The purpose of this essay is to apply theory of resources and capabilities in strategic management to PC Company, DELL to analyse how it create competitive advantages in computer industry. In order to do that, I will display three parts in this essay. The first part is about my own understanding related to meanings of resources and capabilities, such as resource-based view etc. The second part is about applications of the theory in DELL internal environment. The third part of future challenges in DELL will be illustrated. The essay will begin by giving brief explanations of the terms of resources and capabilities within organisations.
 
Both resources and capabilities are key factors to determine a company’s future and can create competitive advantage over its competitors to survive longer and better within its industry. According to Grant (2005), “resource-based view is the idea that the firm is essentially a pool of resources and capabilities, and that these resources and capabilities are the primary determinants of its strategy and performance.” Thus, companies focusing on resources and capabilities can bring in sustainable competitive advantages and can help to form strategies that exploit external strengths while defending against internal weakness (Grant, 2005).
 
From resources perspective, it is essential to know that two types of resources, tangible resources and intangible resources are owned by a company. For tangible resources, it mainly refers to physical assets, such as equipments, raw materials or employees. For intangible resources, it mainly comprises a company’s history, reputation, technology and intellectual resources. Both tangible and intangible resources can be seen as inputs into a company to help it create value and advantages within a company. Within the same industry, all participants can occupy the same resources but when they process the same resources in different ways within its internal environment, all participants will witness different values created by same resources. So the ways to utilize resources can determine a company win or lose.From resources perspective, it is essential to know that two types of resources, tangible resources and intangible resources are owned by a company. For tangible resources, it mainly refers to physical assets, such as equipments, raw materials or employees. For intangible resources, it mainly comprises a company’s history, reputation, technology and intellectual resources. Both tangible and intangible resources can be seen as inputs into a company to help it create value and advantages within a company. Within the same industry, all participants can occupy the same resources but when they process the same resources in different ways within its internal environment, all participants will witness different values created by same resources. So the ways to utilize resources can determine a company win or lose.#p#分頁標題#e#
 
From capabilities perspective, the ability of utilizing resources to create values for a company can create competitive advantage or capability and we can not separate resource from capabilities as a company’s capability is an integrated result of many complex factors, including resources, values, procedures and activities within a company. According to Johson, Scholes and Whittington (2007), different companies have different capabilities which are difficult to imitate and is the basis of creating competitive advantage over its rivals. In addition, both resources and capabilities have much more relations with internal environment of a firm and those two factors are the most important determinants for a company’s profit and sustainable strategy.
 
All those above are implications given to me from the perspectives of resources and capabilities within a company. After that, I will discuss how DELL applies those two different perspectives to its internal environment and industry.
 
DELL was founded in 1984 by Michael Dell and follows a simple philosophy: creating a computer in accordance with customer requirements and direct shipping to customers. DELL can make the most effective and clear understanding of customer needs, and then respond quickly. After more than 25 years developing, DELL has grown into the industry’s fastest growing, most profitable companies, the leading advocate of the direct business model and leader. Dell's global sales in 2008 amounted to 57.9 billion U.S. dollars, approximately 78,700 employees worldwide (United States Securities and Exchange Commission, 2008). In the fourth quarter last fiscal, the company earnings of 144 million, operating profit was 8.01 billion, in cash and investments totalled 12.5 billion U.S. dollars; Dell's direct sales Web site www.dell.com site 84 countries, the use 20 languages / dialects and 26 currencies, visit each quarter more than 20 billion times, the world's largest e-commerce site (United States Securities and Exchange Commission, 2009).
 
