Dell

P. Burns, Entrepreneurship and Small Business, 3rd edn Palgrave Macmillan, 2011

Case with questions j Michael DellBorn in 1965, Michael Dell is one of the richest men in the world with a fortune in excess of $17 billion. He started Dell Computers in 1984 with just $620. Today the company is worth billions and employs some 76 500 people, globally.

His entrepreneurial career started early. At the age of 12 he made $1200 by selling his stamp collection. At the age of 14 he devised a marketing scheme to sell newspapers which earned him over $11 000. From the age of 15 his interest in calculators and then computers started to grow. He started buying microchips and other bits of computer hardware in order to build systems because he realised that he could buy, say, a disk drive for $500 which would sell in the shops for $1800. In 1983 he began a pre-med degree at the University of Texas but dropped out fairly quickly to set up his own business selling computers direct to end-users.

From the start Michael Dell knew the critical success factor for his business. He used an expert to build prototype computers whilst he concentrated on nding cheap components so he could keep prices low. The rm grew at an incredible pace, notching up sales of $3.7 million in the rst nine months. The company went on to pioneer direct marketing in the industry and integrated supply chain management, linking customers orders and suppli-ers through the internet both strategies helping to keep those prices low. At all times


the focus on a low-cost/low-price marketing strategy has been maintained. The business model has been consistent and followed relentlessly:

Sell directly to consumers; >Keep prices low and quality high; >Offer solid technological support to customers. >

We built the company around a systematic process: give customers the high-quality computers they want at a competitive price as quickly as possible, backed by great service.

A custom-built Dell computer is shipped within 36 hours of being ordered through the companys website or by phone. The company maintains an extremely low inventory of computer parts, suf cient at any time to meet only a few days of orders. This strategy not only reduces costs but also the need for warehouse space as well as ensuring only the most up-to-date parts are in stock. The companys steady growth rate has been achieved by expanding its customer base in the USA and overseas selling not just to individual consumers but also to large and small companies, educational institutions, and govern-ment agencies. The company has also expanded its product portfolio to include network servers, storage systems, handheld computers, HDTVs, cameras, printers, MP3 players and printers all built by other manufacturers.

We were moving in the right direction with our emphasis on liquidity, pro tability and growth. But we were also challenged by a cultural issue. We had created an atmosphere in which we focused on growth We had to shift to focus away from an external orientation to one that strengthened our company internally. For us growing up meant guring out a way to combine our signature informal, en-trepreneurial style and want-to attitude with the can-do capabilities that would allow us to develop as a company. It meant incorporating into our everyday structures the valuable lessons wed begun to learn using P&Ls [pro t and loss accounts]. It meant focusing our employees to think in terms of shareholder value. It meant respecting the three golden rules at Dell:

1. Disdain inventory.2. Always listen to the customer.3. Never sell indirect.

Dells mission is to be the most successful computer company in the world at deliver-ing the best computer experience in markets we serve. In doing so, Dell sets out to meet customer expectations of:

Highest quality; >Leading technology; >Competitive pricing; >Individual and company accountability; >Best-in-class service and support; >Flexible customization capability; >Superior corporate citizenship; >Financial stability. >

Dell calls its corporate philosophy the Soul of Dell. It sees its core elements as:

Customers > We believe in creating loyal customers by providing a superior experi-ence at a greater value. We are committed to direct relationships, providing the best products and services based on standards-based technology, and outperforming the competition with value and a superior customer experience.


The Dell team > We believe our continued success lies in teamwork and the opportu-nity each team member has to learn, develop and grow. We are committed to being a merito cracy, and to developing, retaining and attracting the best people, re ective of our worldwide market place.Direct relationships > We believe in being direct in all we do. We are committed to be-having ethically: responding to customer needs in a timely and reasonable manner; fostering open communications and building effective relationships with customers, partners, suppliers and each other; and operating without inef cient hierarchy and bureaucracy.Global citizenship > We believe in participating responsibly in the global market place. We are committed to understanding and respecting laws, values and cultures wher-ever we do business; pro tably growing in all markets; promoting a healthy business climate globally; and contributing positively in every community we call home, both personally and organizationally.Winning > We have a passion for winning in everything we do. We are committed to operational excellence, superior customer experience, leading in the global markets we serve, being known as a great place to work, and providing superior shareholder value over time.

