Break the rules 69

took down all your details on various forms and sent them off to insur-
ance companies to get quotes. Insurance brokers insisted that it took
all their skill and experience to eventually get you a good policy. Then
Peter Wood came along and took a different view. He bypassed the
insurance brokers altogether. His company, Direct Line, used
computer databases with up-to-date information, and banks of tele-
phone operators to quote competitive prices immediately over the
phone. It rewrote the rules of the industry, and Direct Line grew into
the largest UK motor insurance company.
What Peter Wood did was to take telephone and database technolo-
gies – neither of which was particularly new at the time – and apply
them in an innovative way in order to find a new and better way of
reaching and serving the customer. Applying new (or nearly new)
technologies to traditional business is a classic way of innovating in a
marketplace and of going around competitors’ Maginot lines. Amazon
did a similar thing when it used the internet to bypass the traditional
book-retailing channel in order to sell first books, then CDs and other
merchandise direct to users everywhere.
Michael Dell was 18 when he founded his company in 1984. His goal
was to take on the mighty IBM and Compaq, who dominated the PC
business. They had well-established channels through resellers who
held stock and sold it to their customers. Because computers were still
seen as complicated, the unwritten rules were that PCs came in stan-
dard models supplied through resellers who provided the help and
support that customers needed. Dell deliberately broke these rules. He
bypassed the channel and sold direct to end-users. He allowed users to
specify their exact configuration, including for example disk size and
memory. The quality of the products was good, so he did not need
service engineers on site. Furthermore, by building to order, Dell
Computer Corporation was able to reduce its inventories so that while
competitors carried 75 to 100 days worth of sales in stock, Dell carried
just 4 days. In the fast-changing PC business this meant costs were
lower and customers benefited from the latest technology.
Another example of breaking the rules came in the US newspaper
industry with the story of USA Today. Before its launch in 1982, the
leading newspaper analyst, John Morton, dismissed its prospects of
success: ‘The list of large circulation newspapers established since the