Firstly, information technology is a valuable intangible source for computers manufactures, including DELL and its competitors Microsoft, IBM, HP and Compaq. As DELL it describes its information technology jobs on its official website:
 
“Positive. Productive. Progressive. That’s how we navigate change. In an organization as influential as Dell, it's no surprise that information technology (IT) plays such an enormous role in our day-to-day operations. A job in IT at Dell offers broad exposure to some of the most complex and highly sought projects, technologies and software. Our world-class products and services rely on a dynamic infrastructure — which in turn relies on individuals like you with the talent and drive to keep it all running. The IT team at Dell creates, deploys and supports global, industry-leading assets and services. We deliver services and solutions to customers both internally and externally, meaning there's widespread opportunity to learn, advance and take your career in many different directions.” (DELL, 2011:1)#p#分頁標題#e#
 
DELL computer has acknowledged that its information technology (IT) creation and innovation has resulted in large profits and IT has been used not only to create competitive advantages but also help to form DELL-style sustainable strategy. DELL unique business model----direct sales and build-to-order---requires a higher level in information technology. According to Kraemer, Dedrick and Yamashiro (2000:1), DELL’s application of information technology (IT) offers valuable insights into how IT can be used to achieve flexibility and speed in an area where time is critical and has been vital to processing both elements of its business model---direct sales and build-to-order.
 
Applying unique models of direct sales and build-to-order in computer business, can enable DELL reduce sales costs without extra procedures to deal with distributors and minimize inventory by selling computers directly to customer via orders online. Build-to-order model based on Dell’s mature information technology has created sustainable selling capabilities for its proceeding careers. It is successful for Michael Dell to choose the business model, which can be explained by Figure 1 of the historical PC sales.
 
Table 1.4: PC Sales of Leading Vendors
 
1990199520002005200820092010
 
Dell Computer: USA (#K)1431,1409,44021,85020,21017,07017,460
 
Dell Market Share: USA (%)1.505.3320.5235.2428.4423.6920.83
 
HP & Compaq: USA (#K)4803,87013,29512.37016,30018,65019,470
 
HP/Compaq Market Share: USA (%)5.0318.1128.9019.9522.9425.8823.22
 
Dell Computer: WW (#K)2051,93015,05037,30042,26039,15043,920
 
Dell Market Share WW: (%)0.843.3111.4118.0115.1813.5013.52
 
HP & Compaq: WW (#K)1,0358,20027,98531,95055,05059,32064,010
 
HP/Compaq Market Share: WW (%)4.2614.0621.2315.4319.7720.4519.70
 
Figure 1
 
Source: eTForecasts, nd
 
Note: the PC sales of Compaq and HP are combined for all the years including the pre-merger years shown in the table (1990, 1995 and 2000)
 
“DELL and Hp are currently the leading PC manufacturers in the 7 years. Compaq, DELL or HP/Compaq have been the PC sales leader since 1994 in the USA and worldwide. DELL became the worldwide PC sales leader in 2001, but was surpassed in 2002 by HP because of its merger with Compaq. DELL took the lead again in 2003 and kept the lead through 2006. Dell has a much stronger market share in the USA than worldwide. This is because Dell’s business model is fully developed in the USA, but remains in the start-up phase or in the early to mid-level development phase outside the USA. As Dell’s business model grows and takes hold outside the USA, Dell’s market share is likely to strengthen.” (eTForecasts, nd:1)
 
There is no doubt that technology of Internet has had a compound impact on PC business. In the beginning, telephone selling is Dell’s main sales channel but with the emergence of the Internet, DELL can utilize Internet technology to improve its distinctive supply chain. DELL prefers to directly offer customers a direct-to-order way to allow them to make up their own computer with chosen components online rather than communicate with resellers or distributors in an indirect selling. Thus, direct-to-order manufacturing process enables DELL to gain a low level of inventory and decreases overheads cost accordingly. For example, according to Figure 2, Dell’s days of supply inventory has increased from 31 millions dollars in 1996 to 7 millions dollars in 1998.#p#分頁標題#e#
 
Figure 2
 
Source: DELL, 1998
 
“Not surprisingly, Dell Computer was an early and enthusiastic convert to the Internet. It gained a first-mover advantage by setting up its first Web site in 1994, a year in which its total revenues were US$ 3.5 billion. By 1998, its Internet sales accounted for more than half of the firm's total revenues, which by then had surged to more than US$ 20 billion.” (Martinsons, nd: 2)
 
Secondly, information-technology benefiting direct-to-order model also creates another valuable tangible resource, closer integration of customers, for DELL. Its computer market shares have exceeded Acer and Apple to be the second largest PC suppliers in 2010 spring in no more than 30 years (Figure 3).As customer place a direct order to Dell, it can collect product information about what factors affect choices of buyers, how they buy PCs, and thereby can give a suppose of demand in changing market. Similarly, buyers can also feed back to DELL on line if there is a problem with products and DELL can respond to those problems and execute solutions quickly. This can create competitive capabilities for Dell.
 
