Wednesday, October 28, 2009

DELL's Re-positioning Effort

A recent issue of Business Week features an in-depth account of Dell's strenuous effort to re-position itself in the rapidly changing PC market through complete restructure, under the leadership of Michael Dell. Dell's strategic make-over is primarily a forced (and maybe also a much delayed) response to its plunging stock and shrinking market share. As illustrated in the graph below, Dell has retreated steadily in the past years while rivals Apple and HP enjoyed substantial growth.

The old Dell succeeded by undercutting rivals on price. Mastery of logistics and supply chain, together with minimal investment in R&D, allowed Dell to operate at a low cost. Investing less than 1% of its revenue in R&D, Dell used to rely on Microsoft and Intel for most innovations. But as computer technologies advance and consumer needs change, this same strategy that gave Dell its price advantage proves to be irrelevant in a changed market. Lack of innovation comes to hurt Dell’s business.

In this situation, Dell plans sweeping shifts along four lines: distribution, innovation, acquisitions and management. To read the full account of Dell’s shifts in process and personnel, please go to

Now I’ll just comment on moves where I see most innovation.

In search for “a heavy-hitter to go up against Apple and HP,” Dell invited Ed Boyd, an experienced designer at Nike to join the crew. Recognizing customers’ desire for more personalized products, Boyd introduced a feature called Design Studio, where customers pay an extra $85 to get certain designs on laptops. A large and ever growing selection of more than two hundred designs is available. Although personalized laptop decoration is nothing new, Dells makes a pioneer in PC manufacturers to provide this much discretion to customers. This can be seen as Dell’s first attempt to find its Blue Ocean—introducing value-adding features without heavy invests in the development of core technologies. Some may say that this Design Studio option doesn’t amount to a real Blue Ocean, since it appears to be easily copyable to other PC manufacturers. I’m not sure how copyable this actually is. Understandably, personalized product will incur more production and shipping cost and pose challenges to the company’s customer services (e.g. guarantee & return policy). It demands more from the management of supply chain and distribution network. Without actually knowing relevant costs, I expect the above-mentioned implications to give Dell some room to play with. If the Design Studio feature work well with Dell’s existing distribution network, it will give Dell advantage as a first-mover and merit the concept of Blue Ocean.

Another evidence of Dell’s re-positioning and rebranding effort. With increased investment in R&D, Dell is developing a new flashy product line, the Adamo Series. The Adamo XPS, world's thinnest notebook, at 0.39-inches thick will be launched pretty soon. Garriques, head of Dell’s consumer division, says the $2,000 computer will serve as a statement about Dell. "This isn't going to be a high-volume product for us, but it's going to be a product that says, 'Wow! Dell did that. What else does Dell have?' " How will it work? Let’s wait and see.


  1. This was a very interesting post as it opened my eyes to the damage that a lack of innovation can do to an otherwise strong brand, and in a very short amount of time. I didn't realize that in only four years that Apple and HP had gained such tremendous market share. I knew that the Ipod-Iphone craze that Apple was doing quite well, but to see the graph depict such small percentage in 2005 compared with over half of the sales in the market in 2009, is a quite astounding feat.

    As Sheila points out, the same tactics that allowed Dell to operate under low-cost model and have success previously, are the things causing it's current lack of market share. By only investing less than 1% of its revenue in R&D and relying on other companies to create innovative new products, it's seems inevitable that Dell would be in such a predicament. It will be interesting to see whether or not the new customizable "Design Studio" will be the Blue Ocean Strategy that Dell needs to revive it's ailing brand.

  2. Interesting post....When I read this post, one idea popped in my mind. Economic crisis happened in August, 2008. I looked at that pie chart. I found the market share has increased from Jan to Oct 2009, so I am still thinking that "does economic crisis or Dell studio help the increase of their market share?" Here is a possibility that in economic downturn, people want to get a cheaper laptop. In fact, Dell's laptop is cheaper, so it makes sense that the sale increase.