Michael Dell has always been keen on developing relationships with customers, employees and sup-pliers. This underpins his direct selling strategy and his integrated supply chain network. Dell has been a pioneer of e-business. What makes Dell special today is its fully integrated value chain B2B2C. Suppliers, including many small rms, have real-time access to information about customer orders and deliveries via the companys extranet. They organise supplies of hard drives, motherboards, modems and so on, on a just-in-time basis so as to keep the production line moving smoothly. From the parts being delivered to the orders being shipped out takes just a few hours. Inventories are minimised and, what is more, the cash is received from the customer before Dell pays its suppliers. Dell have created a three-way information partnership between itself and its customers and suppliers by treating them as collabora-tors who together nd ways of improving ef ciency.

The best way I know to establish and maintain a healthy, competitive culture is to partner with your people through shared objectives and common strategies Dell is very much a relationship orientated company how we communicate and partner with our employees and customers. But our commitment doesnt stop there. Our willingness and ability to partner to achieve our common goals is perhaps seen in its purest form in how we forge strong alliances with our suppliers.

Michael Dell has moved from being an entrepreneur, wheeling and dealing in cheap components, then innovating in direct marketing techniques, to being a visionary leader, understanding where his competitive advantage lies and then putting into place the sys-tems and processes to keep his company two steps ahead of the competition. However, it has not always been like this. Michaels managerial experience was extremely limited. In the early days he was said to be most comfortable with the companys engineers. Although those who worked with him closely described him as likable, he was so shy that some employees thought he was aloof because he never talked to them. It was probably Lee Walker, a mature venture capitalist brought in during the companys organisation-building years, who gave Michael the insight into management and leadership that he needed and

Courtesy of Dell Inc.


QUESTIONS1 What characteristics of an entrepreneur and a leader does Michael Dell exhibit?2 Why has Dell been successful, at least until Michael Dell stepped down as CEO?3 What do you think about Michael Dells nal comments on varying his management style?

The right people in the right jobs are instrumental to a companys success If you assume that people can grow at the same rate as your company and still maintain the sharp focus that is critical to success you will be sadly disappointed. When a business is growing quickly, many jobs grow laterally in responsibility, becoming too big and complex for even the most ambitious, hard-working person to handle with-out sacri cing personal career development or becoming burned out The ability to nd and hire the right people can make or break your business. It is as plain as that. No matter where you are in the life cycle of your business, bringing in great talent should always be a top priority.

He is an accomplished speaker and his quiet, re ective manner now gives him an air of maturity. However, this probably disguises the competitive personality who has taken risks to make his business grow.

Communicating is one of the most important tools in recovering from mistakes. When you tell someone, be it a designer, a customer, or the CEO of the company, Look, weve got a problem. Heres how were going to x it, you diffuse the fear of the unknown and focus on the solution.

In 2004 Michael Dell stepped aside as CEO of Dell while retaining his position as Chairman of the Board, Kevin Rollins became the new CEO. But under Kevin Rollins the company struggled revenue targets were missed, the share price suffered and Dell lost its coveted number one position in the PC market to Hewlett-Packard. In 2007 the board decided it wanted Michael Dell back as CEO.

According to Director magazine (April 2009) Kevin Rollins had kept an emotional dis-tance from staff and Michael Dells team building track record made him ideal to glue the company back together again. However, it reported that John Enck, managing vice-president of research analysts Gartner, thought Michael Dell had changed his management style to become more inclusive: Ive seen a big difference in the two reigns The leader-ship of Dell isnt as autocratic as it used to be. When Michael was originally CEO he was the decision-maker. Coming back, he created a leadership board and did a very good job of delegating decisions and responsibility to his executive team. That will theoretically allow Dell to be more nimble. Director magazine also reported that Michael Dell did not agree: That question assumes that during the entire 20-year period I only used one approach, which would be wrong. I constantly adjust my approach and way of doing things based on all the inputs and opportunities that I see.

Michael has reverted to his tried and tested strategies: cutting costs, improving customer service (which had slipped very notice-ably), introducing new products and investing in innovation. By 2009 he had made ten acquisitions, cut more than 10 000 jobs, outsourced 40 per cent of production and entered the smart phone market in China. Product inspiration now also comes from a Dell community website www.ideastorm.com that allows customers to identify and vote on new lines, while also rating current ones. The goal is to diversify beyond the mature PC market, which still accounts for more than half of revenues, into new markets such as computer storage and services. At the same time Dell is trying to enter new market sectors for example by the purchase of Perot Systems in 2009 which enabled it to enter the health care sector.

Will Michael Dell pull his company around? Time will tell.

Up-to-date information on Dell can be found on their website: www.dell.com 1

Courtesy of Dell Inc.

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Dell