Dell Inc: Moving Beyond Direct Sales Model
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Case Code: BSTR280 Case Length: 26 Pages Period: 2006-2008 Pub Date: 2008 Teaching Note: Not Available |
Price: Rs.400 Organization: Dell Inc. Industry: Computers Countries: Global Themes: Sales & Distribution Management, Supply Chain Management |
Abstract Case Intro 1 Case Intro 2 Excerpts
"The Direct Model has been a revolution, but is not a religion. We will continue to improve our business model, and go beyond it, to give our customers what they need."
- Michael Dell, CEO, Dell, Inc., in 2007.
"We believe there is a high-level belief at Dell that customers in the consumer market need to experience (i.e. touch and feel) the products more than in the business segment. Retail is the next logical step."
- Sam Bhavnani, Research Director of Current Analysis Inc., in 2007.
"Dell has really strayed from its original positioning. Is the refocusing going against what made Dell successful?"
- Nicolaj Siggelkow, a Professor of Management at the Wharton School the University of Pennsylvania, in 2007.
A Gatling-Gun Approach?
In January 2007, Gartner Inc. and IDC stated that leading personal computer (PC) maker Dell Inc. (Dell) had for the first time since 2003, lost its No. 1 position in worldwide PC shipments to Hewlett-Packard Company (HP). It was also reported that among the top five global PC vendors, Dell had reported the least global sales in the third quarter ending 2006. Dell's famed direct selling model, backed by an efficient supply chain, had helped the company gain an edge over its competitors, but from the mid-2000s, some analysts had been arguing that the model was no longer working for it.
On January 31, 2007, Dell's founder Michael Dell (Michael) took over the position of the CEO replacing Kevin Rollins (Rollins). Soon after taking over, Michael revamped the top executive order and followed this up with various changes in strategy in a bid to turn around the company.
One of the most significant changes brought about was its willingness to move beyond its direct-only business model. On the one hand, Dell formed alliances with leading retailers such as Wal-Mart Stores, Inc. (Wal-Mart), Carrefour SA (Carrefour), etc., while on the other, it also started a formal channel partner program for value added resellers (VARs).
Analysts pointed out that Dell had worked tirelessly to cut out middlemen for many years but was now being forced to rely on middlemen. They also noted that the company had been secretly working with some channel partners even before 2007. Dell had also made limited forays into retail in the past which had not been too successful. Analysts expected the company to indulge in a lot of activity through all the channels: stores, kiosks, and VARs, in addition to its direct selling channel. "Call it the Gatling-gun approach," said Roger Kay, principal at Endpoint Technologies Associates. While some analysts welcomed Dell's decision to move beyond its direct selling model, others felt that the company was taking a huge risk by straying from what had made it so successful in the PC industry...
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