Is Dell's Business Model Broken?

Abstract

A candidate for a consulting position prepares an analysis of Dell Corporation. For years, Dell's efficient supply chain innovations and successful leveraging of technology in offering made-to-order computers at competitive prices made it a world leader in market share. But conditions—and profits—seem to have leveled off. To what extent is this a matter of a business model in need of revision, and to what extent is something more fundamental at work?This review of a company's trajectory and strategic hurdles has been used in executive education classes but would serve equally well in first-year MBA courses in strategy or operations management. Excerpt UVA-OM-1416 June 21, 2010 Is dell's Business Model Broken? Danielle McCarren had only a few hours to prepare. She had been given advance notice that her interview at a well-known consulting firm would include questions analyzing Dell Corporation (Dell): What factors had led to Dell's incredible success? What was the business model that had made it happen? More important, was Dell now vulnerable to investors downgrading their evaluation of Dell? Was Dell in trouble, and if so, how should it remedy the situation? McCarren recalled from her MBA program's operations class that Dell's revenue growth had slowed over the previous three years and that net income had dropped in FY2007 and FY2009, although it had grown every other year (Exhibit 1). She knew that, as recently as 2006, Dell had been on Fortune's list of most admired companies, recognized as one of a handful that had consistently outperformed the market over the previous 15 years, but she also was aware that its return on assets had dropped over the previous 3 years and its stock price had stagnated (Exhibit 2). Having researched the firm's history, she sat back and pondered its remarkable trajectory. Dell's Roots . . .