The curious case of Dell Harvard Case Solution & Analysis

The curious case of Dell Case Study Solution


Dell is one of the most recognized PC manufacturer in the world, the company was formed in 1984 by an enthusiastic entrepreneur Michael Dell. The initial days of the company proves to be very successful, in the mid of 1990s, Dell makes the revolutionary change in the PC market with the introduction of laptops and soon after the launching of laptop, Dell becomes the biggest player in the industry. However, the leadership of the Dell in the market was for a very short period of time, and the position of Dell was becoming increasingly weaker due to increase in costs and competition in the market. After the launching of I-Pod and I-Phones, Apple becomes the market leader in the PC manufacturing industry which is the main reason for the downfall of Dell.

In order to cope with these unfavorable trading conditions, Dell places excessive reliance on the inorganic growth and it acquires companies in different sectors amounting to almost $13 billion. Despite the heavy investment and expansion strategies, the management of Dell fails to improve the performance of the company. The revenues and profits are continuously decreasing along with the declining market share, in addition to this, the share price of Dell was at its lowest levels and market capitalization had reduce from $150 billion to just $20 billion.

After the significant under performance of the acquisition strategies, the senior management of Dell is very frustrated and the confidence of the stockholders on the management and on the company is very low. The current CEO of Dell Mr. Michael is considering various options which can turnaround the performance of the company, the first potential strategy is the diversification from the current nature of business, the senior management is considering to operate full time in the software industry as well along with the presence in the hardware industry. And the second option is the purchase of the shares from public by the current CEO Michael Dell and change the status of the company from public to private.

The curious case of Dell Harvard Case Solution & Analysis

Global Business strategy:

Global business strategy about transforming and turn rounding the performance of the company is a very difficult task to perform, it can be said that the management of the company would have to be very experienced in order to ensure the effectiveness of the globalization. Furthermore, the management of Dell is also considering the diversification which means that the future revenues will come from the different sources. This diversification also increases the risk of the investment, the risk of investment increases further because of the potential global expansion. Many of the company faces substantial adverse results from the projected financial projections because of the poor experience and expertise to manage the international expansion.

Challenges in the valuation of the Dell:

Apart from the operational complexities of the business of Dell, the valuation and calculation of the true value of the business of Dell is also very hard to determine because of several uncertainties involve in the future cash flows of the company. Furthermore, there are many other factors which can increase the complexities of the valuation of the Dell such as the discount factor, and future earnings. Both of these factors can make the valuation of the company very difficult. The old discount factor before the diversification cannot be used if Dell has diversify into another sector because the risk of the investors will be completely different from the current risk of the investors. On the other hand, the management of Dell has no experience in operating in the sectors in which they are expanding, similarly the management of Dell cannot estimate the future earnings from the international diversification on their own which can have extreme effects on the valuation of the company.

Financial analysis:

The liquidity position of Dell appears to be moderate which means that the liquidity position is not good nor bad. The current ratio and quick ratio of Dell is 1.18 and 1.12 respectively. However, the ideal current and quick ratio of any company operating in any sector is 2:1 and 1:1. The current ratio of Dell appears to be poor which means that Dell have just enough current assets to meet up its current liabilities, little increase the current liabilities and reduction in the value of current assets could make the current ratio to a very dangerous level. If this is the case, the management of Dell will have to take bank overdraft which can reduce the profitability position of the company because of the interest costs......................

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