What is a market-driven strategy?

Volume 2 Letter 6

A market-driven strategy is the planning and deployment of business resources to achieve a central set of objectives through a continuously changing set of circumstances. It is customer focused and organizational wide with every level of the organization having its business unit strategy nested within the larger corporate strategy. Finally, it is concise, clear and complete and must be communicated to everyone in the organization.

Every organizational decision made must affirmatively answer one question, “will this action move our organization closer to our objectives?” If the strategy is fuzzy or ill defined it makes it very difficult for managers to properly answer the above question.

In the case below, Dell drifted away from their original strategy with a foray into retail outlets and notebook computers leaving Dell managers in disarray. They didn’t understand, nor did they have the skills to execute the two new strategic directions.

When Michael Dell founded his company in 1984 he had a clear strategy of selling his computers directly to sophisticated customers bypassing the retail outlets and their high mark-ups. Initially, Dell targeted the high-end segment with ads in trade magazines inducing purchase with low prices. Then, to keep ahead of the clones and their low price matching strategies, Dell moved to a strategy of building computers to order. This kept inventories low and resulted in minimal financing costs which in turn enabled Dell to invest in geographic growth. Throughout the late 1980’s and early 90’s Dell became the master of direct marketing.

By 1993, however, Dell had lost its way. The company departed from its core strategy and started selling computers through retailers. At the same time they also entered the notebook market. A company with a great relationship with its end customers was suddenly trading strengths for weaknesses in an effort to find more growth. But growth at what price?

Firstly, Dell had no experience in managing retail relationships. Secondly, Dell, a master of manufacturing, was offering notebook computers from a third party supplier. In both cases Dell was allowing a third party to come between them and their customers and in both cases it was a disaster. The combination of high service costs for poor quality notebook computers and weak control systems with retailers amounted to a 36 million dollar loss in 1993.

Michael Dell recognized his errors quickly and redirected his strategy. Dell withdrew from the retail outlets and refocused efforts on direct sales using telephone and fax sales and later, the Internet. At the same time, Dell abandoned the notebook market for nine months until they could fix their manufacturing problems and offer their customers a competitive product.

By 1995, Dell was the fifth largest seller of Personal Computers. In 2001 Dell surpassed Compaq to become the largest PC manufacturer and is by far the most profitable computer maker today selling in over 130 countries.

One doesn’t always get it right and mistakes are made but the person who thinks strategically will always prevail for “wisdom prevails over strength and knowledge over brute force.” For business “wars are won by skillful strategy and victory is the fruit of long planning.”

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