Taking Dell Private Harvard Case Solution & Analysis

1.      Assumptions

The assumptions of the study include the following:

  1. The current strategy of the company is to deal with customized PCs to cut down costs and offer mass customization to the customers. This would help the company lower down their average fixed costs and increase profit per sale.
  2. Another is the bundling offered by the company to increase their average price in the industry despite low cost per unit.
  3. The market share is declining due to increasing competition.
  4. Another reason for the declining market share is the high cost of debt and cost of equity, which is pressurizing the company to have a leveraged buyout from the market.

2.      Scope of the study

The study will only be qualitative in nature. The focus will only be on assessing the company financial position and the impact it would have on the leverage buyout the company is planning. It will only consider Dell’s American financials. The case is analyzed in the light of several strategic, tactical, operational and financial models applicable in the situation. The recommendation will be made depending on the analysis, whether hybrid or individual. The area for further research is the company’s functional analysis or business model analysis (Wiersman, 2000).

1.      PROBLEM STATEMENT AND PLAN OF ANALYSIS

1.      Problem Statement:

The industry trends in the technological industry are changing vastly and therefore, Dell needs to keep up with the needs of its prospective market. It needs to bring its innovation in product offering, as Asian vendors are eating Dell’s market share by imitating its low cost business model, which was its only competitive advantage. Furthermore, Michael Dell is planning a leveraged buyout from the market with Silver Lake (Baker, 2011). Leveraging the shares from the market would help save costs and balance deteriorating financial position of Dell. The issue in planning a leveraged buyout is investors demanding a high premium for their shares, given the high cost of equity in the market.

2.      Justification for the Statement:

With the declining demand for the customized products, Dell is losing its market share in the industry. It's a low cost business model, which was earlier a valuable resource for the organization in a highly competitive market was no more valuable. The international PC vendors such as the vendors from the Asian market were moving forward with the same low cost model. The decline in the company’s overall financial performance led Michael Dell to think a step ahead. As a consequence of this, the company plans a leveraged buyout from the market with the help of Silver Lake.

The trend in the market was shifting to tablets, mobiles and other technological transformations, which was shifting Dell’s profit pool to segments where Dell had no competency. For example, Dell’s strength was at PCs, which helped it accumulate profits of $38 billion in FY12, at that time the lower margin value segment was accumulating $8 billion in profits. As time passed, and the consumer preference changed, profits moved to the tablet segment with 30% cumulative annual Growth Rate, generating $30 billion in FY17. And consequently the profits for the PC market went down, with a cumulative annual growth rate of 7% accumulating $26 billion (Baker, 2011).

Other trends in the PC market include the rapid deterioration of the already established market by Asian vendors (Jones, 2013). Most of the emerging economies were going active in this business, intensifying competition and giving rise to price wars in the industry. The model followed by the Asian vendors was different from the traditional model followed by Dell Corporation. For example, the Asian vendors have increasingly expanded their market share by competing with the present rivals’ one the basis of operating margins through low single digits. This helped them foster their market share. According to the presentation cited in the case, the FY13 brought Dell a substantial decline in the share price to 11.1% from 15% in FY08. With the emerging threats from international competitors, and rising demand for alternative mobile devices resulted in a 13 % decline in PC shipments on a year-on-year basis in FY13 Q1, a considerable drop in 20 years (Baker, 2011).

3.      Plan Analysis

The case will be analyzed in terms of several strategic, tactical and operational models, each of which will shed light on the company’s macro and micro environment. These tools would help company revamp its position in the marketplace and capitalize on its strengths, and seize anticipated opportunities in a manner that would help the company achieve a competitive edge in the market. The strategic models that the paper would use are Porter Generic Forces, BCG Matrix, Red Ocean Strategy, Porter Five Forces model, Kay’s.............................

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