Strategic Direction

There's something about Dell: How to look good and stay healthy in middle age
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, (2005),"There's something about Dell", Strategic Direction, Vol. 21 Iss 9 pp. 8 - 11
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 There’s something about Dell
How to look good and stay healthy in middle age

is story is the very essence of the American dream. A college dropout, computer

H
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nerd with the ability to put together PCs cheaply and sell them by phone who built a
company valued at $100 billion. All of this with start-up capital of only $1,000 and in
an industry renowned for its ever-decreasing prices and high research and development
(R&D) costs.
He became the youngest CEO in the Fortune 500 at the ripe old age of 27. Michael Dell has
just turned 40 and the company in his name is 21 years old. There are some signs that
maturity doesn’t sit easily on his shoulders – the young upstart persona being the easier but
no longer appropriate mantle. There are many more signs though that although life is sweet,
the same drive and ambition remains.

How to gain the admiration of your peers

The vital statistics remain highly impressive. One in three PCs in the USA is shipped by Dell,
and one in six in the world. Dell is the number one brand in Britain, Canada, Ireland and in its
home market the USA. 53,000 people are employed and Dell is active in 80 countries.
Company revenues are growing at 19 percent per year.
Michael Dell was named as ‘‘one to watch’’ by Fortune in 1986. In 2005 his company is
America’s ‘‘most admired.’’ He didn’t have money that Texas Instruments (TI) had to invest in
starting out (reputedly TI had start-up capital of $100 million). He did know how to keep costs
low though. He still does, his low-cost direct sales model is being copied across industry
sectors. And he knew what made IBM tick, how to compete with Compaq, and how to avoid
competing with Sony. These lessons are key to the story but, as you might expect, there is
more.
Dell fundamentally changed the rules of the game, the very nature of competition. In an
industry with 40 percent margins, proprietary systems and massive R&D spend; Dell’s
influence transformed the rules of engagement to a standards-based approach. The
eschewed protected franchises and a tiered distribution system in favor of a
customer-focused approach, with a carefully managed supply chain and an even more
carefully managed cash flow process. In establishing a company that is ‘‘built to last’’ there
was no requirement to make everything themselves.
Dell is now chairman of his company with the CEO role being taken up by Kevin Rollins who
joined from Bain & Company in 1996. A collaborative decision-making process is claimed
and who would argue with that? Dell has never felt the need to claim every idea as his own, or
every decision, or every innovation. He took the best advice, often from expensive
consultants, and was prepared to both listen and back his own judgment and those of his
management team.

PAGE 8 j STRATEGIC DIRECTION j VOL. 21 NO. 9 2005, pp. 8-11, Q Emerald Group Publishing Limited, ISSN 0258-0543 DOI 10.1108/02580540510616638
 ‘‘ One in three PCs in the USA is shipped by Dell, and one in six
in the world. ’’

So what else is there to admire?

B A focus on return on invested capital that keeps the company engaged in reducing
assets, inventory and time.
B The ability to get six dollars in revenue for every dollar invested in R&D.
B The art of being the lowest cost producer of standard technology and staying there.
B Dell’s virtual model that enables it to buy in technology and adapt – opening up
opportunities to enter related markets should it wish to, which it does only with care.
B A corporate culture that is not just the heartbeat of the organization but the DNA. If the Dell
genome was mapped revealed would be an imprint that says ‘‘poor quality costs money,
slow order delivery costs money, high inventory costs money – reduce, reduce, reduce!’’
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How to keep the adrenaline pumping

As any sports champion will tell you, ‘‘reaching the top is one thing, staying there is quite
another matter.’’ What secrets can we learn about staying at our peak? At Dell the adrenaline
highs come from a steady drip, drip, drip effect rather than occasional turbo-charged fuel
injections.

To begin with there’s a goodly amount of tough love. The general manager who isn’t fully on
top of his or her brief, who doesn’t intuitively read the profit and loss account, who isn’t a
team player, whose inventory costs creep higher, will find life more than a little tough. They
will be made very aware of the error of their ways.

Then there is a commitment to telling the truth – honesty at all times, with no place for the
‘‘little white lies’’ that oil the wheels of polite society. People know how they are doing, how the
company is doing, what the problems are and know that the worst state for a leader to be in is
denial.
Next is self-knowledge – even Dell and Rollins endure the 360-degree appraisal process. All
managers do. Every six months employees rate their bosses as they ‘‘Tell Dell.’’ What did
Dell and Rollins learn about themselves? Their staff believes them to be cold technocrats.
Managers across the company are now getting in touch with their feminine side.
The area of managing innovation though is the one where macho managers can normally get
a boost. Here though the lesson is one of conservatism. Dell will innovate on customer value,
innovate in finding ways of reducing costs, innovate in the design of the supply chain, but
they’re not about to bet the farm on a half-baked scheme. The belief is that the key is to spot
the dead-ends and take a different road (or indeed not journey far at all). So much
‘‘cutting-edge’’ innovation leads to rapid corporate death. If it looks like someone’s pet
project don’t get bitten.
Moves into the printer market and flat screen TVs, where aggressive corporate giants will
defend their turf, have been taken with rather more care – not with perfect information, the
emphasis is on action, but with care.

