The comeback strategy

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 the brink. Rebecca Goozee catches up with the charismatic, if a little jaded, computer king at Dell’s headquarters in Austin, Texas, to determine whether the shifts in strategy mean the firm will once again 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 25^th anniversary. With much success in the 1980s and early 1990s - the company was widely admired among and beyond the technology industry as a model of efficiency and for its shrewd use of technology - it appears Michael Dell's namesake has much to celebrate this year. However, there is no doubt that the company suffered from a series of setbacks and bad decisions in the past - does anyone else remember the laptops that caught on fire in 1993, or the fact that the computer giant lost the consumer market to Gateway in the mid-1990s?

Almost three years ago, the founder of the former top PC maker, reclaimed his role and found himself back in charge after three years away from the position. At this point, in January 2007, the fading company had tumbled from owning over 50 percent of market share in 2005, to around 24 percent. With an understandably concerned board in front of him, Dell pledged to put his utmost into transforming the fate of the company.

So what's happened since then? Well, 33 months later, Dell's CEO is continuing to lead from the front, revolutionizing the previous business model that was so focused on direct sales over the internet or by telephone as opposed to retail stores, on hardware as opposed to services and primarily looked to the American market rather than an international one - clearly, while this worked for some quite time, the model was not built to last.

Now, Dell has looked to lead from the front and transform exactly how the company operates, ordering a complete makeover of the earlier business model. As soon as he stepped up to resume the role of CEO, back in January 2007, he immediately began shaking things up; recruiting senor 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 commercialization of brand spanking new technology and the desire to enter new markets is now unwaveringly and resolutely present throughout the business. Dell himself is now intently 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," explains Dell. "But today, that's changing and the consumer market has since become a lot more important to us and now offers us 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 a primarily B2B company, it has recently been very much focused on the consumer side of the market, and as such the channel dynamics have quickly evolved. 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 is a bad thing," laughs Dell. "But our consumer business is now growing quite fast. And, you know, contrasting from two years ago where we basically has zero places where somebody could buy a machine other than the telephone, now we have a store where you can buy - in fact 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 amount of consumer purchases, but the various products themselves that are available. Dell's consumer strategy has changed because consumers have - instead of focusing solely on price or storage capacity (or both), trends are showing that consumers are increasingly attracted to well-designed 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 as 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 completely change 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? Well, there is no doubt that the rest of Dell has seen some important changes too. In December 2008, Dell 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 organization decentralized and struggling for identity - again this worked while the company was growing back in the 80s and even the 90s, but a $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 today's 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 realize 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 growth in market share, with a boost of 11 percent in revenues sequentially in the US and the non-Japan part of Asia, from the first quarter to the second this year, which is a terrifically encouraging sign for the company's previously sagging share. "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 business throughout the quarter, continuing into August," explains Dell. Despite the remaining challenges seen in the state of the economy, Dell himself remains confident of the position that the company finds itself in, adding, "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 as there is a lot of old, outdated equipment out there that will need to be replaced to maintain productivity."

And, as if by coincidence, 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 standardized on an eight-year old operating system, Windows XP - let's face it, large enterprises never really did move over to Vista - that 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 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 one of the primary ways that Microsoft gets to sell its products to customers, because not only do the computer giant sell a large number of systems, but the systems themselves are sold directly to the end customers. As such the two companies currently have a fair amount of impact on each other, so does Dell have any plans to expand this arm of the company? "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 so 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."

And within the solutions side of the business, Dell himself believes that there is quite a bit of potential in the services sector for the firm. "There are some surprising things about our business that aren't so well known, and one of those is that we have a $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 $6 billion business, which is a pretty good-sized one when you think about it."

At just over 10 percent of the business, the $6 billion 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, sure we want the services side to catch up and be more proportional, 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 concedes Dell, which is an unusual 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, if 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 gonna have a kind of 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 sector of Dell as part of the company's new strategy. Standing in front 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 customization. People rated Dell as one of the leaders in the industry in personalization and I kind of scratched my head, because when I was at Nike doing NikeID, I never thought of Dell as a leader in personalization, but we realized that we had the customers' vote of confidence so we started looking at how to individualize 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 customize 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."

Dell's best kept secret

"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 uses 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 trading floor solution that are 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 and there is so much white space out there that there's so much opportunity out there for us going forward."

Where it all began

Dell, notoriously shy of personal questions, was notably 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 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 PC's 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; it'll be many different kinds.  You know, 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, you know, computers of your desk.  I mean, there are lots of different kinds of computers.  I mean, I think there's still a lot of work to do in the man-machine interface and, you know, visualization continues to be an important, you know, motive of accessing information, which is why, you know, people tend to be interested in small screens.  And small screens are great 'cause you can take them with you, but actually, you know, people really want to see more information, not less.  So if you look at the desktop computers, I mean, the screens keep getting bigger and bigger and bigger.  I think visualization will play a big role. You know, certainly as there's more bandwidth you'll have more, you know, server and cloud-based kind of computing models."