DELL 15 USING E-COMMERCE FOR SUCCESS

The Business Problem/Opportunity
Founded in 1984 by Michael Dell, Dell Computer Corp.(now known as Dell) was the first company to offer personal computers (PCs) via mail order. Dell designed its own PC system and allowed customers to configure their own customized systems using the build-to-order conceptand shipped to them by direct mail. These concepts were, and are, Dell's cornerstone business models. By 1993, Dell had become one of the top-five computer makers worldwide, threatening Compaq, which started a price war. At that time, Dell was taking orders by fax and snail mail and losing money. Losses reached over Sl00 million by 1994. The company was in trouble.

The Solution: Direct Marketing Online
The commercialization of the lnternet in the early 1990s and the introduction of the Web in 1993 provided Dell with an opportunity to expand rapidly by selling online. Dell implemented aggressive online order-taking and opened subsidiaries in Europe and Asia. Dell also started to offer additional products on its Web site. This enabled Dell to batter Compaq, and in 1999 Dell became number one in worldwide PC shipments. Today, Dell (dell.com)sells about $60 billion a year in computer-related products online, from network switches to printers, employing over 63,000 people.

Dell sells to: individuals for their homes and home offices; small businesses (up to 200 employees); medium and large businesses (over 200 employees); government, education, and health-care organizations.

Sales to the first group are classified as business-to-owmer (B2C). Sales to the other three groups are classified as business-to-business (B2B). Consumers shop at dell.com using online electronic catalogs. ln addition, Dell sells refurbished Dell computers and other products in electronic auctions at dellauction.com.

Here are Dell's major EC initiatives:

Business-to-Business. Most of Dell's sales are to businesses. These sales are facilitated by standard shopping aids (e.g., catalogs, shopping carts, comparison engine, and credit card payments). B2B customers obtain additional help from Dell. Dell provides each of its nearly 100,000 business customers with Premier Dell service.

For example, British Airways (BA) considers Dell to be a strategic supplier. Dell provides notebook and deskop computers to 25,000 BA users. Dell offers two e-procurement services to BA purchasing agents. The more basic service, Premier Dell, allows BA (and other businesses) to browse, buy, and track orders on a Dell Web site customized for the the user's requirements. The site enables authorized users to select preconfigured PCs for their business unit or department. This provides automatic requisition and order fulfillment once an authorized user has chosen to buy a PC from Dell. BA has placed the e-procurement tools on their E-Working intranet. This allows authorized staffto purchase PCs through a portal that connects directly into Dell! systems.

Business-to-Consumer (B2C). Dell sells direct to individuals from its private marketplace (store). Using fairly standard mechanisms such as electronic catalog, shopping carts, and payment gateway and shipping, any customer can configure and price a desktop, laptop, or other product sold by Dell. Payment must be arranged in advance.

Customers can also participate in auctions of refurbished computers, which are periodically conducted online.

ln addition to supporting its business customers with e-procurement tools, such as in the case of BA, Dell is using EC in its own procurement. Actually, Dell developed an e-procurement model that it shares with its business partners, such as BA. One aspect of this model is the use of electronic tendering to conduct bids, known as reverse auctions. Dell uses electronic tendering when it buys the components for its products.

E-Collaboration. Dell has many business partners with which communication and collaboration is necessary. For example, Dell uses shippers such as UPS and FedEx to deliver its computers to individuals. lt also uses third-party logistics companies to collect, maintain, and deliver components from its suppliers, and it has many other partners. Dell is using leading-edge technologies such as Web Services to facilitate communication and reduce inventories. Web Services facilitate B2B integration that links customers' existing ERP or procurement systems directly with Dell and other trading partners.

Finally, Dell has a superb communication system with its ovet 15,000 service providers around the globe.

E-Customer Service. Dell uses a number of different tools to provide superb customer service around the clock. To leverage customer relationship management (CRM), a customer service approach that is customer centered is implemented for lasting relationships. Dell provides a virtual help desk for self-diagnosis and service as well as direct access to technical support data. ln addition, a phone-based help desk is open 24/7. Product support includes troubleshooting, user guides, upgrades, downloads, news and press releases. FAQs, order status information, a "my account" page, a community forum (to exchange online ideas, information, and experiences), bulletin boards and other customer-to-customer interaction features, training books
(at a discount), and much more. Dell keeps a large database of its customers. Using data mining tools, it learns a great deal about its customers and attempts to make them happy. The database is used to improve marketing as well.

Intrabusiness EC. To support its build-to-order capabilities, significantly improve its demand-planning and factory-execution accuracy, reduce order-to-delivery time, and enhance customer service, Dell partnered with Accenture to create a high-performance supply chain management solution. Now in place in Dell's plants around the world, the program, which paid for itself five times during the first 12 months of operation, enables Dell to adapt more quickly to rapidly changing technologies and the business environment and maintain its position as a high-performance business.

Dell also has automated its factory scheduling, demand-planning capabilities, and inventory management using information technology and e-supply chain models.

Dell is using many other EC initiatives. For example, you can join Dell's affiliate program by placing Dell's banner and logo on your Web site. lf a customer comes to your site and clicks on Dell's banner and then purchases an item at Dell, you get 1-4 percent commission for the referral. Another example is EducateU at LearnDell.com, which allows online self-learning about Dell products as well as about many lT and management topics. Finally, using an intranet (inside.dell.com), Dell serves its own employees with information they need to do their job better providing them with customer data, financial reports, product information, training, and much more.

The Results
Dell has been one of Fortune's top five "Most Admired" companies since 1999, and it continuously advances in the rankings of the Fortune 500 and the Fortune Global 500. Dell has over 100 country-oriented Web sites in many languages, and profits are nearing $4 billion a year. lf you had invested $10,000 in Dell's initial public offering (IPO) in 1987 , you would be a millionaire just from that investment. Dell actively supports EC research at the University of Texas in Austin (Dell's headquarters are in Austin). Dell is expanding its business not only in the computer industry but also in consumer electronics.

Lesson Learned from This Case
Dell exemplifies the major EC business models. First, it pioneered the direct-marketing model for PCs, and then it moved online. Furthermore. Dell supplemented its direct marketing with the build-to-order or custom-built model on a large scale (mass customization). ln doing so, Dell benefited from the elimination of intermediation by selling direct, from extremely low inventories, and from superb cash flow by getting paid in advance. To meet the large demand for its quality products, Dell is using other EC models, notably e-procurement for improving the purchasing of components, collaborative commerce with its partners, and intrabusiness EC for improving its internal operations. Finally, Dell uses e-CRM with its customers. Dell believes that the most efficient path to customers is through a direct relationship that minimizes confusion and cost. By successfully using e-commerce models, Dell became a world-class company, winning over all of its competitors. Dells EC business models have become classic examples of best practices, and they are followed today by many other manufacturers, notably car makers.

Source: Information Technology for Management 6e.

Transforming Organizations in the Digital Economy