The comeback king

Once upon a time Dell Inc. was the top computer-maker in the world. 25 years later, founder Michael Dell is tirelessly working to bring the faltering company back from what the media has called ‘Dell Hell’. Rebecca Goozee catches up with the charismatic, if a little jaded, computer king at his headquarters in Austin, Texas, to determine whether the shifts in strategy can help the firm reclaim its title and reign supreme.

“At just over 10 percent of the business, the services sector is something that Dell has big ideas for going forward”
-Michael Dell

On 4 November, Dell Inc. celebrates its 25th anniversary. With much success in the 1980s and early 1990s - the company was widely admired both in and beyond the technology industry as a model of efficiency and for its shrewd use of IT - you would think Michael Dell's eponymous firm would have much to celebrate this year. However, thanks to a series of setbacks and poor decisions - not to mention the financial crisis, which has proved tougher on consumer goods firms than most - the last few years have been tough. The press even coined a name for it: Dell Hell.

It was in January 2007, against a backdrop of these struggles, that the founder of the multibillion-dollar PC-maker returned to his former role as CEO and found himself back in charge after three years away from the wheel. At this point, in January 2007, the company had tumbled from owning over 50 percent of the market in 2005 to around 24 percent just one year later. With an understandably concerned board in front of him, Dell pledged to put his utmost into transforming the fate of the company.

A little under 33 months later, and Dell's CEO has proved as good as his word, leading from the front and revolutioniszing the company's previous business model from one focused on direct sales over the internet or by telephone as opposed to retail stores, on hardware as opposed to services, and that primarily looked to the American market rather than an international one. While this model had been incredibly successful for quite some time, Dell recognised that it was not built to last; a new approach was required.

Today, Dell has transformed how the company operates, ordering a complete makeover of the earlier model. As soon as he stepped back in to the role of CEO, he immediately began shaking things up, recruiting senior executives from other Fortune 500 companies to lead the various sectors of the firm, including marketing, consumer products, operations and services, as well as rethinking the retail and consumer arm of the business. Often accused of a failure to innovate, the commercialisation of brand new technology and the desire to enter new markets is now unwaveringly and resolutely present throughout the business. Dell himself is now focused on a forward-thinking strategy, one that can attract fresh consumers and capture alternative market share - and, once again, he's got his eye on reaching the top.

Consumer evolution

"When Dell began we made a decision to focus first on business customers - the thinking being that the bigger the customer the more share we have," he explains at the company's Austin headquarters. "But today, that's changing and the consumer market has since become a lot more important to us and offers a lot of opportunity to grow. It's a combination of new capabilities, new products, new design and new people, which combined with a new leadership approach has allowed us to go after that opportunity."

Indeed, while Dell is and will remain primarily a B2B company, it has recently been increasingly focused on the consumer side of the market, and as such the channel dynamics have evolved quickly. Dell, with the help of his new executives, has rethought the retail side of the business so that consumers are now able to purchase products through 43,000 retailers, commercial resellers and value-added resellers that handle Dell systems around the world, as well as 50,000 partners on the channel side. "There is no doubt that the vast majority of our revenues and profit come from being a business-to-business company, which we don't necessarily think of as a bad thing," laughs Dell. "But our consumer business is now growing quite fast. And, you know, in contrast two years ago where we basically to had zero places where somebody could buy a machine other than the telephone, now we have 43,000 retail locations where someone can buy our products. So there have been some fairly notable changes in the business, for sure."

And it's not just how the products are sold that is making a difference to the increasing amount of consumer purchases, but also the range of various products that are available. Dell's consumer strategy has changed. Instead of focusing solely on price or storage capacity (or both), trends are showing that consumers are increasingly attracted to well-designed and stylish machines - something that long-time consumer-focused competitors Apple and HP can attest to. As such, Dell has been looking at the various sub-brands under which products are designed over the past 18 months and re-defined them to appeal to specific consumer groups. For example, Adamo is designed to appeal to the luxury market, focusing on high craftsmanship and experience; Inspiron is a fun, accessible, stylish and high-value brand; and Dimension is the value-driven, cost-orientated brand. Also available is Alienware, for high-end gaming, and Studio, designed for multimedia uses.

