirement of the highly-skilled labor force. Additionally, new entrants need to manage an effective supply chain and customer relations. All of these factors require enormous effort and funding. Furthermore, because of the market influence of the established players, prices may be altered to make it nearly impossible to compete on the same level with new players. Thus, because the PC industry has many barriers, the threats of new entrants are significantly low.
2.2. Bargaining Power of Buyers: Moderate
The buyers’ bargaining power is considered moderate since the number of bands with a reputation that can rival Dell in the PC business are few. This is closely linked to customer loyalty as a consumer of the personal computer would buy from more reliable vendors. Most importantly, Dell has one of the best brand equity in the PC industry; thus, the company can attract a bigger market base. However, the rapid technology in the PC industry has been influenced by the innovativeness of other players, which in turn can influence customer taste and preference, and this enhanced bargaining but the customers.
2.3. Bargaining Power of Suppliers: Low
Suppliers in the PC industry can be considered weak because of reasons that include but limited to the number of suppliers in the market outpaces the number of customers in the industry. As such, with this disparity, brands such as Dell can use the advantage to negotiate for lower prices and better services. Thus, it stands a better chance to source for biter service at a lower price, and maintain a competitive edge for the by using high-quality supplies to make affordable products without compromising product quality; a combination of resources and capabilities, which according to Barney (1995), can be used for competitive advantage.
In addition to the strong bargaining power, Dell own policy on supplier quality audit is refined to ensure that the company deals with suppliers with a proven track record on quality assessment where “Dell requires that our production and select services providers undergo regular social and environmental audits and close findings following the timeline laid out by the EICC. All Dell audits follow the EICC Audit Protocol and is conducted by certified third-party audit firms. Suppliers that fail to take appropriate actions to correct social and environmental audit findings may lose their business with Dell.” (Dell-CSR-Supplychain, 2017). With stringent policies, Dell stands a better chance to negotiate on the potion of strength.
2.4. The threat of Substitutes: Moderate
According to Porter (2008), “A substitute performs the same or a similar function as an industry’s product by a different means” (pp.7). In the recent past, the PC industry has been experiencing demand challenges for products such as desktop and laptop computers. As such, companies such as Dell and HP, have witnessed a dive in sales and profit margins because of the entry of substitutes, such as smartphones and tablets (Mazzarol & Reboud, 2020). Also, most of the features and functions of PC have been shifted and integrated into portable devices such as mobile phones. For instance, smartphones can perform tasks such as browsing the internet, multimedia entertainment, and playing video games. Therefore, the features that are available PC can be found in portable devices, hence the threat of substitutes place Dell’s product line at risk unless the company transitions to more portable device products as consumers switch to the use of smartphones.
2.5. Level of Industry Rivalry: High
The level of competition in the PC industry is stiff as other business rivals work to claim more market share through pricing and differentiation strategies. There are established business rivals in the PC business that include but not limited to Apple, HP and Acer. HP and the Chinese tech giant Lenovo lead in total market share in terms of sales volume. Dell and other companies such as Apple and Asus follow suit in that order. Companies in the PC industry have witnessed a drop in sales due to the availability of substitutes, such as tablet computers. Thus, companies have been forced to invest heavily in reach and development to improve the quality and efficiency of their products and lower the prices. Such moves have led to cutting-edge innovations that have improved the quality of personal computers, and affordable products triggered by price wars.
To outdo their competitors, firms in the PC industry have had to invest in high-end product designs to include portability and enhanced productivity. Also, firms have been forced to diversify and break up the company into smaller subsidiaries that focus on different product lines and services. For instance, the parent company HP has been split to yield HP-Enterprise, a separate financial technology company. Thus, Dell Company faces a severe threat from industry players, which are continually innovating and lowering product prices.
3. SWOT Analysis
An analysis of Dell’s business model present threats and opportunities while revealing its strengths and weaknesses. A SWOT analysis determines the core strengths and opportunities that the company can capitalize on while identifying weaknesses and threats that need a response to avoid a negative impact on the company.
| Strengths 1. Effective leadership by its founder Michael Dell 2. Strong brand name and customer loyalty. 3. Direct sales model 4. Diversified product portfolio 5. Strong customer foundation | Weaknesses 1. Lack of patents portfolio 2. Extensive purchasing process 3. Low R&D spending 4. Commodity products 5. Poor brand visibility |
| Opportunities 1. Investment in emerging technologies 2. Product differentiation. 3. Emerge ring emerging markets. 4. Focus on the North American market. 5. More diversity | Threats 1. High industry-level competition 2. Contracting PC market. 3. The rising cost of production 4. Irregular supply of innovative products 5. Shortage of skill workforce
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3.1. Strengths
The company’s first strength comes from is the founder’s leadership style that made the company what it is today. Michael Dell was a renowned businessman whose influence stretched on a global scale to include at the UN Global Advocate for Entrepreneurship, where he is one of the pioneers. Since he started the company in 1984, Dell has been actively involved in running the company, both as the CEO and as the owner. Notably, he was reappointed as the company CEO in 2007 when the business growth worsened, and the overall customer satisfaction hit new lows. Also, in Michael Dell’s vision, digital transformation holds the key to the future of PC industry. As such, he took the company private in 2018, and the multi-billion purchase of EMC Corporation ($67 billion) to create an essential infrastructure organization. According to Collins and Montgomery (2008), strategy dictates that managers have a long-range vision to identify how value is eroded by competition as well as time; and is what Dell identified in advance. His input in the company ensured that steady growth is achieved, and the firm was again reclaiming its market share, making him a valuable asset for the company.
