CASE STUDY

ON
DELL COMPUTERS
E COMMERCE

SUBMITTED BY

SUBMITTED TO

Karan Gupta

DR. VINAY SHARMA

13810039
DoMS IIT Roorkee

Introduction
The purpose of this study was to examine an organisation that has different types of
electronic commerce interfaces. I chose DELL Inc.
In the beginning it was based on direct sales approach, and then it became quickly one of the
leading companies in PCs markets. It is one of worlds most admired business. It has 3
categories of customers Large, Public Sectors and Home and small sized businesses. Dell uses
its website www.dell.com as one of the main channels to sell products directly to customers
and provide products based on customers customized orders. Dells organizational structure
is divided into four main regions, each of which includes their own functional departments.
Dell utilises the Internet and other advanced technology in all aspects of its relations with
customers, from ordering, sales, delivering and services to customers research and forecast
Dells information system also allows customers to use their ERP procurement application to
order products Dell provides customers with personal support sites where information about
the products and their history conditions are kept and processed. Dell works with various
suppliers for components and softwares.
Company History
Dell was founded by Michael Dell in 1984 and started as a small computer selling company.
Right at the beginning, its business based on a direct sales approach. Dell quickly grew into
one of the leading companies in PCs market and one of the most admired businesses all over
the world. Its significant success has been mainly due to its distinctive strategic model in
general and its information systems strategy in particular. Two core elements of its business
strategy include its direct sales and build-to-order approach.
Dell uses online sales and services as their main way of doing business. However, other
methods like ordering and technical services through phone and recently, its introduction of
retail stores also contribute to its business process.
This paper will limit the analysis of Dells strategic use of IS in response to two main
competitive forces: the bargaining power of buyers and the bargaining power of suppliers.
E-Commerce
Electronic commerce is trading in products or services using computer networks, such as the
Internet. Electronic commerce draws on technologies such as mobile commerce, electronic
funds transfer, supply chain management, Internet marketing, online transaction
processing, electronic data interchange (EDI), inventory management systems, and
automated data collection systems. Modern electronic commerce typically uses the World
Wide Web for at least one part of the transaction's life cycle, although it may also use other
technologies such as e-mail.
E-commerce businesses usually employ some or all of the following practices:

Provide E-tail or virtual storefront on websites with online catalogues, sometimes

gathered into a "virtual mall"

Buy or sell on websites or online marketplaces.

Gather and use demographic data through web contacts and social media.
Use electronic data interchange, the business-to-business exchange of data.
Reach prospective and established customers by e-mail or fax (for example, with
newsletters).
Use business-to-business buying and selling.
Provide secure business transactions

Impacts on Market and Retailers

Economists have theorized that e-commerce ought to lead to intensified price competition,
as it increases consumers' ability to gather information about products and prices. Research
by four economists at the University of Chicago has found that the growth of online shopping
has also affected industry structure in two areas that have seen significant growth in ecommerce, bookshops and travel agencies. Generally, larger firms are able to use economies
of scale and offer lower prices. The lone exception to this pattern has been the very smallest
category of bookseller, shops with between one and four employees, which appear to have
withstood the trend.
Individual or business involved in e-commerce whether buyers or sellers rely on Internetbased technology in order to accomplish their transactions. E-commerce is recognized for its
ability to allow business to communicate and to form transaction anytime and anyplace.
Whether an individual is in the US or overseas, business can be conducted through the
internet. The power of e-commerce allows geophysical barriers to disappear, making all
consumers and businesses on earth potential customers and suppliers. eBay is a good
example of e-commerce business individuals and businesses are able to post their items and
sell them around the Globe.
Distribution Channels
E-commerce has grown in importance as companies have adopted pure-click and brick-andclick channel systems. We can distinguish pure-click and brick-and-click channel system
adopted by companies.

Pure-click or pure-play companies are those that have launched a website without any
previous existence as a firm.
Bricks-and-clicks companies are those existing companies that have added an online site
for e-commerce.
Click-to-brick online retailers that later open physical locations to supplement their online
efforts.

