In this report, the internal and external factors of a firm will be discussed. How these factors could affect the firm’s ability to strategically compete in its market will be explained and the one most challenging factor will be proposed. An approach to tackling the most challenging factor will be given as a suggestion to help the firm better strategically compete.
Background to the Firm
Dell was founded in 1984 by Michael Dell. In 1988 the company was roughly growing 80% annually and took the plunge to go public. The year of 1995 saw Dell expanding worldwide in Europe, Asia, Japan and America. They continued to grow and became the No.1 computer systems provider worldwide in 2001 and have continued to go from strength to strength (Corporate.delltechnologies.com, 2019).
Also read: Strategic Competitiveness
Internal Factors Affecting the Firm
The two internal factors that are affecting the firm are product design and financials. The issue with product design is that Dell’s products run from proprietary technology, such as IBM’s Power4 microprocessors or various UNIX operating systems (Thamhain, 2005). This means that they don’t have their own unique product design and many of their competitors are using the same technology, such as HPE (Hewlett Packard Enterprise) (IBM, 2019). A disadvantage of using proprietary software is that Dell is reliant upon IBM for updates, support and fixes. Depending upon the size of the development team, updates may be slow to reach you and it may take some time to address security holes or other issues (Kazmeyer n.d.). Dell also uses Sony for their batteries which caused a major issue back in 2004. Certain batteries that were supplied to customers between April 2004 and July 2006 were recalled due to a potential that the batteries may overheat and set alight (Product Safety Australia, 2019). Dell had no control over the batteries due to them being supplied by Sony and therefore they had to rely on Sony to notice the issue and provide information around it.
Financials of Dell is the second internal factor affecting the firm as they do not invest much money into research and development like their competitors do. This makes it difficult to innovate and play on new markets, such as Cloud computing and smartphones (Academia, 2019). According to Dell’s financial reports from Q4 2018 and Q4 2019, they had a decrease in total assets of over $10,000,000,000 (Dell Technologies, 2019). This is a cause for concern for such a large company and if this decrease continues year after year, it will impact their ability to strategically compete in its market as they won’t have the funds to invest into new product design or research and development.
External Factors Affecting the Firm
The two external factors that are affecting the firm are competition and consumption trends. Dell’s competition took 3.5% of their global market share between 2008 and 2012. This is due to the rapid change of technology and Dell losing their competitive advantage as they could not keep up with the ever alternating ‘change of lifestyle’ (Academia, 2019). Dell needs to monitor their competition and then forecast in order to decide on which move they should make in order to keep ahead of the competition. These moves include releasing a new product, attracting a new segment, discounting, buying a competitor or improving their supply chain.
In 2018, Dell’s market share remained above 15% for all four quarters. This was behind Lenovo with 25% market share and Hewlett Packard with 22% market share (Statista, 2019). Although Dell should be monitoring Lenovo and Hewlett Packard, they should also be looking at those companies who have slightly lower market share and could potentially grow and take a percentage of Dell’s market share. These companies include Asus and Acer.
Consumption trends have been affected at Dell due to the cycle of recession the world faced. The consumer’s purchasing power reduces during these times and therefore customers are not consuming as many high-tech products such as the products that Dell offer. Although the global economy has been doing well in the past few years, the economies of the individual nations are still being affected (Pratap, 2019). This means that because Dell’s products are not basic needs such as food, warmth, water – they are not bought as regularly, especially through times of a recession when consumers are not willing to spend their money as freely.
Major Challenge Facing the Firm
The major challenge facing the firm are their competitors. This is because they not only have to look ahead and see what the companies with greater market share to them are doing, but also monitor what the companies with the slightly less market share are doing. Whilst they may want to take a risk to increase their market share, they also need to be confident that this risk will pay off and that it won’t in fact decrease their market share and not increase it. A real-life example of this happened at Dell when they tried to release smartphones, but they unfortunately did not catch on with consumers. Dell’s competitors such as HP, Lenovo, Acer and Asus all offer smartphones and therefore this is a challenge that Dell faces regularly as they have not been able to break into the smartphone market (Investopedia, 2019). This is a major challenge that could impact Dell’s ability to strategically compete within the market and is possibly something that they need to research to ensure they do not lose any more of their market share to their competitors due to not having a more diverse range of products like their competitors.
Proposed Approach to Tackling the Challenge/ Conclusion
A proposed approach to tackling the challenge of Dell’s competitors would be for Dell to invest more money into research and development. This would give Dell greater information on what consumers want when they are looking for a smartphone. They could then try breaking into the smartphone market again in hope that they can increase their market share.
Increasing the amount spent on research and development will also ensure that Dell stays ahead of the market with their current products such as laptops and printers. This is vital to obtain their market share and stay ahead of their competitors.
Academia. (2019). External and Internal Analysis of Dell Computers. Available from: https://www.academia.edu/23613022/External_and_Internal_analysis_of_Dell_computers. [1st September 2019].
Corporate.delltechnologies.com. (2019). Our Timeline | Dell Technologies. Available from: https://corporate.delltechnologies.com/en-au/about-us/who-we-are/timeline.htm. [31st August 2019].
Last Updated on December 27, 2020 by EssayPro