Figure 3
 
Source: Gizmodo, 2010
 
“For example, Dell responded rapidly when Intel shipped faulty Pentium chips to PC makers in the mid 1990s. Dell knew exactly where the problem chips were and could easily help customers to replace them. Most of its rivals did not have this capability. They had to stop their production and ask their channel partners to find the problem chips that had already been sold or distributed. Dell's quick and efficient response attracted many new customers. These customers were able to receive timely shipments of PCs with faultless chips from Dell's just-in-time inventory model.” (Martinsons, nd: 3)
 
Thirdly, concentration on managers self-training employees is another valuable capability of DELL. When Dell’s current sales revenue reaches $49 billion and began to enter the $80 billion target, sales growth has become increasing difficultly and majority of sale share come from overseas market outside USA. Michael Dell has realized that combination of high-quality products, low-cost and ultra-streamlined strategy has been insufficient to support sales growth, and they must include attention to talent management. Furthermore, DELL has appointed internal staff to design new training programs, primarily by Dell’s own teaching senior managers, including Dell and Rollins himself. Those two leaders have conducted a 360-degree assessment in training their employees and currently, level of the management staff salary are determined by their performance in the cultivation of talent employees.
 
Dell’s talent management in training employees has make its aim of expanding market outside USA with providing a global talent management to develop people who can execute its business strategy and process catapulted it into Fortune 50 as an industry (DELL, 1999-2011). With more than half of Dell’s workforce now outside of the U.S, a significant portion of our key growth areas are in emerging countries and its PC business has expanded over the whole global, in terms of Figure 4. Apart from its local market USA, Europe, Asia including China and India, Australia and Africa has already witnessed of Dell’s success in global ordering.#p#分頁標題#e#
 
Figure 4
 
Source: DELL, 1999-2011
 
Note: Map details current as of October 2009.
 
When Dell develops economies in Asia, especially China, India and Indonesia, it has realized that dramatic changing technology has been the biggest challenge than its rivals. For example, Chinese prefer to purchase computers in stores rather than order online. Therefore, sales in China keep going down since stepping into china market and DELL has to display its products in physical stores to attract Chinese customers. Remarkably, DELL has realized that he fears the Lenovo in China more than any other current or potential rival as Lenovo’s selling model is more likely to fit Chinese customs and it has to pursue new alternative ways of technology to compete in China.
 
Fourthly, Dell’s unique business model, direct-to-order, has also enabled it to create a more successful supply chain than its competitors. During the process of direct-to-order, once a customer place an order to DELL a computer will be immediately built and manufacturing and production will be taken place accordingly by its suppliers (Figure 5). What’s more, According to Dell and Fredman (2000:176), “The supplier effectively becomes our partner.” DELL treating its suppliers as an essential and vital factor leading to business success and its system partner facilitates direct-to-order model and can offer new products much quickly out of competition.
 
Figure 5
 
Source: Lee, H. L., Padmanabhan, V., Whang, S. (1997). P93-102
 
Dell’s supply chain focuses on pushing down costs to be a low cost provider and further providing a good customer service. Satisfying Dell’s low cost, speed of delivery business strategy, when customers place an order, DELL requires its suppliers to keep a very low product inventory to send products within several days, According to DELL (2003), “Every two hours, the factory planning system sends out a computerized message to suppliers detailing what parts the plant needs. This means, there is almost no inventory of parts or products in the factory.”
 
By driving down inventory costs, overheads and good collaboration with suppliers, Dell facilitates increased market share and integrate supply chain strategy and business strategy together.
 
However, Dell performs well in the beginning several decades but with its fast development, Dell has come across difficulties. In the past 10 years, processors, memory, graphics card, hard drive, keyboard and other computer accessories prices fell sharply. Due to the acquisition of Compaq, HP offers a variety of grades of computer and adds almost all the features consumers want. More importantly, consumer can easily buy HP products in retail stores. Compared to HP, Dell’s direct-to-order model does not seem to be as successful as before.
 
