Can Mr. Dell do a Steve Jobs act?
Unlike in Toyota’s case as discussed in my blog on 2/24, going back to basics is probably not the answer for Dell. Why? Read on:
Dell was the best performing stock in the US in the 90s (90,000%). It peaked in late 1999 and Dan Niles (a young analyst at that time) called the top in Dell correctly (at $60). That made Mr. Niles very successful in the years since (he has his own firm now).
What made Dell successful in the 90s is a laser like focus on making low cost PCs for the corporate market and shipping those PCs directly to the customers that demanded just that – no mall browsing, no hand holding. Dell strayed briefly from this direct model in the 90s and saw its bottom line take an immediate hit. They quickly shelved the retail channel since as Mr. Dell put it, every decision needed to be weighed against the needs of the retail channel causing confusion (variation kills).
Well, the competitors have caught up to Dell on the cost side. On the demand side, the corporate market has contracted and HP has taken market share since Compaq acquisition. Ms. Fiorina’s strategy to acquire Compaq did pay off eventually after Mr. Hurd extracted the value from the acquisition on the cost side.
Another aspect now is that the growth is coming from the consumer market and that is a beast. It is not just about lowest cost and direct shipping anymore. It about the packaging, colors, lots of features, halo effect from other products, eco-systems (iTunes) etc. Dell has moved into retail channel again and diversified into other consumer products as well (TVs etc).
Going back to basics (few models shipped directly) is probably not the answer. This time it has to come from the demand side. Will need innovation.
Can Mr. Dell do a Steve Jobs act?
Shaker Cherukuri
Principal
Process Improvement Solutions Inc.
3209 W. Smith Valley Road, Suite 224
Greenwood, IN 46142
317-258-3552
One Response to 'Can Mr. Dell do a Steve Jobs act?'
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on February 28th, 2009 at 6:48 pm
There are still issues to be addressed on the supply side. With the market shifting from desktops to laptops, and manufacturing shifting to the Pacific Rim, Dell’s techniques honed in the 90s are no longer as much a diffrentiator. Their just in time manufacturing techniques that excelled with desktops, are very hard to apply to laptops. Laptop manufactuing is now dominated by the Pacific Rim. Efficiently integrating these outsourced manufacturing shops into their supply chain is the challege that Dell must overcome, and an area where HP leads significantly.
Also with the market shift to laptops comes a greater engineering channel. Laptops by nature of their compact physical design require considerable more engineering creativity than desktops built out of standard components. Dell’s R&D investment has traditionally been one of least in the computer industry, and this is also hurting them badly.
Finally, laptop customers tend to purchase systems they can touch and feel. This makes retail distribution critical. Retail is a more expensive channel too, and one that requires considerable experience to manage properly. Dell having shunned retail for so long, is having to play catch-up big time to its competitors in this space.