Reference no: EM132247108

Strategic Activity-The business models for Dell Computers and Enterprise Cars

Dell It has been said that Michael Dell, founder and CEO of Dell Computers, became the Henry Ford of the information age – as a mass producer of standardized products. Dell assembles and sells PCs and laptops and, more recently, servers and storage hardware. The company began when Dell was a university student in the 1980s. In the early days Dell sold only to the business market, and, although this remains important, home consumers have been a vital growth area. The business model was simple and powerful – and unusual for the industry. Dell buys in standardized components in order to minimize the need for any expensive research and development. The company has relied extensively on Intel chips. Sales are direct to customers, typically over the Internet or telephone. Together with a telephone helpline, this alleviates the need for middlemen and the consequential distributor margins. Dell builds to order and carries very little inventory of finished products. This cannot happen effectively without strict attention to detail and constant process re- engineering. The assembly time for a PC was reduced to 4 minutes, with a further 30 seconds allowed to fix the holograms and logos for Microsoft and Intel.

Dell, now the second largest computer maker in the world, never set out to be a high- technology company, but instead relied on sales and logistics, driven by low costs. Dell then adopted a very aggressive pricing policy in order to seize market share from any competitor who had ‘taken its eye off the ball’ and let its costs increase. The assumption was that this business model could be used for other consumer electrical products such as digital music players and flat screen televisions. Some critics always argued that the model has to be limited as a substantial proportion of consumers would be unwilling to buy without being

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able to inspect a model in a store. But the logic of this argument becomes thinner as more and more of us know people who have bought a Dell – we can inspect theirs.

However by 2005 it was apparent that the sales growth was slowing down. New products – servers and printers, which amounted to two-thirds of sales – were not as successful as PCs, where Dell was selling one in every three bought in the USA.

It was less successful with notebooks, which were being supplied direct from manufacturers in Taiwan. Competitors, especially Hewlett Packard and Acer, had narrowed the price advantage. Between 2000 and 2005 Dell’s cost advantage reduced from 20 per cent to 10 per cent and its price advantage more dramatically from 25 per cent to just 5 per cent. In addition it was developing a reputation for inadequate service when something was wrong with a product.

In 2006 the CEO resigned. Kevin Rollins had worked as an external management consultant for Dell prior to joining the business full-time in 1996. He was Number Two to Michael Dell and replaced him as CEO in 2004. He had been responsible for much of the manufacturing efficiency and cost saving. But Dell was accused of ‘tunnel vision with its sales model’ and Michael Dell felt it necessary to take over again.

Alongside job cuts, the company soon announced a renewed emphasis on product design, confirmed it would increase sales through third-party vendors, including systems installers, and seek to acquire other businesses which had more of a customer services focus. In 2009 Dell bought into IT services (essentially consulting) believing this would help revenues in unpredictable economic cycles.

Enterprise cars

Enterprise Cars was founded in St. Louis, Missouri, in 1957 as a car leasing business. Rentals began in 1963. Today, with a turnover of multi-billion US dollars, it is the largest car rental

For use with Strategic Management: Awareness and Change 8e, Thompson, Scott, Martin © Cengage Learning 2017

business in the USA and growing in Europe. It is still a private business controlled by the founding family. The company has over 500 000 vehicles, making it the largest buyer of cars in America. The real growth has occurred in and since the 1990s when the market began to realize the value of the Enterprise business model – which is different from the other majors like Alamo, Avis and Hertz.

The Product and the demand

Whereas most car rental businesses specialize in the travelling public, Enterprise focuses on those car owners who have been parted from their own vehicles. This segment has generally been avoided by the other leading competitors. Enterprise customers’ cars might be in a garage for service; more likely they have been subject to accident or breakdown. Enterprise staff collect customers from whichever garage they leave their car and drive them to their own compound. That said, Enterprise does also rent cars to people who just want to hire a vehicle.

The customers

Some customers can plan and book in advance, but most are making an inevitable late booking. Consequently they are often people experiencing some sort of distress and agitation because of the uncertainty. In addition, the actual customer might be an insurance company rather than the car owner themself.

Operational aspects

Enterprise is decentralized into over 5000 individual offices with an average of ten employees each. They are all profit centres. There is extensive monitoring and tracking of cash and profit and customer satisfaction. The stated intention is to make every office feel like a local family business with staff who are ‘passionate about service’. There is an extensive graduate recruitment programme to find able young people to work alongside mature, experienced front-line staff. Coffee and doughnuts are provided whilst customers fill

For use with Strategic Management: Awareness and Change 8e, Thompson, Scott, Martin © Cengage Learning 2017

in their paperwork.

Activity and questions

1. How would you assess these two business models?

2. Update the Dell case and assess whether the renewed strength has been maintained.

3. Given the nature and strength of competition does Enterprise have a defensible and sustainable model? Is it inevitable Enterprise has to compete more directly if it is to maintain any growth ambitions?