1. Submitted by Group 8

2.  Introduction to Dell
 Corporate philosophy and initial success
 Operating margin
 Problem identification
 Pros vs. cons of expanding to new market
 Call center for corporate clients
 New market and challenges
 Possible outsourcing

3.  Founded by Michael Dell
 Founded in 1983
 $ 70 million sales by 1985
Annual report Dell, 2001

4.  Dell Direct:
 Business clients comprised 90% of Dell’s customer.
 Low Inventory Control:
 Days inventory reduced from 31 in 1996 to 5 in 2001
 Low-Cost Production and Low Prices:
 No intermediary to decide on mark up
 operating cost per unit from $330 to $240 in a span of 5
years.
 Customized Web Page:
 Advantage of Premier is discussed below.

5. Net revenues (in millions) (Ex 7) $31,888
COGS $ 25,455
SGA (Ex 7) $3,193
R&D (Ex 7) $ 482
Special charges (Ex 7) $105
Average total revenue per unit ($) 2,050
Units sold (millions) 15.55
COGS/ unit ($) $1,636
SGA/ unit ($) $205
R&D/ unit ($) $30.99
Special charges / unit ($) $ 6.75
Margin per unit $ 171.2

6. 25%
Year on Year change in Ratio
20%
15%
10%
5%
0%
-5% 1998 1999 2000 2001
-10%
Years
Gross Margin/ Net Revenues Operating Income/ Net Revenues
Net Income / Net Revenues
Note: if a ratio for example Net income/ net revenue is 5% in 2001 it means if in 1998 it
was 115 then in 2001 it is 105.

7. Reasons for entering large server:
1. The core competence of Dell, the sale model-Dell
direct, can extend to other segment, large server
2. The excellent customer relationship management
will help Dell to break into the new segment.
3. The high service quality in PC field makes customers
believe in Dell's new product.

8. Reasons for not entering large server:
1. The Dell-direct may not succeed in large server due to different
requirements. The customer of large server has different
background.
2. The position of Dell is to focus on low-cost production and low
prices. This position cannot be accept by large server market.
3. The Price wars are expected to take profits even lower.
4. The existed competitors are doing well in field service. Dell's
strategy might not make difference to them.
5. The way to large server is incremental. Dell has to follow
customers' needs. Such needs are different from PC market.
6. The trading and cost for an in–house field service team are
more critical for server.

9. Initiatives Payoffs
Ship to 1. Reduction of cost of transit
target 2. Improved customer service
First-time 1. Improved number of issues solved in the first go
Resolvers 2. Thus improved customer perception of the product and hence
reduced number of technical visits thus reducing after sales
cost.
Call centre 1. Reduction of technical visits to 75%
representativ 2. Hence enabled company to place more stringent constraints
es on service levels that can be delivered to customer
Frequently 1. Reduced the technical visits required further
asked 2. Help improve after sales service turnover time
questions 3. Also leveraged the technical knowhow of the technical team
for its advantage
4. It helped in gaining customer satisfaction without employing
extra resources for the same
Feedback for 1. Helped in improving Frequently asked questions
the product 2. Helped as gold mine for product development team and
support team to handle queries more effectively hence
reduction of cost.

10. Mainly the employee cost is discussed here

11. IBM cost
Revenue
Middle range server (million $) 4,996
High end server (million $) 4,149
Total (million $) 9,145
Number of client (Pg 7) 12,000
Margin of profit (Ref 3) 50%
Expenses (million $) 4,573
Number of after sales employee (Pg 7) 135,000
% of employee cost (Assumption) 40%
Employee expenses (million $) 1,829
Employee expenses per client (million $) $ 0.38
Employee expenses per employee ($) 33,870
Employee per customer 11

12. Approximate cost if Dell enters
i Cost cut due to CSR's (in PC) (Pg 6) 25%
ii Cost cut due to CSR's ( technicality is double) (Assumption) 50%
iii non First time resolves (PC case) (Pg 6) 10%
iv non FTR's (for server is at least double) (Assumption) 20%
v Multiplication factor due to repetition 1.2
vi Service level provided (hrs) 24
vii Service level in server (hrs) 4
viii Multiplication factor due to service level (Assumption) 6
Total Multiplication factor (ii*v*viii) 3.6
case 1
ix Employee expenses (Table 1) $ 205
x Employee cost in expansion (ii*v*viii*ix) $ 738
if Efficiency of Dell employee in Server is less (Assumption) 50%
xi Employee cost in expansion $ 1,476
case 2
xii Number of employee per customer (PC) (per million) 2571.5
Number of employee per million customer in server (per million)
(xii*viii/(ii*(1+iv)) 25715
Employee cost in expansion $ 2,053
case 3
xiii Employee expenses (IBM cost) (Assumption) $ 33,870
xiv Employee cost in expansion (ii*v*viii*xiii) $ 10,839

13. Points in favour Points against
Decision One
1. High reach in the target market 1. Customer interface will vary hence
2. Highly experienced in providing against Dell-direct
service for server especially high end 2. Might or might not make up to the
(Pg 7) SLA’s hence a risk at Dell’s end
3. Stringent Dell’s operation and service
policies may be heavy for them
IBM
1. High reach in the target market 1. Direct competitor in the market
2. Highly experienced in providing 2. Will it have any pressure to deliver
service for server especially high end the SLA of Dell
(Pg 7) 3. Might lead to breach of core
3. High employee/ customer ratio competency i.e. operational
hence will have workforce to meet efficiency to IBM.
SLA
4. Might help in boast in sales due to
brand association with IBM.