Dell’s
direct sales business model growth has slowed significantly over recent years.
The company is now building a new strategic plan with an indirect sales model
and has been investing significant dollars in software, services and other IP.
The challenge for Dell will be for dell to maintain its existing profit margins
why directing resources to new products and services. To ’stop the bleeding’
dell is cutting costs and headcount (by 10%). However, by adding new services
surely the company’s high profit margins in hardware will be impacted, even
with the reduction in expenses. This will have obvious impact on the company’s
overall earnings growth.

Dell’s Profit Margins:

• Gross Margin – 17.3%
• Pre-Tax Margin – 6.1 %
• Net Profit Margin – 4.5 %
• 5Yr Gross Margin (5-Year Avg.)
  – 17.8%
• 5Yr PreTax Margin (5-Year Avg.)
  – 8.0 %
• 5Yr Net Profit Margin (5-Year
  Avg.) – 5.9%

HOW WILL A SHIFT IN THE PRODUCTS
OR SERVICES YOUR COMPANY PROVIDES EFFECT YOUR PROFIT MARGIN? HOW WILL THESE
CHANGES EFFECT SHAREHOLDER VALUE?

Gartner research provides the following
‘recommendations’ to Dell and Dell’s End-users:

• Recommendations to
  Dell: Cost improvements alone will not be enough for the
  company to improve growth significantly. Dell needs to continue efforts to
  improve its service and support offerings, partner relationships, and invest
  in hardware and software that is unique to the company. It also needs to market
  those capabilities effectively once they are enhanced. In combination with
  those steps, Dell will need to seek cost gains where possible, to see sustained
  benefits to its business.
  
• Recommendations to
  Dell End-users: Continue to treat Dell as a reliable provider of
  cost-competitive computer technology. However, expect Dell to approach you
  about broader service and solution engagements. Be cautious about these engagements
  until Dell establishes a track record of success.

Dell’s
Earnings Report Reflects Shift in Strategy. [Gartner]

Profit Margin Notes (see The
Bottom Line on Margins, [Investopedia] for more information):

• Gross Profit Margin
  – or gross margin for short – tells us the profit a company makes on its cost
  of sales, or cost of goods sold. In other words, it indicates how efficiently
  management uses labor and supplies in the production process. Gross
  Profit Margin = (Sales – Cost of Goods Sold)/Sales
  
• Operating Profit Margin
  – By comparing earnings before interest and taxes (EBIT) to sales, operating
  profit margins show how successful a company’s management has been in generating
  income from the operation of the business. Operating Profit Margin
  = EBIT/Sales

HOW DOES YOUR LEADERSHIP STYLE OR THE LEADERSHIP STYLE OF YOUR COMPANY’S CEO, BOARD, OR EXECUTIVES SHAPE THE PRODUCTS AND SERVICES THAT YOUR COMPANY DELIVERS?

While operational excellence alone is not the basis of a sustainable strategy, managing operations remains a priority for all organizations. Without excellent operations, companies will find it difficult to execute strategies, even strategies that are not dependent on having the lowest cost structure in the industry.

Kaplan and Norton describe operations management as the encompassing four important processes:

1. Develop and sustain supplier relationships
2. Produce products and services
3. Distribute and deliver products and services to customers
4. Manage risk

They provide the following strategy map as an overview on how operations (shaded) produces long-term shareholder value. This strategy map, including operations management as well as four pillars of the organization (financial, customer, internal and learning & growth perspectives) is a superb guide to what produces the shareholder value that is crucial to any organization.

CLICK ON IMAGE FOR LARGE VIEW

Strategy Maps: Converting Intangible Assets Into Tangible Outcomes. [Robert S. Kaplan & David P. Norton]

Strategy Matrix by Bill Inman