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PRODUCT DEVELOPMENT

AT DELL COMPUTERCORPORATION

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EXECUTIVE SUMMARY

This case is all about dell computer which in spite of taking agood start got stuck into cash crunch in 1993.

The company is also facing problems with their existing designof portable computer as they had some technical problem

relating to battery life.

For solving the problem a meeting was held in hopes the groupcould reach a consensus on recommendation for developing a

new line of laptop computers.

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THE PERSONAL COMPUTER INDUSTRY

The first digital computer were designed by Charles Babbage in the 1830s. Micro computer revolution started in 1970s, with machine catering to hobbyists and

hackers.

In July 1974 an electronic magazine promoted a printed circuit board that came with

instruction book for simulation.

In late 1970s and 1980s apple computer California based firm successfully

commercialized an intuitively easy to use interface.

Initially Texas Instruments and Zenith entered in the business segment of

microcomputer.

To play catch-up, IBM rapidly leveraged-off its traditional corporate base and strongdirect sales and services organization.

It outsourced hardware & software components to launch its IBM personal computer

in 1981.

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THE HISTORY OF DELL

In 1983 Michael Dell a freshman at the University of Texas, Austin started

upgrading IBM compatible personal computers door to door for local business.

He soon started buying and assembling components himself in order to sell

computer his name directly to customers.

High growth and attractive margins allowed him to fund growth internally and he

began to get number of orders from large oil companies and government

agencies.

In order to promote dell product , dell started 24 hour complaint hotline & offer

a supply of back up replacement equipment.

Dells company grew to $6 million by 1985, firm introduced its own brand of

personal computers and ended with $70 million in sales.

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DELL BUSINESS MODEL

Dell computer used the same principal to sell computers. Thecompany focused on selling customized products directly via mail to

shabby customer.

Dell assured product quality by extensively pretesting all the

configuration options it offered.A 24-hour telephone support system comprising well-trained

technical representative provided the first post-shipment level of

support.

Dell serviced its customers with combination of home basedtelephone representative and field based representative.

Dell maintained a months worth of component inventory but it

suppliers generally carried supplemental buffer stock that could be

immediately shipped.

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PROBLEM FACED BY DELL

Dell had to callback 17000 units due to technical

problem.

Company got stuck into Cash Crunch.

Dell stock plunged to $7 a share.

Profit slashed to $10 million.

Retail Selling proved contrary to dell.

Senior management unable to guide the firm to maturity.

Improper structure of Product Development Process

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THE NEXT GENERATION: WHICH BATTERY

Holliday & his team entertained only a few realistic development option:

Computer with a proven battery technology (NiHi):

McCarty & Taylor, the mechanical engineer, favored this option such ascommunication control or memory management accessories.

Go with the new battery technology (LiOn):

Dell could incorporate new Lithium ion batteries into the notebook. Thisoption mean incorporating an unproven & more expensive technology,which would also take up more space than traditional batteries.

Defer commitment to either battery technology:

Dell could continue to pursue the laptop development withoutcommitting to either battery technology at the current phase review.

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DELL HAS THREE OPTION FOR PDP

Option 1: continue with a proven battery technology (NiHi)

Confidence = 100% (likelihood that it works as expected)

Net margin = 825,000 units * $600/units- $10m =$485m

Option 2: Go with the new battery technology (LiOn)

Confidence = 60% (likelihood that it works as expected): nsky

Net margin (if LiOn works) = 990,000 units*$600/unit-$10m =$584m

Net margin (if LiOn fails) = (825,000 units*0.5) * $600/units-($10+0.3*$10) =$234.5m

If LiOn fails at launch, a switch to NiHi would require substantial rework(70% of original schedule and 30% of cost). Because competitors wouldhave an established product on the market before them. Dell would loseabout 50% of projected units sold.

If LiOn causes a failure, there could be spillover effects into the desktop

business. Dell regulation for qualify could be tarnished.

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Option 3: Defer commitment until qualification phase review (dual

development or design)

*If dualdevelopment paths

Estimated additionalfixed cost

=$2.5m

*If product is

overdesigned

Estimated additional

variable cost

=0.5% of revenue

(2% of margin)Gross margin (if

LiOn works)

999,000*$600/unit $594m (before

additional cost)

Gross margin (ifLiOn fails) 825,000*$600/unit $495m (beforeadditional cost)

The analysis assumes that Sony will give us enough information at the

end of the qualification phase to determine with full certainly if LiOn

will work or fail. If it fails Dell can drop it and revert to option 1.

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*these are the actual project cost incurred. They include additional

designers and engineers, material & tools cost, etc. if we follow a

dual path until the qualification phase review. Te costs do not

include the product opportunity forego if we had to pull people

away from other projects.

* Because of the LiOn battery different dimension and properties we

would have to overdesign the computer case, the charging

circuitry and battery management software to a accommodate

either battery technology which would add about $12 cost/unit.

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Profile

Planning

Impementatiion

Qualification

Launch

Acceptance

Time(Months)

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DELLS LATITUDE DEVELOPMENT PROJECT

In 1991, Dell came out with its first line of portable computers .

In 1992, with portables accounting for 17 percent of Dells sales, rumors circulated

about quality problems.

Early in 1993, Dell canceled a new line of laptops under development, since these

were deemed too slow and expensive.

By May 1993, notebook sales had slipped to just 6 percent of Dell sales previously

account for 20-25 percent of sales.

Bill Gated stated:

Dell is a super-solid company .Theyll get on top of the situation

In October 1993, Dell recalled 17,000 notebooks. Announced plans for launching a

new line of notebooks, named the latitude series.

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NEW PRODUCT DEVELOPMENT

Profile Phase:

Product and market definition, resulting in a two to three page productfeatures guide.

Planning Phase:

Detailed business case for the product.

Implemental Phase:

Designed, built and tested functional prototypes of the proposed product.

LaunchP

hase:The entire customer buying experience, from opening the packaged finishedproduct to running various software applications, was exhaustively tested.

Acceptance Phase:

The team collected customer feedback about the product for up to threemonths after launch.

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PORTABLE COMPUTER INDUSTRY

Osborne marketed the first portable computer in 1981.

By the end of the decade, the quality of the portability itself gave these

machines gross margins that were typically 3 to 5 percent above desktops.

In 1993 portable were classified as laptops if they weighed between 4.5 &

8 pounds & sub notebooks if they weighed under 4 pounds.

World United States

1992 4.3 2.2

1993 6.2 2.9

1994 7.4 3.2

1995 8.9 3.7

Portable computer Market Size (millions of units)

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DELL FINANCIAL DATA

Particular 1991 1992 1993

Net sale($M) $890 $2.024 $2.873

Products

Desktops 90% 88% 94%

Laptops 10% 12% 2%

Servers -- -- 4%

Market segment

sales

Relationship 59% 61% 64%

Transaction 41% 39% 36%

Markets

US 72.8% 72.5% 70.9%

Europe 27.2% 27.5% 27.2%

Asia -- -- 1.9%

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