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Cover Story
 

Enter ‘Tactical’ Strategy
In a Superlative & most Insightful analysis, B&E Documents how Corporate Leaders have Transformed their Organisations & Implemented continental strategic shifts that have Rewritten Global Management case books
Issue Date - 17/02/2011
 
Del(l)eting old files

From direct selling to conventional retailing, Dell has managed it all well. but can it pull it off in the smartphone and tablet space as well?
By : Shephali Bhatt

It was early winters of 1984 when the Houston born Michael Dell registered a company by the name of ‘PCs Limited’ to sell PCs (personal computers) directly to customers thereby saving the costs of an indirect retail channel. By the time spring of 1988 arrived, Dell had changed the name of his company to ‘Dell Computer Corporation’ and its stocks were trading in the share market with market capitalisation of the company reaching a striking $80 million. Come 2001 and from a dorm-room headquartered firm (at the University of Texas) that sold IBM PC-compatible computers built from stock components, to a company with the largest market share (12.8% in 2001) in the global PC market, Dell certainly had come a long way.

In fact, the company was doing so well that in 2004 Michael Dell stepped aside as CEO to give way to a long-time Dell employee Kevin Rollins who now took on the company’s rein. But the bash couldn’t continue for long since then. By 2005, the company’s profits and share prices began dropping considerably.What’s more? In Q4 2006, Dell reported a pathetic 8.7% fall in its worldwide shipments. The company even saw its market share lead over HP shrink from 12.9 percentage points in Q1 2006 to 2.2 percentage points in Q1 2007 (as per Gartner DataQuest). However, all this while Dell was selling PCs directly to customers by phone and online, but the management knew that it desperately needed a change. And it did ... It was on May 24, 2007, Dell finally announced a major strategic shift and disclosed its plans to sell PCs in the US, Canada, and Puerto Rico through Wal-Mart and Sam’s Club retail stores. This announcement came soon after Michael Dell returned as CEO replacing Rollins.

 
Meanwhile, Dell had also entered India (2001) and given the economy’s future prospects its presence in the subcontinent was no surprise. But, moving in tandem with the West it wasn’t creating any wonders in the Indian market as well. Further, as the Indian consumers relied on a touch, feel,and face-to-face interaction approach, Dell’s direct selling model couldn’t suit the Indian business terrain. It finally had to adopt the retail model in India as well. Dell finally tied up with Tata Croma (the Tata-owned electronics retail chain) and select Staples stores to sell its products in India.

Result: Dell India was running with a topline of Rs.25 billion by 2008 and was expecting to double up and touch Rs.40 billion by the end of FY 2009, which it did. According to IDC India, since 2005, HP has held the number one position in the Indian PC market every quarter (for the past six years). However, it was the result of this well planned strategic shift that in Q2, 2010, Dell replaced HP for the first time with a 15.2% percent share in the Indian market, followed by HP (14.3%) and Acer (11.5%) respectively. In fact, Dell India had sold a whopping 2,35,000 notebooks and around 1,18,000 desktops to make for a cumulative sales of around 3,53,000 PCs by the end of the second quarter of 2010. While Dell’s sales were boosted by strong marketing and its innovative channel partners base, HP was disrupted by its move from a national distribution model to a network of regional distributors. Agrees Diptarup Chakraborty, Principal Analyst, Gartner India, as he tells B&E, “Dell has done exceedingly well in consumer, SMB and education segment during Q2 recording a substantial gain over Q1.”

Certainly, managing a strategic shift of such magnitude was no mean feat and Dell India team had its fair share of challenges and hurdles in the pathway. Agrees P. Krishnakumar, Head-Marketing, Dell India as he tells B&E, “Channel training was our biggest challenge when we adopted the retail & channel partner route. Further, the cost of channel training in India was almost 2.5 times more than in any other country.” But then, they pulled it off well!

In fact, the company doesn’t wants to stop here. Dell has made another strategic shift in the late 2010 by trying to become relevant in smartphone and tablet sapce. In fact, it’s even planning to introduce made-to-order smartphones. No doubt, the mail order smartphone business didn’t work out so well for Google with its Nexus One, but that doesn’t mean no one can pull this off. However, one thing is sure that Dell will have to do its homework before it implements the model. After all, it’s smartphones and tablets where the future lies!

          

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