Secondly, the company has a firm brand name with its products and services, getting praise for quality and performance from individuals and organizations. Accordingly, it is argued that up to 98 per cent of Dell products and services are used by Fortune 500 companies (Dell Technologies, 2016). Also, Dell products and services are used by over ten million small and medium enterprises (SMEs) around the world. Also, the company shipped around 261 million computer units around the world in 2018, with a 15 per cent global market share (Statista Research Department, 2020). Furthermore, the company’s significant data architecture is one of the best in the industry. Of note, the company collaborates with Syncsort, an integration software company, to enhance its data storage segment and cloud computing business. Also, its R&D efforts focus on a high-level reference architecture that will enable businesses to enhance their efficiency, reduce operating costs through the use of cutting-edge data analytics and crucial technical assistance from the company. These high qualities and innovative services set apart Dell technologies in the PC industry through an established brand name.
Thirdly, the direct sale model serves as the company’s core strength. Dell Technologies sells its products directly to customers and enterprises. It is not possible to find dell products in retail stores such as Best Buy. In respect to business, it is a wise decision, unlike other business brands which use middlemen. Middlemen reduce the profit margin of the business. Dell Technologies adds their profit margin since they avoided the middlemen.
Strong customer foundation is another strength that the company capitalizes on. Dell Technologies has established a firm foundation between institution and clients. According to research, most people love the customer service of dell. They are well known for being quick, responsive, and cooperative. This makes people love the products and get away with any doubts before and after buying them.
Finally, the company has a diversified business model that enables it to venture into other businesses to improve its corporate performance. For instance, apart from is personal computer segment, Dell is known as one of the best IT providers in the medical field to include gene sequencing research and other medical technologies products and services. With such a diverse product mix, the company will expand its market share to include nascent segments with limited competition and enable organic growth and expansion in such segments. Thus, Dell technologies with a diversified business portfolio show how the company has leveraged its financial and market share strengths to expand into other lucrative fields.
3.2. Weaknesses
The first weakness inherent to the company is the lack of patents that can be leveraged for breakthrough innovations. Unlike other companies in the PC industry, such as HP and Apple with rich patents portfolio, this weakness has limited Dell’s capacity to boost production and services sales across the globe. Typically, the company’s hardware business implies that its leadership in the United States’ PC hardware business is a result of its rich patent portfolio. Also, the revenues from intangibles show a significant decrease in sales revenue year-on-year, for instance, $73.9 billion in 2017 to $62.3 billion in 2019 over three years, as shown in Figure 1 below. The figures above reveal a severe weakness in the company’s business model that requires technology patents to compete in the market and generate profits for the business.
Figure 2: Dell Goodwill and Intangible Assets 2017-2020
Dell Company does not spend much cash and time on the development and research of the new products. Perhaps, they feel it does not add any value given their top position in the world market. This may not be possible, provide that they missed their opportunity to expand into tablets and smartphone industries. Currently, it is very difficult to compete in this space, putting into concern that many other industries are longing for space or are the top in the world market.
Even though Dell technologies today has many products in their stores, most of them are found in computer companies. If it was meant for hardware products at a low price, then this would not be the problem. Or if laptops and computers were not products. Most of the computer companies’ brands offer similar commodity products apart from hardware and software support. Dell technologies do not change the way competition has expanded in this industry even though it is formidable in the industry.
Although direct sales of the products increase profits margin, it makes the awareness of the brand very difficult. Dells cannot be found in any big retailer shop, unlike other computer business brands in the industry. This makes the sales of the Dell product difficult unless the consumers have the Dell brands in the mind since it is most likely to purchase a competitor brand. This is because it was readily available for customers in the stores, unlike Dell products.
Also, Dell’s custom-built strategy for its products and services may serve as a detriment rather than as a competitive advantage to the company. For this reason, making products that target a specific segment of customers may exclude an even larger section of customers with limited computer hardware knowledge. Thus, the custom-built strategy would require customers to place pre-orders that requires time and effort to acquire because of the lengthy purchasing process that makes Dell products hard to purchase in the long-run.
3.3. Opportunities
The first opportunity avail is to the company is emerging technologies such as artificial intelligence (AI). Emerging technologies provide the company with different strategies that can be utilized to accelerate business growth and consequently expand the current market share. Research and development (R&D) in AI unlocks technological breakthroughs for the company that can be used to resolve its weaknesses in the patent portfolio. Thus, investment in new technologies will help the company gain a competitive advantage in research for new business solutions that will be used to expand market share and generate more sales.
