1. Be Direct: DELL Its amazing to me that our competitors think the customer is the dealer. Michael Dell Sales Leader: Tops in Global Basis.

2. Introduction

• Before Michael Dell, innovation was about well-schooled engineers in R&D labs inventing high-margin products and technologies.

• Dell instead trained his eye on finding the most efficient way to get tech products into the hands of the consumers.

• Perfected the credo Cut out the middleman.

3. Introduction

• Perfected the credo Cut out the middleman.

• DELL eliminated the need for inventory or middlemen and gave itself a built-in price advantage, which it in part keeps as profit and in part passes on to customers. Fortune 11/28/2005

4. Introduction

• Michael Dell: The only constant thing about business is that every-thing is changing. We have to take advantage of change and not let it take advantage of us.

5. Introduction

• Selling tech products by telephone and then the Internet Michael broke the paradigm about how to run a computer business; they havent been so great at finding the next paradigm.

• BusinessWeek 3/6/06

6. Introduction

• Michael Dell is the chairman of the Board of Directors of Dell, the company he founded in 84 for $1,000.

• With an unprecedented idea---build relationships directly with consumers (born in February 65).

• Dells commitment to consumer value, to the team, to being direct, to operating responsibly and, ultimately to winning. Continues to differentiate Dell from other companies.

7. Introduction

• Michael Dell and Executive Management ponder:

• • 1. Whether or not to enter new product markets with laptops and servers?

• • 2. A global strategy to manage the sales in the international markets.

• 3. Decision making in a dynamic environment.

• • 4. 2006 is the year they need to reinvent themselves. HP has narrowed the gap on productivity and price.

8. Introduction

• DELL did not want the unsophisticated customer.

• DELL wants to sell to the educated customer.

• DELL wants the consumer to buy their third or fourth system from DELL. Its more profitable and easier.

9. Introduction

• Why DELL case: Well look at direct marketing and marketing strategies.

• Look at more efficient way of going to market.

• Just-in-time (JIT) manufacturing.

• VARs (Value-added resellers), solutions for vertical markets like banking, manufacturing and retailing.

10. Introduction

• The Future: The power of laptops

• became compatible with desktops,

• because of design, manufacturing

• and usage.

• Added: Printers, Servers, Projectors, TVs, Handhelds, Software, Peripherals, Storage, Networking, Workstations and more.

11. Introduction

• What does SWOT analysis reveal about Dells situation?

12. SWOT Analysis Business to Consumer Business to Business Strengths Opportunities Strengths Weaknesses Threats Weaknesses Threats Opportunities

• Competition across markets

• Commodity pricing

• (shrinking margins)

• Complexity of Mgmt.

• Growth exceeding productivity

• Tangibility

• Technology Market

• Commoditization

• Inventory

• Server Market

• International strategy

• Product extensions

• Customization

• Price

• Customer Focused

• Technical Knowledge

• Market Diversification

• Strong Brand/Positioning

• Media Savvy

• Direct Marketing Model

• Non-myopic strategy

• Competition across markets

• Commodity pricing

• (shrinking margins)

• Complexity of Mgmt.

• Growth exceeding productivity

• Technology Market

• Inventory

• Server Market

• International strategy

• Additional markets

• Product extensions

• Strategic partnerships

• Customization

• Price

• Customer Focused

• Technical Knowledge

• Market Diversification

• Strong Brand/Positioning

• Media Savvy

• Direct Marketing Model

• Non-myopic strategy

13. Case Questions

• What impresses you about this company?

• What is your assessment of the job Michael Dell has done, as CEO? Senior management?

• How did Dell segment its customers? What types of customers? What were they like?

• Whos the competition for transaction customers?

• Whos the competition of the other segmented customer?

• What are the advantages of this direct marketing and direct manufacturing model?

• With its past distribution agreements with Staples, CompUSA, and Sams Clubs, why did Dell have a problem with the retail entry?

14. Case Questions

• 8. Why did Dell fail in its first entry in laptops?

• 9. What are the implications of a server failure versus a desktop failure?

• 10. What are the sales and customer service implications of a server failure versus a desktop failure?

• 11. Does Dells expansion into other products and services make good strategic sense?

• 12. Given that Dell is a global player, how would you characterize its strategies?

15. Wrap Up: Now and Then

• Avoiding dealers means less mark-ups, less overhead and delivers lower prices to the customers for DELL.

• DELL: Number One in PC Sales

• DELL is one of the Most Admired Companies Fortunes Annual issue

• In 2003, generated 80% of profits from sales to businesses.

• With one week of parts on hand, DELL turns over its inventory 52 times a year. Compaq and HP turn over is 13.5 and 9.8.

16. Wrap Up: Now and Then

• Dells invasion into living rooms with flat-screens and other electronics will be a $100 Billion free for all.

• Consumers will benefit. Prices will drop. Competition is Sony, Samsung and Toshiba.

• Morphing into a leading consumer-electronics firm.

• Dell isnt very innovative. Spends only 1.5% on research, but We just do it better.