Reducing dependency on cigarettes and Krispy Kreme doughnuts

The same care is taken in setting up production facilities. Location decisions are high on the
corporate radar and are never more important when the business model is low prices and
quick delivery, coupled with responsiveness to the customer. With competitors, and
so-called savvy businesses, rushing to set up production in places where labor is cheap and

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VOL. 21 NO. 9 2005 STRATEGIC DIRECTION PAGE 9
 ‘‘ The result is revenue per employee of $900,000 per annum. ’’

regulation easy, Dell chose Winston-Salem, North Carolina to build a new 400,000 square
foot plant.
Tobacco kings R.J. Reynolds and the doughnut doyens at Krispy Kreme had been the major
employers in the area, but were in decline in a superficially more health conscious America.
Dell brought in quality jobs, and was rewarded with the sweeteners that go with the territory.
Fundamentally they had realized the benefits in staying close to their large North American
customer segment, and picked up some of the free money and other perks that go with it as
states fret about the export of manufacturing and service sector jobs.
A global business, by definition, doesn’t make everything in its own backyard. Dell is
additionally increasingly au fait with the pitfalls and pratfalls that can accompany
international production location decisions. Brazil had all of the hallmarks of a nightmare as
red tape and political infighting looked set to cause delay and massive wastage of executive
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time, and money.

The winner knew where the hot button was. Ireland has been good to Dell. The relationship
has become Dell’s model for overseas success. Alvorada, Brazil promised to be the very
image of The Emerald Isle. The result, $108.5 million investment in a manufacturing and
customer services centre that nearly didn’t happen. The proof of the pudding, of course, will
be the quality of the St. Patrick’s Day celebrations.

Sharing your secrets with others

Having achieved and sustained very impressive growth across the world, how can the
founding principles be sustained? The challenge has been tackled head on, and in a very
personal way by Dell and Rollins. The answer is education, education, education, and not
just any old education.
The result is revenue per employee of $900,000 per annum. How many business schools
can add that sort of value? Dell and Rollins deliver some of the sessions themselves. The
university of life is a tough school, and there is an inner toughness to the Dell-way, with its
tight control of costs and forthright honesty that makes it up there with the very toughest. The
curriculum is designed by Dell and delivered by Dell managers. It works.

Lessons in lifemanship
Given how much we admire Dell, can we be like them? We can certainly learn from them, but
just as not every retailer can be Wal-mart, complete imitation will not prove successful. Dell
has simply been doing it too long and too well. There advantage is in their consistent ability to
execute a very clear strategy. And their growing bands of price conscious customers love it.
Maybe middle age isn’t so bad. And why should an old dog learn too many new tricks? Just a
few, and just the right ones, will surely do very nicely.
According to Rollins the ‘‘soul of Dell,’’ their distilled corporate values, require employees to
‘‘focus on the customer, be open and direct in communications, be a good global citizen,
have fun in winning.’’
A self-help recipe for success.

Comment
This review is based upon ‘‘Execution without excuses’’ by T.A. Stewart and L. O’Brien, ‘‘The
education of Michael Dell’’ by A. Serwer and ‘‘Dell’s dilemma in Brazil: negotiating at the
state level’’ by R.C. Nelson.

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PAGE 10 STRATEGIC DIRECTION VOL. 21 NO. 9 2005
 ‘‘ At Dell the adrenaline highs come from a steady drip, drip,
drip effect rather than occasional turbo-charged fuel
injections. ’’

The Stewart and O’Brien article provides and in depth interview with Michael Dell and his
CEO Kevin Rollins. Dell and Rollins appear very open in their answers. Their approach is fully
explained. They do so with the confidence that they are so good and experienced at what
they do that followers are surely doomed.
The Serwer article charts the rise and rise of the company and highlights a number of critical
strategic areas in an easy-to-read, journalistic style primarily written for an American
Keywords: audience.
Computers, Nelson provides a detailed case study of Dell’s plant location in Brazil, chronicling twists and
Corporate strategy, turns on the journey. It is a carefully packaged business school case study, which for some
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Business development, reason can often make the reader a little uncomfortable and the ending is inconclusive.
Organizational culture However, for those with a yen for overseas adventure, there is a ripping yarn to be read.

References
Nelson, R.C. (2004), ‘‘Dell’s dilemma in Brazil: negotiating at the state level’’, Thunderbird International
Business Review, Vol. 6 No. 5, p. 601, ISSN 1096-4762.
Serwer, A. (2005), ‘‘The education of Michael Dell’’, Fortune, Vol. 151 No. 4, p. 55, ISSN 0738-5587.
Stewart, T.A. and O’Brien, L. (2005), ‘‘Execution without excuses’’, Harvard Business Review, Vol. 83
No. 3, p. 102, ISSN 0017-8012.

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