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Integrating internet applications is key to success Back  
Tim McCarthy explains how the direct business model used at Dell can benefit financial services companies and deliver benefits to the bottom line.
In a competitive environment like the IT sector, aggressive cost management and a low cost structure are critical to success. Dell has used the direct business model to address this issue. The word direct is not just a slogan incorporated as part of the company’s marketing activities: it refers to the company’s one to one relationships with its customers.

Our adherence to this type of business model over the past sixteen years has been key to driving our success and growth, enabling us to become a thirty-billion-dollar plus enterprise.

Using the direct model, the company has effectively removed the middle-man, the associated costs and the channel inventory. The net result is that the company has one tenth of the inventory of its closest competitor.

At Dell, any computer from one six distinct product ranges is custom-manufactured only on receipt of a customer order. Apart from corporate accounts, customers pay at time of order so effectively the products are paid for in advance. Meanwhile Dell’s ‘Just in Time’ manufacturing process, complete with supplier integration, ensures that raw materials, delivered to the factory to meet customer and production demand, are paid for by Dell only on receipt of the goods. This process makes for an efficient finance model, increases the cash conversion cycle and eliminates excess raw inventory and zero finished goods - effectively negating the need to have even a warehouse at Dell’s manufacturing sites.

From an inventory turnover perspective, Dell can introduce new computer technologies as soon as they become available as there is no excess product in the distribution channel to sell first. The company can also pass on the benefits of any reduced component costs almost immediately - which helps the company position itself as a product and cost leader in an increasingly competitive market. Effectively the focus on superior execution, tight financial management and the ability to alter products to meet exact customer demand, gives Dell a unique business advantage.

One of the driving forces behind the direct business model is the internet - viewed by Dell as the logical and evolutionary extension of the direct way of doing business. But the direct method of doing business is flexible and could potentially be adapted for any industry - specifically the financial industry.

The internet is the ultimate tool for helping companies in all market sectors to connect directly with customer. It has helped foster a worldwide ‘direct mentality’, bringing information and services directly to end-users in unprecedented ways. The power to know your customer, and his or her needs, is half the battle in an attempt to continually grow and develop markets. The internet provides the ultimate self-service infrastructure that squares the circle of improving customer service in a commodity market. It promises scalability - a high growth for minimal extra investment. It can reinforce time-to-market strategy. The end result of all of this is increased savings to the business and improved customer service.

Dell now conducts over half of its sales online, representing in excess of fifty million dollars of sales a year. Those who operate in an indirect marketplace struggle to put pricing on the web for fear of alienating the dealer channel. By adopting a direct business philosophy this issue is negated and the internet actually presents the liberty of immediacy as opposed to traditional advertising or direct mail - if prices drop, the web site can be reconfigured within hours offering a huge competitive advantage in an already fast moving industry.

The internet also provides an opportunity for companies, regardless of sector, to extend reach internationally, to accelerate growth and, importantly, to handle and service that growth. To draw a parallel with the financial sector, the web has done for Dell what ATM machines did for the banks: it eliminates a huge proportion of non value-added tasks and liberates employees to provide a superior customer service.

The internet can also be used as a means for company and services integration. For example, at Dell.com customers may review, configure and price systems within Dell’s entire product line; order systems online; and track orders from manufacturing through shipping. Relationships with over 80 per cent of Dell’s suppliers are handled over the internet. At valuechain.dell.com, Dell shares information on a range of topics, including product quality and inventory, with its suppliers. Today, over half of Dell customers use Web-enabled support. By the end of 2001 Dell’s goal is for 80 percent of customers to go online for technical help. By utilising the online environment in this manner, Dell is reducing the level of resources required and the investment needed - helping to reduce bottom line costs.

By developing a direct business model, efficiencies and strong customer relationships, can be introduced. Add to this the unique opportunity that the Internet presents and you have a way of systematically changing and radically improving the way that you conduct all aspects of your business. While it was important five years ago to just establish a presence on the Web, it’s now mission-critical to integrate the Internet throughout your business to achieve sustainable advantages - competitive and financial - in the markets you serve.

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