How Should Dell Respond to the HP Challenge?
Case 2: How Should Dell Respond to the HP Challenge?
Dell Computers was founded by Michael Dell in his college dormitory room. It quickly became one of the fastest growing businesses in history, an almost unparalleled success story. By 2005 Dell had become the largest manufacturer of PCs, primarily focusing on the B2B market. This was achieved by creating a “Direct” model that allowed companies to buy customized computers directly from Dell, cutting out the margins previously captured by middlemen such as CDW. The creation of Dell’s “Premier Pages” website made it easy for corporate customers to easily place orders for large numbers of computers configured exactly as they wanted. The direct model also allowed Dell to better manage its supply chain, reducing both the inventory of components as well as finished products.
However, by 2007 HP had surpassed Dell in PC sales. After having tried to imitate the Dell model, in 2005 HP hired Todd Bradley to turn the business around. Instead of fighting Dell in Internet and phone sales where Dell was strong, Mr. Bradley decided to focus on its strength, retail stores, where Dell was completely absent, and where individual customers, the fastest growing segment, made most of their purchases.
He noted that PCs “aren’t just a commodity that you run out and buy on the Internet. People are going to want to touch it and feel it and understand how it connects.” He also began advertising campaigns using celebrities such as hip-hop mogul Jay-Z to talk about how they used their HP laptops. In talking with retailers, he found that they complained about late and incomplete deliveries. So, he focused on fixing the logistical problems and consolidated 30 manufacturing plants into 23. This enabled HP to reduce both the time and cost of building PCs, and reduce late deliveries by 30%. HP’s margins grew to 4.8% in the second quarter of 2007 from 3.6% a year earlier while Dell’s fell to 6.5% from 6.7% a year earlier. Finally, he built better relationships with the retailers. He pushed products such as touch-screen PCs that would garner attention from customers. He also helped retailers to design products exclusive to their stores, enabling them to differentiate their products from competitors. He worked with them to be able to create customized imprints. For instance, working with Best Buy, HP created a silver and white laptop, softer colors aimed at female customers.
Thus, in 2007 Dell gave up its title as the largest producer of PCs. In addition, as the consumer market continued to grow at a much faster rate than the corporate market, Dell was ill-positioned to reverse this trend.
What is the problem facing DELL?
What are the underlying causes? (Identify the specific issues that that cause the problem/s that you outlined earlier. You will need to analyze the problem at a deeper level and draw from course related knowledge as well as personal experience to do so. There may be multiple causes behind the issues that are highlighted)
What solutions would you suggest? What HR strategies can you use? (You may identify certain strategic choices that the firm can make to rectify the issues identified. How can you translate them to HR strategies? That is, how do these broad firm level strategies apply to the people that they employ?)
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