Dell needs to establish its global market by building its own retail stores and reliable, full-featured computer; Dell, like Apple needs to continuously improve and enhance its product design; Dell needs to add a variety of new computer capabilities and reduce costs. Dell has a lot of work to do, but the most important to establish its existing resources and capabilities then to develop new competence.#p#分頁標題#e#
 
In conclusion, DELL has achieved core competence by building straightforward direct-sales business model with mature information technology which is difficult for competitors to imitate while still making an enormous profit. In addition, selling computer directly to customer enables DELL build a closer interaction with customers and thereby collect valuable information of its products. By behaving like this, DELL can response to external market changes much more quickly and efficiently than its peers. Dell’s talent management has cultivating valuable employees inside and outside its local market enable Dell expand its market over global countries in a short period. Besides, Dell’s value supply chain based direct-to-order business model, also make DELL gain low inventory cost, overheads and clearer market trends than its competitors. Although DELL has established core capabilities with its internal resources, it still needs to develop new competence to adapt to dramatic changing PC industry of technology renewing faster and keep ahead of the competition.
 
References
 
DELL (2011) About Information Technology Jobs. Available from: http://jobs.dell.com/careers/information-technology-jobs/job-list-2 (Accessed 5 December 2011)
 
DELL (1998) Dell Computer Corporation Annual Report. Available from: http://i.dell.com/sites/content/corporate/financials/en/Documents/ar_fy1998-YIR.pdf (Accessed 6 December 2011)
 
DELL (1999-2011) Talent Management. Available from: http://content.dell.com/uk/en//corp/d/corp-comm/cr-diversity-wf-talent-mgmt (Accessed 6 December)
 
DELL (2011) Global Capabilities with Local Service and Support. Available from: http://content.dell.com/us/en/enterprise/vsl-global-capabilities (Accessed 6 December)
 
Dell, M. and Fredman, C. (2000) Direct from Dell: Strategies that Revolutionized an Industry. New York: HarperCollins publishing. P176
 
“Dell: One Company, Two CEO’s,” CEO Magazine, November 2003, p34
 
eTForecasts (nd) Worldwide PC Market. Available from: http://www.etforecasts.com/products/ES_pcww1203.htm (Accessed on 5 December)
 
Grant, R.M. (2005) Contemporary strategy analysis: Analyzing resources and capabilities in Contemporary strategy analysis. 5th ed. Oxford: Blackwell publishing. pp. 131-132
 
Gizmodo (2010) Number Are Out, HP and Dell Still Lead In US Computer Sales. Available from: http://gizmodo.com/5587383/numbers-are-out-hp-and-dell-still-leadin-us-computer-sales (Accessed 6 December 2011)
 
Johnson, G., Scholes, K. and Whittington, R. (2007) Exploring corporate strategy. 8th ed. Edinburgh Gate: Pearson Education publishing. p94
 
Lee, H. L., Padmanabhan, V. and Whang, S. (1997). "The Bullwhip Effect in
 
Supply Chains". Sloan Management Review 38 (3): 93-102
 #p#分頁標題#e#
Martinsons, M.G. (nd) Explaining Dell’s Success from a Strategic Management Perspective. Available from: http://www.cb.cityu.edu.hk/mgt/document/Applied%20Articles/Applied%20Articles/Martinsons%20-%20Dell.pdf (Accessed 6 December 2011)
 
United States Securities and Exchange Commission (2008) Annual report pursuant to sect ion 13 or 15(d) of the securities exchange act of 1934 for the fiscal year ended: February1, 2008. Available from: http://i.dell.com/sites/content/corporate/financials/en/Documents/10k-fy08pdf.pdf (Accessed 4 December 2011)
 
United States Securities and Exchange Commission (2009) Annual report pursuant to section 13 or 15(d) of the securities exchange act of 1934 for the fiscal year ended: January 30, 2009. Available from: http://i.dell.com/sites/content/corporate/secure/en/Documents/FY09_SECForm10K.pdf (Accessed 4 December 2011)