Literature review
We will use Michael Porters competitive forces model and other studies to analyse the
strategic use of information systems to design distribution channels in the case of Dell Inc.
This report will use Michael Porters model to analyse how Dell Inc. has used information
systems (IS) strategically and accordingly with its business and organizational strategies to
gain competitive advantages. In doing so, a brief literature review is necessary
Michael Porters five competitive forces model
The rapidly development of information technology in general and the internet in particular
has largely changed business process. However, the effectiveness of IT application for the
success of a business depends largely on its capacity of systems planning. This process is very
important but also very difficult and thus, good frameworks or planning techniques are of
great value. Michael Porters five competitive forces model is one among widely used
methodology for planning of strategic usage of IT. In this model, there are five important
forces that companies have to deal with, including:
(1) Threat of new entrants as a result of emergence of new businesses like e-commerce;
(2) The bargaining power of buyers who demand for better prices and quality;
(3) The bargaining power of suppliers such as those who monopolise in an area, or can cause
high switching cost when changing suppliers;
(4) Substitute products or services which are enabled by the introduction of the internet, for
instance, travel online is a substitute for travel agents;
(5) The intensity of rivalry among competitors (Porter, 2009).
Information Systems (IS) Quality Triangle
IS Quality Triangle represents the interdependency and integration of three levels of
strategies business strategy, organizational strategy and IS strategy, of which IS strategy
must complement the other two strategies. The aim of a business is to use IS strategically in
accordance with business and organizational strategies rather than simply using IS.
IS strategy aligned with business and organizational strategies, should be implemented
strategically to alter companys competitive forces to achieve its business goals.
Reasons for choosing Dell as the case study
Dell is one of the biggest companies in the PCs industry. Its phenomenal success depends
largely on its strategic choices, of which IS strategy is a significant factor. Dell is the leading
company in effectively applying IT into its business. An in-depth analysis of how Dell has
strategically used IS to achieve its business goals will offer practical and useful knowledge for
other businesses in improving their usage of IS and for further research into organizations IS.

The bargaining power of buyers

Identify Dells buyers

Dells customers consist of 3 major categories: (1) Large enterprise; (2) Public sector (state
and local government, federal government and educational institutions); (3) Home and small
business. Michael Dell stated that Dell core customers are large ones who do not need various
services from resellers and are always able to pay their bills. Dell does not have any
customers that represents more than 1% to 2% its revenue, 90% of Dell sale go to institutionsbusiness or government- and 70% to very large customers that buy at least $1 million in PCs
per year.
The power of buyers is represented by its demand for lower prices, better quality and
services, which lead to increase in cost and competition for companies. In the PCs industry,
Dells customers are powerful for several reasons:
Dell has to compete with several strong rival companies in terms of attracting customers, such
as Compaq, IBM and Hewlett- Packard. Dell also has to compete with local sellers for market
share, for example Sony and Toshiba in Japan, Samsung and Asus in Asia.
Another reason is that PC products in the market are in many cases, not very differentiated
and thus, there is possibility of customers play one seller against others.
One more reason is that in a high fixed cost market, Dells core customers are large-volume
customers, who, according to Porter (2008), have power of demanding for discount from
selling competitors. Dells core customers corporate buyers are those who have good
experience in terms of prices and technology, and thus, Dell has to find its own way to offer
these important and demanding customers with better prices and quality while remaining
profitable.
Business strategy:
As mentioned above, the bargaining power of Dells customers, especially its corporate ones
is relatively high. Therefore, it is of Dells core interest to build up a distinct business strategy
that helps maintain its sustainability, customers satisfaction and loyalty while alter the
competitive force from its powerful customers.
In order to succeed in a competitive market, a companys business strategy must illustrate
the companys values which differentiate with competitors (Porter, 2001, pp63-78). In the
PCs market, where a lot of giant corporations like IBM and Compaq coexist, Dell chose for
itself a distinctive way to serve customers: business based on a direct sales and build-to-order
model. Unlike other PC makers who include retailers, resellers and other bodies in their
marketing and sales, Dell uses its website www.dell.com as one of the main channel to sell
products directly to customers and provide products based on customers customized orders.
Direct Sales Method:
Dells direct sales system relies on two factors: direct relationships with buyers, and products
and services aimed at distinct customer groups.
Retailers Resellers

