Dell, Inc. is a recognized international technology holding company, offering services and products capable of creating optimal solutions for the customers. The company was founded by Michael Dell, in 1984. Its fundamental strategy of selling computer systems directly to customers is aimed primarily at gaining a complete understanding of the needs and demands of the customers in order to fulfill them in the most proficient manner.
Dell has developed a global base of customers, an abundant portfolio of services and products and a wide range of distribution channels designed especially to enhance the company’s productivity. Significant portion of the company’s production capabilities is performed by its consolidated subsidiaries or contract manufacturers. Dell operates primarily in one industry and its business is managed in “four global customer-oriented operating segments: lange enterprise, public, small and medium business, and consumer” (Securities and Exchange Commission, 2005).
According to annual 10-K report, there are three main components to Dell’s business strategy: 1) providing efficient enterprise solutions; 2) creating a flexible value chain and accelerating online leadership; and 3) balancing liquidity, profitability and growth (Securities and Exchange Commission, 2005).
The business strategy of Dell, Inc. proves successful due to the effective combination of the following features: operational integrity, customer intimacy and product leadership, directed at optimized response to constant and rapid changes in the dynamic computer industry. Such strategy is known as the cost leadership strategy and is directed at establishing the lowest possible cost in the industry while pursuing new development and growth opportunities (Grigsby and Stahl, 1997). However, the most amplified among the above-mentioned features of Dell’s cost leadership strategy is the one concerning customer intimacy. This conclusion is based on the key business strategy tenets, provided in the annual 10-K report: “A direct relationship is the most efficient path to the customer” (Securities and Exchange Commission, 2005).
In order to maintain a leading market position, Dell supplies its cost leadership strategy with features of product leadership and superior customer service. This is illustrated by the nature of core components of its fundamental business pattern.
Because the industry in which Dell operates constantly changes with respect to the rapid technological advancement, the company encounters challenges in every area of its business. These challenges consequently develop into potential risks that can affect financial condition, prospects, business and operating results of the company. They are often related to intense competition in the sphere of business, Dell’s cost efficiency measures, its ability to manage effectively the change involved in implementing strategic initiatives, managing product, services and solution transitions, ability to develop mutually beneficial cooperation and coherence with the customers, subsidiaries, personnel, and governmental organs and structures (Securities and Exchange Commission, 2005).
Although some of the key risk factors are beyond the company’s control, it is possible to manage some of them through maintaining the effective risk management strategies. Such strategies commonly imply defining the context and identifying the potential risks, assessing and analyzing them, developing alternatives, deciding upon and implementing the most appropriate risk management strategies, evaluation and monitoring followed by the consequential risk communications (Homeland Security Risk Management Doctrine, 2011).
Considering the dynamics of its business sphere, one of the major risk factors for Dell is the growing competition in the market. However, the company’s overall concept already implies an exceedingly effective approach to managing this factor. Dell constantly develops and applies innovative business schemes, functioning both as a unique manufacturer and as an effective merchandiser, selling its products to many retail customers and using most advanced internet techniques for these purposes. Although, the merchandising role performed by the company is rather minor, especially taking into consideration the fact that its inventory balance contains such items as work-in-process goods, finished goods and production materials, which are inapplicable for a merchandiser. Furthermore, since Dell Company uses a direct customer model in its business, it is essential to recognize and control the risk of inefficient product transitions. In order to eliminate this risk, the company should work with the most experienced and skilled professionals in the field and invest largely into ongoing research and advancement.
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Dell’s 10-K report was compiled and presented according to the rules and demands of U.S. federal law. It was explicitly influenced by the set of standards in the Sarbanes-Oxley Act of 2002, since then the annual report is supposed to include an internal control report, certified by the independent accountants on the subject of the company’s internal control over its financial reporting.
While discussing Dell’s direct inventoriable costs, it is important to note that the prior difference between the revenue and costs, measured in dollars, was constantly increasing in the period between 2003 and 2005. Meanwhile, the gross margin as a percentage of net revenue underwent only an insignificant increase, since their variable cost component is lower than the fixed cost component of goods sold. The example of direct inventoriable cost is the labor needed for computer materials and products.
When compared to other current asset balances, Dell’s January 28, 2005 inventory balance of $459,000,000.00 proves to be rather insignificant. The company’s inventory presupposes that it produces only products in demand for the near future. Low inventory levels can be considered beneficial only in cases, when current products are outdated by most recent technological development.
When studying Dell’s operating expenses, such as engineering, research, administrative and selling, it becomes clear that they are not involved in the process of producing a product and are therefore recognized as period costs (Noreen, 2011).
Major Dell’s cost objects are software, servers, storage and notebooks. When distinguishing between direct and indirect costs for each of those objects, the following conclusion can be drawn:
1) For software, the direct cost is represented by computer used to develop it, and indirect – the designers’ salaries;
2) Direct servers’ cost is measured by material for the tower, whereas indirect cost is the cost of electricity used when making it;
3) Direct storage cost is represented by a microchip, and indirect cost is the cost of paper for ordering materials;
4) Direct cost for notebooks is plastic, whereas indirect cost is marketing research on how to design the notebook.
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