After employing Motorola's Ronald Garriques as head of the consumer division and executives like Ed Boyd from Nike, hired to revolutionise the company's design focus, there is no doubt that the consumer division has been completely revamped. But what about the rest of Dell and the important business-to-business side of operations? Dell explains that these areas have seen some important changes too. In December 2008, the company was officially restructured into four customer groups: consumers, corporations, SMBs and government and educational buyers. And today, each sector of the company has its own management team responsible for it, as opposed to the old way of doing things that left the organisation decentralised and struggling for identity - again this worked while the company was growing back in the 1980s and even the 1990s, but a US$60-billion company requires considerably more structure.

Crunch time

While all four segments of the company are now functioning much more efficiently, nobody was prepared for the economic crisis that hit just over 12 months ago. Nevertheless, Dell himself continued - and continues - to focus on the positives of the situation. "If you look at what's going on in the economy today, certainly you have to reflect that in your current thinking. There's a lot of focus, because of the financial crisis, on cost and cash flow, which is a natural reaction to a crisis. And when you focus on cost and cash flow you start to realizse that you want productivity because you don't get far moving a business forward without it, and following productivity you start to think about growth. This might not be the focus that everybody has today, but I feel confident that over time we'll move back to focus on productivity and growth."

And Dell certainly looks to be increasing its share of the market, with a boost of 11 percent in revenues in the US and the non-Japan part of Asia from the first quarter to the second this year - encouraging signs for a company that was struggling to grow at all just a few years ago. "Even more than that, when we look inside the quarter, we see from a week-to-week, month-to-month basis, a strengthening of the core business," explains Dell. And despite the challenges presented by the current state of the economy, Dell himself remains confident of the position that the company finds itself in. "I do think there's been a deferral in spending, but I think we will see it resume in 2010, probably occurring gradually, at different times for different industries," he says. "There is a lot of old, outdated equipment out there that will need to be replaced to maintain productivity."

And in line with this, the launch of Microsoft's Windows 7 in Q4 2009 and Office 2010 next year could well boost sales at Dell into 2010. Indeed, the corporate replacement cycle is a big focus at Dell. Companies have deferred purchases to the point where they have four or five-year-old systems that are standardised on an eight-year old operating system - let's face it, large enterprises never really did move over to Vista - which means the time is ripe for change. "I see the product cycle getting very exciting," reveals Dell. "When I look at the next six to nine months, I see a few things to get really excited about - the processor from Intel going from the desktop to the notebook, which will drive a huge improvement in performance and power. And Windows 7, which is a massive improvement over prior generations. Plus Office 2010, a dramatic improvement over the previous versions of Office, due out around March, April of next year."

Solutions and services

Dell is in a business where the performance and the use that customers can get out of the products ultimately depends on somebody else's work: the providers of the software or operating system, such as Microsoft, for example. As such, the health of one company inevitably has a fair amount of impact on the other. So does Dell have any plans to expand the solutions arm of the business? "Dell is evolving itself from a product company into a solutions integrator, where we're bringing complete solutions to our customers, whether they're the biggest companies in the world or governments or SMBs or consumers. And those integrated solutions are not just the things that we develop ourselves with the thousands of engineers that we have at Dell, but they also include technology from our partners."

Within the solutions side of the business, Dell himself believes that there is a lot of potential for the firm in the services sector. "There are some surprising things about our business that aren't so well known, and one of those is that we have a US$6 billion services business," says Dell. "This is definitely an area of potential growth and I foresee it growing quite a bit. It's certainly an area of emphasis for us as we focus on solutions. And I think one of the things we've learnt in the last four or five years is that when we went to our customers and said, 'Hey, we've got this new server and it's got this many megabytes and disk drives', there were some customers that said 'great'; but a lot said, 'we don't really care about your server because what we want is a solution for our supply chain or our customer relationship management'. And so we really had to build a much stronger solution here. We're not done yet, but it is a US$6 billion business, which is a pretty good-size when you think about it."

At just over 10 percent of the business, the services sector is something that Dell has big ideas for going forward. "If you look at the size of our hardware business versus the size of the services businesses, of course we want the services side to catch up and be more prominent, and there are lots of ways for us to do that."

