Sample Essay on Dell Computer Spins out of Control

Dell Computer Spins out of Controls

Problem Statement

The use of tight cost control strategy in Dell’s business model has caused the Company poor performance in the long run, and the aggressive cutting of costs in its current efforts to turnaround Dell’s performance has not managed to solve the problem.  

Analysis and Evaluation

Dell is one of the major suppliers of personal computers with a business model that employed an effective cost control strategy to boost its performance in its earlier years of business. The strategy has enabled the company to achieve a number of things including increasing the production time of their PCs by 40 percent in the new facilities with a lower downtime of 30 percent than its older facilities. The main objective here was to ensure the delivery of computers was done within the minimum time as possible.

Reduction of costs enabled Dell to sell its products at lower prices as compared to its competitors in the early years of its business. The company’s business model allowed it to sell products directly to customers, which eliminated the markup costs by retailers. Just in time inventory was also used to reduce carrying costs as well as the low costs of customization by using a flexible manufacturing. Besides, costs were greatly reduced by maintaining exceptional quality control that led to high revenues. To make sure products were of high quality, the company practiced job specialization to make it easy and fast to train employees. Consequently, the assembling time was quicker, and a few errors occurred. Quality checks are also conducted during assembly of the products and after they are finished. This acted as a feedback system that has enabled Dell to reduce its defect rate by 30 percent.

However, Dell concentrated so much on reducing the cost, which resulted in various competitive advantages that it faces presently. One of the issues arising from its cost control strategy is its failure in minding about customer services and the changing customer preferences. They also lacked competitive innovations in their products and design. As a result, Dell could not manage to compete with its new rivals as it had done with its earlier competitors who could not adapt its business model and match its low prices. The new competitors such as Hewlett- Packard (H-P) and Lenovo had gained a competitive edge by being very efficient and innovative in their products competitors.

In 2007, Dell put in new efforts aimed at changing the company’s poor performance. The efforts involved investing in new innovative products and introducing marketing operations. These efforts did not help, mainly because the company continued with its cost-controlling strategy even as it was expanding its business. The goals were not compatible because expansion required additional costs due to the introduction of new products and increasing sales by establishing new retail outlets and expanding internationally. Strategic acquisitions that had been key to the growth of other tech companies but there were no prized assets left for Dell to acquire when it set out to make a few strategic acquisitions.

Management control systems play the roles of motivating, integrating, promoting decision-making and communicating objective and giving feedback. Management control is associated with the allocation of resources, motivation, coordination and measuring of performance and it takes place within a framework that is created to achieve a certain strategy. There are various control measures used in management control including cost, quality of product and return on investment. Furthermore, management controls can be divided into finance oriented and operational oriented, and the most of the measures used in management control systems are financial or accounting based (Armesh, Salarzehi & Kord, 2010).

By putting more emphasis on financial measures, a company is distracted from the significant essential non-financial factors such as customer satisfaction.  The non-financial factors are also better at predicting the long run performance of the firm. The design of operational controls helps in ensuring that there is continuing consistency between the daily actions and established objectives and plans. These controls are derived from the management control systems requirements, for instance, corrective action will be taken when performance does not meet standards. The action may involve training, motivation, leadership, discipline, and termination (Vărzaru, 2015).

In the case study, cost measures are used as a form of strategic control. Reducing costs is one of the easiest ways that a firm can improve its bottom line and a cost control system can result in immediate savings that give a competitive edge.  However, costs control in management control system is considered as a way of measuring performance that has a narrow focus and neglects other criteria that are essential for competitive success including quality of service, resource utilization, innovation, competitive performance and flexibility (Armesh et al., 2010).  A management control system that is perfect should monitor the internal environment and be sensitive to external changes.

Recommendations

The existing control system is mainly concerned with financial measures of the firm through costs control. The changes needed in the system should take into consideration the external environment of the firm such as competitors and customer preferences. The changes that are needed in the current control system involve incorporating operational controls that ensure that the organization achieves its strategic objective (Vărzaru, 2015).

Some of the operational controls are the use of premise control to make constant evaluations whether the reason for the existence of a cost control strategy is still valid. If the reason is no longer valid, there should be a change of strategy to reflect the reality.  For example, Dell can change the strategy to control costs since it plans to expand its operations. Secondly, there should be a rapid and rigorous assessment of the strategy in the organization after the occurrence of immediate, unforeseen event. In this case, Dell needs to assess its strategy after it is continuous having a decline in its financial performance even after trying to make changes (Vărzaru, 2015).

Thirdly, the implementation control strategy will help in determining whether the overall strategy is likely to achieve it’s objective as planned, the progress of the strategy is reviewed continuously, which monitors progress of the strategy at different times. If there is a likelihood that the implemented strategy will fail, there should be adoption or a different strategy. In addition, there will be strategic surveillance on the events taking place outside and within the organization. This will help to uncover significant and unanticipated information by looking at various information sources like magazines journals then come up with appropriate actions (Vărzaru, 2015).

The balanced scorecard (BSC) can be used as an additional control since it does not only concentrate on financial performance. BSC is a strategic tool of management that makes it possible for a company to translate its strategic goals into measures of performance that are relevant. Both financial and non-financial measures are used as indicators of how far the strategies being implemented in an organization have gone in achieving strategic objectives. BSC helps in accessing performance in four different perspectives that include financial perspective, customer perspective, internal business perspective and the learning and growth perspectives. The use of BSC will thus help in achieving both the short-term and long-term goals of the business. The company should also adopt a business manufacturing model that integrates both an online and physical presence (Armesh et al., 2010). This will enable customers to make orders online and be able to pick them from retailers physically.

References

Armesh, H., Salarzehi, H., & Kord, B. (2010). INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS. Management,2(6).

Vărzaru, A. A. (2015). Design and Implementation of a Management Control System. Finance: Challenges of the Future, (17).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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