Many people argue that opening a business requires a very creative and innovative ideas. It is, however, not true for Michael Dell, who once opened a business with a simple idea that he did not sell computers to selling brokers but directly to consumers. He cut off the middlemen; thus, the price of a PC could be suppressed. He started the business with a capital of $ 1000, and he did marketing through the “Mail Order”, and within 16 years, his computer sales increased from 6 million to $ 36.9 billion dollars. Then, he opened offices in London in 1987, and now he has opened branch offices with 40,000 employees around the world.
However, Dell did not develop his business smoothly. In 1993, Compaq, which was the leader of the PC sale market at the time, put through a price cut to compete with Dell. As a result, Dell lost 65 million dollars in the first six months, which caused him to be nearly bankrupt. Finally, Dell made a very fundamental change in the so-called reengineering process in the business with the introduction of E-commerce. In 1999, Dell began to rely on speed. Whether or not the orders of his customers were complex was served as fast as he could.
Other innovations were assembling computers after orders. Dell’s mass customization approach, namely producing in large numbers, reduced the production cost per unit. Dell put parts store run by his supplier, and it took 15 minutes to get there from the factory, and transportation was arranged by e-mail and made quickly. Dell provided a rapid servant by performing communication via e-mails and Web sites. PCs from Dell in the same test with the network testing and cooperation with other suppliers could reduce the test period of 60 – 90 days to just 15 days. Dell monitored employee productivity and Return On Investment (ROI) on an ongoing basis.
Dell has introduced E-commerce in the business. Most of his customers did transaction through his E-commerce. The customers could also access detailed diagrams of computers and get information about troubleshooting. By using the pricing and product configuration online, it could eliminate the work, and Dell himself could save 15% administrative fee. For the biggest buyers, such as Easman Chemical, Monsanto and Wells Fargo, Dell did business of Web pages that could access Dell’s E-commerce, which allowed employees to order quickly and easily. By using this strategy Dell could sell at a price below his competitors. In 1999, Dell could sell 1.7 million dollars per day on the website of his E-commerce. Dell shares rose 2000 percent in two years. Dell could compete with world-class businesses, such as IBM, Compaq, HP, and Bell-Nec. Even the market share and profits continued to rise, and eventually he became the greatest PC seller in the world.
Dell’s business on computers was an amazing business ranked 23rd in the world in 2001 and 4th in 2003. Dell has got real benefits from the use of E-commerce and has a success story that is hard to believe, but the story is real and comes from a simple idea.