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  • Dell Reaps What it Sows

    March 7th, 2007

    Do you remember that infamous statement back in the 1990s from Michael Dell, CEO of Dell Computer (once again)? Apple was on the ropes, hemorrhaging millions of dollars of red ink, and Dell suggested Apple give the money back to its stockholders; more or less close up shop.

    Of course, Dell was on a roll then, but consider how the situation has reversed itself.

    Without going into all the nasty financial details, Dell is now the company that’s confronting a sliding market share, reduced profits and all the rest. With growing problems moving product, and attempts to recover from a reputation for poor customer support, founder Michael Dell has returned to the drivers seat and his hand-selected CEO, Kevin Rollins, was sent packing. Well, technically Rollins quit, but if you believe that, I have this bridge in Brooklyn that I can sell you real cheap!

    When Dell was in its heyday, it could do no wrong. Starting from a lowly PC assembler in his college dorm, Michael Dell epitomized commodity hardware. He is to be commended for finding ever-cheaper ways to build personal computers from off-the-shelf parts, and maintaining a lean, mean supply line from manufacturing to delivery.

    Indeed, Dell rose to become the number one PC maker. Not that the Dell product line was altogether different from other generic PC boxes, except for the label and a few minor case design issues, but it was a an efficient place where an individual or company could order a product and have it assembled to their precise specifications.

    Indeed, Dell became the envy of the industry. Despite the fact that you couldn’t buy a Dell at the corner Best Buy or CompUSA, millions of their products were sold every single year, and stockholders were joyous as the company managed to meet or exceed Wall Street estimates.

    However, all good things come to an end. I won’t suggest that there was any single problem that emerged as more significant than others. Maybe it was just a gradual erosion of product quality and support, or maybe the rest of the PC industry caught up with Dell’s vaunted manufacturing efficiencies. Or perhaps a combination of these and other factors.

    Indeed, even a few years ago, I encountered difficulties with Dell’s support. I recall a situation where there was a an Internet connectivity problem on a friend’s PC. I telephoned Dell to help find a solution. The first support person sounded as if he was reading from a prepared script. Whenever I interrupted him to move on to another step, he struggled to find his place. Finally, I suggested he take me to his leader, and thus waited and endured endless phone music while a supervisor was supposedly being located.

    During that time, I figured out the solution myself, which required a change to a couple of command line settings accessed via the pseudo DOS prompt under Windows. No other support person ever came online, and I finally just hung up.

    Later, Dell outsourced their support overseas, which only made matters worse, and they reportedly committed over $100 million for a “Dell 2.0” to right the company’s listing ship. They even hired design engineers to try to improve upon the generic look of their products, and moved to bring support back in-house.

    Did they succeed? Well, right now, with falling earnings and dimmed prospects, it’s clear that Michael Dell has his work cut out for him. With thousands and thousands of jobs at stake, one has to hope he succeeds for their sake if for no other reason.

    This isn’t to say that Dell makes bad products. I am an enthusiastic user of one of their 24-inch displays, the 2407WFP. In fact, I think it delivers a better picture than Apple’s 23-inch counterpart, and sells for a lot less ($629 currently). Yes, it doesn’t have a pretty, metallic case, but such things can be easily overlooked.

    So what should Michael Dell do to fix the company that bears his name? No, I won’t suggest that he close shop and refund the money to his investors. But I also have to wonder just what he’s thinking about the infamous statement he made about Apple once upon a time.



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    9 Responses to “Dell Reaps What it Sows”

    1. sleepy says:

      “founder Michael Dell has returned to the drivers seat and his hand-selected CEO, Kevin Rollins, was sent packing. Well, technically Rollins quit, but if you believe that..”

      I believe it. MD was in the driver’s seat all along. Look at the history: Dell & Rollins were “2 halves of one brain” running Dell from a shared office. Rollins was the consultant hired to (financially) engineer Dell’s dreams. Look at the timing: No accounts signed off for nearly a year; huge new stock issue transferred to overseas subsidiary late Decemer; CFO out end of December, CEO out end of January. Looks more like a planned exit from a sinking ship with a final smoke-and-mirrors gift to MD than an incompetent CEO sent packing by a superior being.

    2. John says:

      in summer of 2004, I met a young woman and during our chit chat, she mentioned that her role model was Michael Dell because he built himself and his company from nothing and became number 1.

      I remember saying at that time that I had no real respect for the man even though I admitted that he was a shrewd business person. I had said that Dell dominated the PC business to the ruin of that business. Dell rose to its position on top of the PC manufacturing heap by undercutting everybody else. However, that could only last for so long. At some point, they couldn’t get more efficient. As some point all the fat would be trimmed. What would Dell do when they reached that point? The PC business was being held back by Dell. Nobody could make enough money to invest in R&D because of Dell’s brutal competition. Dell didn’t innovate and their existence prohibited others from innovating.

      Apple can afford to invest in R&D and innovation because it’s not selling the exact same product as Dell. Apple’s position allowed it to avoid direct competition from Dell.

      Well, Dell have reached that point, and their business plan is not doing so well anymore.

