INTERVIEW OF THE WEEK
Dell founder Michael Dell
They may wear big hats in Texas. But Michael Dell, founder, chairman and chief executive of the eponymous computer manufacturer, believes they will also increasingly have “big ears”.
An affable, 43-year-old Texan, Dell is 18 months into his second stint as chief executive of the world’s second-largest computer company by sales — a business he founded from his dorm room at the University of Texas in 1984. This time around, he says he is determined to be a better listener.
Not only does Michael Dell want to listen harder to his company’s 88,000 staff worldwide, of whom 770 are based in Scotland as a result of a 2005 decision to base a business support centre in Glasgow’s City Park building. Dell also wants to ensure the company listens and responds better to its corporate and individual customers, who are now located in 100 countries worldwide.
IdeaStorm, launched in February 2007 just days after Michael Dell returned to the helm after a less than happy interlude during which Kevin Rollins ran the business, is a key part of this. It is new product design that’s been hot-wired into the minds of his customers, the ultimate focus group.
Dell says: “We’ll have about two billion conversations this year with our customers, which gives us ideas, gives us feedback, allows us to create new products, new services, literally as customers are thinking of them.”
Despite his penchant for words like “virtualisation” and the fact he is America’s fourth-richest man, with a personal fortune estimated at $17 billion, Dell is surprisingly approachable.
He effectively pioneered a new type of IT company when he launched Dell as PC’s Limited in 1984. Rather than one-size-fits-all mass-production methods, Dell opted for an capital-lite approach that has been summarised as customisation and disintermediation. Not only would he only build computers to order, he would only sell them direct.
The model worked spectacularly well, winning the business an early following among large corporate customers. Not only was the company’s supply chain simplified; costs and inventories were also dramatically reduced, deliveries could be made faster and Dell could develop stronger relationships with its customers, because it knew who they were.
The company grew sales from zero to more than $61.1bn in 17 years. Today it is the world’s second-largest computing company, by sales, after Microsoft. However, as computers became increasingly commoditised, its 2007 profits of $2.95bn, and its margins, were significantly below those of some of its peers, notably Hewlett-Packard and Apple. A 17% drop in second-quarter profits, coupled with a stagnation in sales that occurred under Rollins’s leadership, has caused some analysts to assume Dell’s business model is broken.
And two tectonic changes in the world of computers have caused a rethink at Dell. The first is that more and more computers and other hardware are being bought by individuals rather than by companies. Secondly, the real growth in demand for computers is coming from emerging economies such as China and India. However, for most citizens of such countries, the idea of buying something as big and expensive as a computer direct — whether over the telephone or online — remains anathema.
Michael Dell says the process of reinvention, of which the “listening” drive is a part, is well underway at Dell. For a start the company has abandoned its USP by making a big push into the retail sales channel. Dell desktop PCs, laptops and notebooks are now available in 15,000 high street stores around the world.
Having ripped up the rule book, the CEO detects tremendous growth potential in emerging markets, where 500,000 people are having their first experience of the internet every day. “If you look at the adoption of the cellphone,” he says, “the PC is kind of an echo of the cellphone, following in about three years. So if you want to see where people are going to buy computers, look at where they bought cellphones three years ago.”
However, Michael Dell questions the notion that “netbooks” (small, web-enabled laptops) are the future of his industry, despite the company’s launch of a product to service the category. Instead, he suggests Dell is more enthusiastic about prospects for mobile telephones or related devices. “I think you’ll see smaller and smaller-screen devices from Dell. There’s lots of opportunity for disruption in that space.”
Another key strand in the reinvention of Dell is an attempt to make a bigger splash in the services market, where the company already has annual sales of $7bn and where Michael Dell believes the company can rapidly grow its share. He says that for $1 spent on computers by companies, about $2 to $3 is spent on infrastructure services and support. In some ways, it seems his vision is one where selling the hardware is a means of getting a toe in the door in order to sell higher-margin services skills.
However, he doesn’t envisage growing Dell’s services business through mega deals along the lines of Hewlett-Packard’s £12 billion acquisition of IT outsourcing firm Electronic Data Systems (EDS) in May. He says future deals are more likely to be along the lines of his company’s takeover of Edinburgh-based ACS for an estimated £22.5 million in November 2006. The services business has been rebranded as Dell Solutions.
“That worked well,” says Michael Dell. “You’ll see additional things like that, where we can find skilled resources and bring it to the company, and then leverage that in a bigger way.”
Michael Dell says the company is also determined to become the world’s greenest IT supplier. “Interest in energy saving is growing at a tremendous rate,” he says. “When we can introduce a product like the new Blade server, which uses 25% less energy than one from a competitor but is also a superior product, then people start to like it.”
Dell is unfazed by suggestions that the banking crash and economic crisis in developed countries will slow growth in emerging markets. “I’m a long-term owner/operator and very focused on growing the company on a five-to-10-year horizon. We’re doing the right things, and things we know will create long-term value, but there will be short-term disruptions. There will be changes in the environment, there will be unusual things in financial markets. We can’t base our business on those.”
Another challenge facing Michael Dell is that he must fulfil his promise to investors that he will remove $3bn of costs from the business, a process that has already seen the loss of more than 8,000 jobs and is also expected to see the sale of some of Dell’s much-prized factories to specialist third-party manufacturers.
Asked about this, Dell would only say: “I wouldn’t care to speculate. But it’s absolutely the trend to use more contract manufacturers. All our rivals use more contract manufacturing.”
This article was published in the Sunday Herald on 28 September 2008