Integrators

Suppliers

PC Maker

Distributors

Final Customer

Indirect Distribution Channel of the PC Industry

Final Customer

DELL

Suppliers

Dells direct distribution Channel

Fig: Distribution Channel of Dell VS a traditional company

This direct strategy helps strengthen customer relationship as it helps Dell to understand all
processes of their business and their customers activities and needs from order, purchase,
delivering, maintenance to upgrade or replacement. This information is critical for Dell to
offer add-on products and suitable services to satisfy its buyers. Also, it helps Dell to forecast
customers future demand. According to Michael Dell, sufficient anticipation is essential for
the company to keep its cost down and therefore, satisfy its price-knowledgeable and
demanding customers. In addition, this direct approach makes it easier and more convenient
for customers to purchase from Dell.
Dell does not manufacture all components of its products but relies on its suppliers in terms
of components, softwares and services. This business strategy offers important advantages
such as (1) know what customers needs and thus, satisfy their demands because customers
have chances to choose what they want; (2) allow the effective use of lean manufacturing and

just-in-time operations which leads to reduced inventory, lower cost, quick adaptation to
technology and demand changes and fast arrival of new products.
Organizational strategy:
Traditionally, Dell organized its business on a globally centralised and functional basis, with
all functions like sales, manufacturing and service reporting directly to the head-quarter. Its
organization was then changed to a decentralized basis in accordance with its business model.
Dells organizational structure is divided into four main regions (Americas, Europe, Asia and
Japan), each of which includes their own functional departments. It is also further subdivided
according to business markets (large business, government/international, small business).
The Front End

Launched as a static page in 1994, Dell.com took the plunge into e-commerce shortly
thereafter, and by 1997 was the first company to record a million dollars in online sales,
according to Dell spokesperson Deborah McNair.
After six strong years of online sales -- widely regarded by analysts as stumble free -- Dell has
racked up some impressive statistics. In the last quarter of 2002, Dell.com logged a billion
page views, a company first. According to Dell spokesperson Bob Kaufman, about half of the
company's revenue comes from the site, which means approximately $16 billion flowed
through Dell.com in the last year.
A key part of Dell's success, says Aberdeen's Allen, is that the site offers consumers "choice
and control." Buyers can click through Dell and assemble a computer system piece by piece,
choosing components like hard drive size and processor speed based on their budgets and
needs. "Their ability to allow people to custom design has traditionally been something that
they're ahead of the game with, and a lot of people are slowly starting to catch up now," Allen
says. "But they continue to be viewed as the leader."
This direct contact with consumers gives Dell a competitive advantage, explains Dell's McNair.
"Because we know exactly what our customers are ordering, it's a 1-to-1 proposition. We get
feedback on how our site is working so we're constantly making tweaks to it to make the
experience for our customers easier."
Certainly Dell's competitors see the advantage of the company's direct model, and to a
varying degree use similar tactics. But, says Gartner analyst Mark Margevicius, "The other
vendors have legacy ties to supply chains -- supply chains with distributors and resellers.
Those elements provide value and revenue to the IBMs and HPs of the world. So they can't
automatically switch on a dime. But those non-direct channels are also less efficient. So Dell
had the ability to cut margin without cutting profit."
Profit Source: B2B
While Dell's consumer sales are highly visible, thanks in part to a high profile TV campaign,
its business sales are a much bigger revenue source. "About 15 percent of our total revenue
is consumer business and the rest is B2B," Dell's Kaufman says. "Our major focus in the IT

