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