    3. tundraboy says:

      You can only ride one horse so long before it drops dead of exhaustion. Dell’s horse was process technology. They wrote the book on how to build things cheaper, faster and with greater flexibility than everyone else. But they never developed any in-house expertise in product design and R&D. That was their failing, they relied on the component and OS suppliers’ R&D for product technology upgrades. Problem is, and technological breakthroughs that Intel, AMD, Microsoft, Seagate, etc. come up with are also available to Dell’s competitors. They never developed a Dell design DNA unless you call generic and boring a type of design DNA in itself.

      It’s probably not too difficult to scour the world for another Jonathan Ive who can then hire a stable of inspired, imaginative industrial designers to crank out great looking and working product. But building up world-class corporate R&D know-how and internalizing an always-on R&D mentality across the whole hierarchy takes time, money and leadership.

      From its inception, it is pretty obvious that Michael Dell was a process tech guy through and through. Contrast that with Steve Jobs who is the quintessential product tech guy. I don’t know if Michael Dell has the interest, or more importantly, the instincts to be a product tech guy as well. But he better have it or he won’t be able to bring Dell back to the land of sustained growth.

      Well if he’s product tech skills are hopeless, Michael Dell could always bid for contract manufacturing gigs with Apple. He’s been dying to put OSX in his machines anyway. This way he’ll get his wish.

    4. DavidEGo says:

      How much does innovation count when all boxes have the same OS. It’s the OS that makes the box and no matter what color ribbon, or glitter, or shape, they all run Windows. They have had to rely on Microsoft’s DNA of innovation, to sell their computers. Tell me, what’s the difference between a Dell, Sony, HP, Acer, and a Toshiba? — not enought to be concerned with, I’m sure.

    5. wall street investor says:

      I would be interested in that bridge you are selling along with Microsoft’s new “REVOLUTIONARY” operating system, Windows Vista. This new system should help sell more $300 Dell computers.

    6. I would be interested in that bridge you are selling along with Microsoft’s new “REVOLUTIONARY” operating system, Windows Vista. This new system should help sell more $300 Dell computers.

      You do know, also, that the cheap Dell ships with the cheap version of Vista, which is hardly more than a glossed-over XP in many respects. You want to upgrade to a more useful version, suddenly that cheap PC isn’t so cheap 🙂

      Peace,
      Gene

    7. tundraboy says:

      How much does innovation count when all boxes have the same OS. It’s the OS that makes the box and no matter what color ribbon, or glitter, or shape, they all run Windows. They have had to rely on Microsoft’s DNA of innovation, to sell their computers. Tell me, what’s the difference between a Dell, Sony, HP, Acer, and a Toshiba? — not enought to be concerned with, I’m sure.

      You are correct. In the narrow field of Windows PCs.

      But I’m talking about sustained growth for the Dell Corporation. Not just Dell PC operations. Sony, HP and Toshiba have real R&D capabilities staffed by scientists and engineers working on leading edge technologies on a wide range of products. I guess the subtext I didn’t make explicit is that Dell will have to go beyond just Windows PCs if they want to return to a path of sustained growth. Windows PCs just aren’t going to do it for them anymore. As far as I can recall their one serious stab (MP3 player) has been a failure because, yup, they just can’t do product design. I think they also tried to do LCD flat panel tv’s and their product was undistinguished as well.

      I just can’t see Dell opening up (or vastly expanding) a whole new market the way Sony did with the walkman or the transistor radio before that, HP with laser printers, and Apple with the iPod. And regularly creating new markets is really the only path for sustained growth.

    8. You are correct. In the narrow field of Windows PCs.

      But I’m talking about sustained growth for the Dell Corporation. Not just Dell PC operations. Sony, HP and Toshiba have real R&D capabilities staffed by scientists and engineers working on leading edge technologies on a wide range of products. I guess the subtext I didn’t make explicit is that Dell will have to go beyond just Windows PCs if they want to return to a path of sustained growth. Windows PCs just aren’t going to do it for them anymore. As far as I can recall their one serious stab (MP3 player) has been a failure because, yup, they just can’t do product design. I think they also tried to do LCD flat panel tv’s and their product was undistinguished as well.

      I just can’t see Dell opening up (or vastly expanding) a whole new market the way Sony did with the walkman or the transistor radio before that, HP with laser printers, and Apple with the iPod. And regularly creating new markets is really the only path for sustained growth.

      The key here is that Dell is, as its presently structured, just a glorified online reseller of commodity products. But nothing they do can’t be done as well or better by other companies. That’s the problem they face and they’ll have to decide how best to leverage their business plan or come up with something that can grow their market in the future.

      Peace,
      Gene

    9. How much does innovation count when all boxes have the same OS. It’s the OS that makes the box and no matter what color ribbon, or glitter, or shape, they all run Windows. They have had to rely on Microsoft’s DNA of innovation, to sell their computers. Tell me, what’s the difference between a Dell, Sony, HP, Acer, and a Toshiba? — not enought to be concerned with, I’m sure.

      I agree. That’s Dell’s problem, and one they won’t be able to solve without a major restructuring.

      Peace,
      Gene

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