marketplace is selling servers, storage products, network switches and services to corporate
customers. A lot of the e-commerce engine revolves around that."
Or, as Aberdeen's Allen notes, "B2C keeps them in newspapers a lot, B2B keeps them in the
black."
To facilitate B2B sales, the Dell site offers each corporate customer an individualized
interface. Using what Dell calls a Premier page, purchasing managers log on and order using
an interface customized for their company's needs. "They place the order, it gets routed up
to whoever in their company needs to approve it, then [the order] is sent directly to us,"
McNair says.
The efficiency of the B2B system works in synergy with the consumer sales, Kaufman says.
"Remember, corporate customers are also consumers, so if they have a good experience,
they'll come over and buy a system for their home, or vice versa."
The Back End
Now that many e-tailers have built a customer-friendly front end, their back end supply chain
is a greater focus, says Aberdeen's Allen. "That's a lot of what you saw this past Christmas:
progress on making sure [e-tailers] weren't just capturing the order but were fulfilling the
order. That's where Dell is continuing to succeed."
Or, as Gartner's Mark Margevicius says, "You can give me the best e-commerce experience
but unless they've got the supply chain nailed, there's no way Dell is as successful as they are
today."
Dell's Kaufman says the PC maker uses the Internet to provide a "constant and seamless flow
of information among all different aspects of the company to drive the process." The
company's back end is calibrated to respond so closely to orders from the front end that
inventory is kept to a razor-thin, four-day supply. "We build systems only after a customer
has ordered them," Dell's McNair says, noting that this applies to desktop systems as well as
complex server orders.
Dell has no central warehouse facility but instead ships to customers directly from its
manufacturing plants. Based on customer location, a shipment may originate from a Dell plant
in Ireland, China, Brazil, Malaysia, Texas or Tennessee.
Online sale
This sales channel helps reduce retailing and distributing related costs which then result in
lower prices and higher quality for customers. This sales model is also suitable with its main
targeted customers - large-volume buyers who expect good price and quality, convenience,
fast service and tailored ordering.

Dell customers are segmented into different groups (small and medium business, large
enterprise and public sector these segments are then subdivided) with different mix of
products and services. The segmentation of customers is, according to Michael Dell, crucial
for the company to have a deeper understanding of its customers and thus, better serve their
needs and expectations.
Online service
Service and technical support in a PC company requires high cost and a lot of employees.
However, in a competitive market, where products are, in many cases, standardized or
undifferentiated, service and support quality is fundamental for companies to make a
difference. Customers history and profile are of great importance for Dell to understand its
customers needs and to provide better and more effective service and support. Therefore,
Dell provides customers with personal support sites where information about the products
and their history conditions are kept and processed. This strategy is regarded by Dell as
virtual integration of which both customers and technicians have access to the same
information and tools.
Dell provides online support for its customers at www.support.dell.com. Dell support is
customized to better serve different segments of customers (home users, small businesses
and enterprise IT).
Customers are offered with various support tools in terms of the products, order, warranty,
resolution assistant, file library (drivers, software and other updates), contact details
(including online chatting with technicians) and customer forum to exchange information and
express demands (Dell website, 2010).
Unlike individual customers, large customers including big corporate or public sector buyers
often have their own Management Information System (MIS) departments, help desks and IT
technicians to support users. Dell provides these relationship customers with the Dell Premier
Support. As these MIS bodies and help desks have to deal with multiple systems and various
networking problems, they are offered with not only all online support tools similar with
those for home users and small businesses, but they are also provided with customized
applications suitable for their multiple systems and platforms.
Dells IS also enables Michael Dells vision to become not only a seller but also a partner, an
IT department for its corporate customers and as a result, deliver better service, strengthen
its tight relationships with customers, which in turn make customers more depend on Dell
and find it difficult and money consuming to switch to other vendors.
In addition to online service, Dell also encourages its customers to choose other venues for
supports that are most suitable and comfortable for them such as phone service or various
service centres.
Bargaining power of suppliers:
Identify suppliers:
Dell works with various suppliers for components and software such as hard drivers from
Quantum, Seagate and Maxtor; microprocessors from Intel and AMD; software from