Organic growth will continue to be a part of that, but so will partnerships, he explains - a major step for a company that has not always been a fan of such affiliations in the past. "One of the things you see in this business is that you can't do everything yourself, it just doesn't work. So there are a lot of great companies out there who we'll partner with, such as the Brocade deal that was announced recently. We've done about 10 acquisitions in the last two years, and although I wouldn't necessarily go looking for an acquisition, we're going to have a consistent strategy of acquiring new capabilities to enable our business to grow and do more for our customers."

Only time will tell if Dell can successfully return to the market leader that it once was. From the outside there have been some notable changes, and from the inside the company has gone through an extensive overhaul. It is now clear that Dell, the former short-term thinker, has evolved into someone that is planning for the future. And, if he continues to pull off the rest of the changes he has in mind that are currently kept strictly under wraps - including smart phones and social networking - the future could be looking pretty good for the former computer king.

Grand Designs

Ed Boyd, who joined the company from Nike, is the man in charge of design and is currently working to make design an integral value at Dell as part of the company's new strategy. Standing in front of dozens of prototypes for future laptops hanging on the wall in the consumer design lab, Boyd concedes that he wasn't overly excited when approached by the firm just over 20 months ago. "I was like, wow, Dell makes great boxes but they aren't very moving; they need someone who can think beyond just technology. So in the time that I've been here we've built a very diverse team - we've gone from about five people to around 140 - from many different design companies and consultancies.

"We did some research in the beginning and we asked people about customisation. People rated Dell as one of the leaders in the industry in personalisation and I kind of scratched my head, because when I was at Nike doing NikeID, I never thought of Dell as a leader in personalisation. But we realized that we had the customers' vote of confidence so we started looking at how to individualise the products further.

"It became obvious that it was more about what the product looked like than what was under the hood - what processors were used, for example. So last December, we launched a design studio and set up a gallery to leverage our unique ability to customise products. So now, people can come to Dell, pick their products or a piece of art from an upcoming artist and have it printed on the product in a really beautiful way. And we've now got great artists from all over the world coming and collaborating with us too."

Dells best kept secret

Deep in Dell's Round Rock headquaters resides one of the company's lowest-profile departments. "I'm going to prove to all the skeptics out there that outside of your desktop, your office and your home, you are in fact using a Dell almost every two hours - and you don't even know it," enthuses Josh Kivenko, Global Marketing Manager for the Original Equipment Manufacturers (OEM) market. "The OEM division has been in business for longer than 10 years. We're global. We have over 1500 customers in well over 40 verticals and the use of Dell hardware is so diverse. I mean you can go from a kiosk to a customer who's trying to build their own HP PC solution and resell that to a customer like Google who's building a network appliance that's all branded Google and selling that ultimately into a data center. Or an industrial automation company that's building this hefty enclosure with a desk and a chair and a table and five screens. Or a trading floor solution that is sold into banks that are powered by Dell blades and have an incredible fan and cooling and screen and 3D graphics. All the way through to a company that's powering switching devices for subway systems.

"There's no doubt that my division at Dell is an element of a diversified portfolio. We're a diversity player. We're not talking about virtualization or systems management or power and cooling - we're talking about something totally different. Within my group we're in so many different verticals; there is so much white space out there,  which means there's a big opportunity for us going forward."

Dell, notoriously shy of personal questions, was involved with computers from the age of 15 when he took apart an Apple II. From an early age, Dell had an interest in business and by the time he was 17, had earned enough money to pay for a BMW by building his own computers and selling them directly to customers at a much lower price than the retailers. He continued the business as he took classes at the University of Texas in Austin and called the computer company PCs Limited. With a little help in the form of a loan from his grandparents, Dell dropped out of university to run the fledgling company, which later became Dell Computer Corporation and finally Dell Inc. CEO at 19, Dell has received extensive accolades from publications including Inc. magazine, PC magazine, Financial World, Industry Week and Chief Executive magazine.

"I'm quite certain there won't be one computer of the future; there'll be many different kinds. There's every shape and size you want to think about: computers in your pocket, computers you carry around with you, computers in the sky, computers on your desk. I think there's still a lot of work to do in the man-machine interface and visualization continues to be an important motive of accessing information, which is why people tend to be interested in small screens. And small screens are great 'cause you can take them with you, but actually, people really want to see more information, not less. So if you look at the desktop computers, the screens keep getting bigger and bigger and bigger. I think visualisation will play a big role. Certainly as there's more bandwidth you'll have more server and cloud-based computing models."