• Looking at partnerships with Microsoft, Intel. What about new ones with google and AMD.

17. Wrap Up: Now and Then

• Michael Dell cares about operating margins.

• Dell stock has been valued at a P/E multiple above 40. Loftier than IBM, Microsoft, Wal-Mart and GE.

• The status quo is never good enough.

• Celebrate for a nanosecond. Then move on. Five seconds of celebration and five hours of postmortem on what could have been done better .

• Problems dealt with: Quickly, Directly, and without Excuses.

18. Wrap Up: Now and Then

• 00, Dell was #6 in computer, with a market share of 6%.

• 03, it was #1 with a 30% share. #3 consumer brand.

• Sales in 00: $25.2 Billion

• Sales in 02: $35.2 Billion

• Sales in 03: $40.8 Billion

• Sales in 04: $41.4 Billion

• Sales in 05: $49.2 Billion

• Sales in 06: $55.9 Billion (est.)

• When a market is ready to explode, Dell moves in.

19. Summary

• Just like in your own businesses, windows of opportunities open and close.

• Successful companies see the opportunities sooner.

20. Wrap Up: Now and Then

• Michael Dell:

• - Named CEO of the Year 2001

• - Wealthiest individual under 40, in 2000, 2001, 2003, 2004.

• - If his DELL stock lost all value,

• Michael was still be the wealthiest person under 40, until his birthday in 2/05.

21. Summary

• DELL is to the computer industry what Dominos is to the pizza business.

• TIME magazine

22. Summary

• Heart of the case: Understanding

• the DELL Direct Marketing Model.

• The question of entering new markets is in reality looking at the Direct Marketing model. Can it be extended into new markets.

• Inventory has the shelf life of lettuce.

• Inventory is the worst thing to have in an industry in which value of materials and technology declines quickly.

23. Summary

• Dell believes its low-cost, direct sales approach will allow it to torpedo prices in many markets, with emphasis on printers.

• Dells all in one printer, that can scan, copy and fax are #2 (private label of Lexmark), behind Lexmark.

• Rival HO gets 70% of profits from printers and ink.

• In the Dell software, it automatically detects when ink is running low and directs user to the Dell website. Free shipping.

24. Summary

• Markets evolve over time. Anticipate and research the evolution of customers, products, competitors, channels and technology.

• Pioneered first money-back guarantee 86.

25. Summary

• Three Golden Rules of DELL:

• • 1. Disdain inventory

• • 2. Always listen to the customer

• • 3. Never sell indirect.

26. Summary

• Its not enough to rack up profits or turbo charge growth. Execs must do both.

• Miss a profit goal and youre not cutting costs fast enough. Overshoot it and youre leaving sales on the table.

• Pity the execs (server, storage and networking chiefs) who didnt use all of the bullets in the gun. Despite solid results. Reassigned.

27. Summary

• Dell-lizing Printers

• Dell entered printer market in 03.

• Market share: 19% in early 2005.

• In 2004: 50% of revenue came from desktop PCs. Will drop to 30-35% in coming years.

28. Summary

• Dell is competing against 50 different manufacturers, looking to be category killer in flat-screen, digital market. #10 in US in 2005 with 2.4% share.

• Dell uses same suppliers.

• The convergence of entertainment and computing or birth of digital home should only help Dell.

29. Summary

• Developing Dell Direct stores, and kiosks in malls. Places to touch, see and browse.

• Offering existing customers deals, but the purchasing decisions/behaviors are different.

30. Summary

• HP vs. Dell. HPs business has long faced the difficult choicefocusing on grabbing market share or improving profitability.

• 03 & 04, HPs approach. Aggressively battling Dell to claim bragging rights as top PC seller.

31. Summary

• HP is backing away from seeking market share at all costs or going all-out to upseat Dell from the top.

• Investors are applauding. Saying its a positive thing for HP. WSJ 1/19/05

32. Summary

• Fortune cover 2/7/05

• Why Carlys Big Bet is Failing.

• Buying Compaq hasnt paid off for HPs investors. Theres no easy way out.

• Carly is forced out on 2/9/2005

33. Summary

• Hewlett-Packard plans to cut 14,500 jobs in a restructuring plan meant to save $1.9 billion a year.

• WSJ July 19, 2005

34. Summary

• Our model continues to be the best in the business.

• In past ten years our sales are up 15 times and earnings and stock price are up 20 times.

• Michael Dell: Fortune 11/15/2005

35. Summary

• Dell remains the worlds largest PC maker:

• Not the revolutionary force it was

• Direct (DTC) will dominate

• Partnerships with Microsoft and Intel: Microsoft losing ground to Linux and Intel to AMD.

• Needs to increase R&D spending; Look for future trends.

• Cutting price. Undercutting rivals. Needs to spend more on customer service and new product development.

36. Be Direct: DELL Its amazing to me that our competitors think the customer is the dealer. No victory lapsIts a marathon Celebration breeds complacency. Michael Dell

37. Be Direct: DELL Every company needs to challenge and reinvent itself. The big question for DELL in 2006 is HOW?