Microsoft; monitor from Acer, Samsung, Philips or DRAM from Samsung and Toshiba. Dell
also has service suppliers such as Banc Tec for home users and small businesses and IBM,
Unisys and Wang for corporate customers.
The power of Dells suppliers represents in several aspects:
First, Dell faces the power of some suppliers monopoly such as Microsoft in area of software
and operating systems. Another thing is that, as a company who does not directly produce all
components, it has to rely on its suppliers that, according to Porter (2008) could lead to the
inducement of these suppliers into the market. For example, in early 1990s, Sony was only
Dells monitor supplier but Sony later entered the PCs market and grew as a big competitor.
Also, company will face switching cost if they change suppliers.
Use E-Commerce to Improve Supply Chain
When internet technology arrived, Dell was quick to set up the ecommerce processes that
would enable it to also sell directly online to customers. Selling online allows the whole
process to be automated and more efficient. Since 1996 when Dell opened its website
www.dell.com for ecommerce, the company has had huge sales success. By 1997 the
company recorded $1 million in online sales. By 2000 the companys internet sales had
reached $50 million a day! If we go back to our example above, the customer, Liam, would go
to Dells Irish website www.dell.ie to buy his notebook computer. The full product range is
online with detailed information to help him make his decision. He simply follows the easy,
automatic instructions that come up on screen. These allow him to customise the computer
he wants with the features he needs. He can increase, say, his hard disk space and see the
difference that increase makes to the overall price. Then he is given a variety of options on
how to pay, either directly online or, via a customer service operator. There is even an
automated leasing option available through a financing arrangement that Dell has here with
Permanent TSB. Liams order is then passed automatically through to the production
department at Dell's factory in Limerick where it will be manufactured to his specification,
tested and shipped out to him. All of the systems relating to the sale are done through ecommerce: order placement, order tracking, payment processing, inspection, testing and
delivery. Similarly, internally at Dell, the whole purchase and procurement of materials is
automated between Dell and its suppliers. At www.valuechain.dell.com , Dell shares
information with its suppliers on a range of topics, including product quality and inventory.
The crucial benefit is the total automation of the whole process, which not only makes it faster
and more efficient, but also much more cost effective, especially given the volume of business
involved. Dells global website receives more than 1 billion page requests per quarter at 80
country sites in 28 languages and 26 currencies. Dells approach to e-commerce simulates the
benefits of face-to-face contact between the buyer and the seller. This ensures that staff can
be focused on delivering a quality product and providing excellent customer service and
support.
Focus Improves Customer Service
Dell has created many features and services online to help the customer see the whole
purchasing process clearly. The premise of Dells business is selling directly to customers

customers tell Dell exactly what they want and Dell provides them with the goods directly. As
well as being able to customise the product, customers can track the progress of the order as
it is produced and delivered. This can help the customer see the stages of the process and
likely delivery times. Customers can create and view their service records online. This includes
product support, shipment and delivery dates. Each purchase comes with a service tag code,
which can track the model bought and its service requirements. This allows Dell customer
service representatives to quickly and efficiently handle requests. This level of 24 hour
customer service and fast response time helps Dell build strong customer relations, which of
course is crucial for the company in its understanding of customer needs. It is also a very costeffective way of providing sales and support cost savings which can be passed on in the form
of better prices to customers. Success depends greatly on the efficient management of the
website. The customer must have a convenient experience when shopping online and have
faith that Dell will successfully complete the order and safeguard financial details. Customers
need to be comfortable using paperless transactions without face-to-face contact. It is crucial
that customers consider purchasing online as an alternative to the traditional method of going
into a retailer and buying a product off-the-shelf. Dell is focussed on enhancing its image and
relationships, not only with customers, but also with employees and the wider community.
To do this, the website is also used as a communication tool for news, press releases and
general information to help customers, employees, the media and prospective employees
find out more about the company.

Conclusion
Dells phenomenal success has been largely due to its strategic use of IS to design their
distribution and retail network to complement its unique business and organizational
strategies. However, it is now facing a lot of challenges from its competitors who are also very
successful in applying IT to design distribution and retail network, such as HP, Acer and Apple.
Dells direct sales and build-to-order model is no longer Dells uniqueness as the development
of the internet enables other companies to adopt this successful model. Therefore, it is of
Dells core interest to find strategic initiatives in addition to its traditional strategies.