Secondly, new markets in developing, middle-income countries are another business opportunity for the company. New markets have emerged in Asia-Pacific, Middle East, African, and South America present an opportunity to sell its products and expand market share. Long-range planning for international markets will provide the company with a significant foothold in such regions while building its brand through the sale of personal computer line of products and financial services in developing countries with limited financial infrastructure for its growing economies. Also, the company will profit through the sale of its healthcare technologies, developing countries seeking to expand and improve their health care sectors.
Thirdly, differentiation will create a unique brand image for the company. Threat from substitutes and a high level of business rivalry demands that the company focus on innovation to make its products stand out by improving the design and efficiency of its personal computers. For instance, through its proprietary software division, the company can improve the performance of its personal computers by enhancing its key features that include expanded computer memory and its processing power. Also, Dell Technologies needs to reconsider its range of patents and products to add more varieties of products on top of computers. Dell needs to spend more on research and expansion. This helps to learn what consumers want and the direction the industry is moving. Also, this may give them an idea on how they can expand into smartphone and tablets in the market.
Finally, a focus on the North American market, and especially the US, is particularly critical for the company’s growth. To put it into perspective, about a third of the company’s sales revenue comes from the US, up to 28 per cent in 2018. Thus, the heavy dependence on the US market indicates that Dell needs to do more to maintain and expand its market position in the country through intensive market research and targeted advertising for its PC market.
3.4. Threats
First, the company faces high industry-level competition. PC industry, with its highly innovative players, presents a challenge to Dell’s market niche of PC hardware. Industry players like Lenovo, H, and Apple all compete for the same market segment. The stiff industry competition implies that Dell needs to do more research and development, and advertising which will drain the company’s resources.
Secondly, irregular supply of innovative products threatens Dell’s future market for its products since most of the products that have been developed over the years have been the response to launches by other industry players. Such product irregularity hinders customer confidence in the company to consistently deliver its products as well as hurting its sales prospects in existing and emerging markets.
Thirdly, a lack of skilled and available workforce in emerging markets hinders the company’s growth. Emerging markets in Asia, South America and Africa do not have required labour force to power Dell’s research and development endeavors in such regions. As such, the development of new products that suit such markets is significantly hampered.
The fourth threat is the rising cost of products threatens the company’s bottom line as a significant portion of the company’s revenues goes to paying wages, and other imputes of production, such as raw material. Since the company profits majorly from its hardware sales, hardware prices have been increasing, cutting into the company’s profits.
Finally, the PC industry is experiencing the contracting market for shrinking the demand for personal computers as consumers switch to portable devices such as smartphones and tablets. Thus, as the market for PCs shrinks, Dell would be required to diversify its product line to include venturing into the smartphone market.
4. Conclusion
Dell Technologies is one of the big players in the personal computer industry. The company’s expansion plans aim to address the challenges related to threats and weaknesses that are inherent to the company and the industry. While the PC market continues to shrink, the pressure from other players in the industry will increase as companies innovate and ramp up their R&D efforts to capture more markets. Notable strengths that are inherent to the company include but not limited to visionary leadership, strong brand name, and diversified business portfolio. However, the company experiences some of the weaknesses that include a limited patent portfolio. Going forward, the company will need to implement strategies that serve as a framework for improving business efficiency and capturing more markets.
4.1. Value-Adding Recommendation #1
The first recommendation I would for Dell is a two-pronged retail strategy. The strategy for selling products to customers determines the level of sales volumes and revenues for the company. First, the hybrid business model will incorporate direct as well as retail channels that will serve wide computer market segments. Accordingly, the strategy will include premium and standard markets. By employing this approach, the company would reach a broader customer base, and especially where competitors do not provide for premium, pre-configured personal computer models. The second approach is in the form of after-sale service through the post-configuration of computer models. The approach will reduce inventory cost as supplies will be maintained majorly in component form, these forms of differentiation will set the company apart from its competitors and thus enable the company to dominate the market in the coming years.
4.2. Value-Adding Recommendation #2
The second recommendation is for Dell to optimize its supply chain management system to maintain a competitive advantage by promoting supply chain efficiency. With the new virtual corporation, Dell will limit inventories by utilizing timely information. As such, focusing capabilities will replace physical assets’ emphasis. Also, with the new approach, the exclusive business knowledge will be shared in a transparent and collaborative environment. According to Shee et al. (2020); Arunachalam, Kumar, and Kawalek (2018), an integrated supply chain represents a shift to virtually integrated corporations away from a more vertical one. There utilizing the proprietary technologies will add to the company’s competitive advantage that includes adding value to the customers. As the PC industry matures, multiple component suppliers will be competing in terms of prices and innovative products. Therefore, capitalizing on investment as in integrated supply chain system will free Dell to focus on customer satisfaction, as most of the PC manufacturers focus most available components are leveraged for end-product differentiation, which is some form learning through experimentation (Ulrich & Smallwood, 2004) as a capability for the organization.
References
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