What the Dell! Michael is back as CEO

So, there have been a few changes at Dell Inc. in the past week. Founder Michael Dell has stepped back into the role of CEO. Many analysts are calling this a good thing, saying that Mr. Dell can bring the focus back to his namesake company. The company has lost its magic these past few years, and certainly someone needs to get the company back on track.

Let me start out by saying that I’m rooting for Mr. Dell. I have to applaud anyone who can start a business in a dorm room, drop out of college at 19, and eventually create a multi-billion dollar business. His success really did revolutionize the computer industry.

I remember the days when a personal computer cost about $5,000, and that was just for the hardware. If you wanted software, the applications cost another couple of hundred dollars. For each package! (16 years ago, I sold dBase software for just $495 per copy!) The average consumer didn’t have $7,000 to spend on a PC, and many businesses barely did, either. When companies bought PCs, they were shared resources, sitting in a common area where users waited their turn.

Dell changed that mode of thinking. The company’s direct model eschewed channel partners and the convoluted price-padding system of market development funds and steep margins. Because of Dell’s new way of thinking, computer prices dropped sharply in a very short period of time.

While Dell took orders over the phone and eventually the Internet, other companies were forced to figure out how to take costs out of their business models. Many of those companies never got it right and they became part of history. Eventually, though, enough companies figured out how to cut costs and compete with Dell to sell PCs and servers.

Dell’s problem, however, is that while it focused on costs and selling PC and servers, the competitors were making the most of R&D, building large service organizations, developing high end products and solutions, and solidifying relationships with channel partners. All of these elements are critically important in today’s world of selling computing solutions.

I believe that, despite Michael Dell’s best efforts, it will take his company a long time to turn the ship around. Dell Inc. has virtually no R&D, which means no innovation. Dell’s service organization is OK for break/fix work, but it’s not prepared to handle multi-million dollar enterprise computing arrangements. Dell does offer some mighty powerful servers, but you can’t build a whole datacenter on Dell offerings. And as for relationships with channel partners – well, Dell has always said it doesn’t need them. And maybe they don’t need them in the U.S., where people like to buy direct, but in Asia, it’s all about relationships. Dell can’t possibly go direct to the billions of people in China and other Asian countries, and this is where the growth markets are.

I’ll praise Dell’s low cost direct model for the 1980’s and 1990’s when the computer industry needed a little humbling. But that horse has run about as far as it can go. Mr. Dell is going to have to come up with a new strategy to lead the Dell 2.0 initiative. It’s his turn to take a few lessons from the competitors and learn how to offer something more than a low cost product ordered over the Internet.

In my opinion, to survive into the future, Dell needs to build a channel, buy a services organization, and start funding internal R&D. Without those things, Dell will continue to lose market share in the enterprise space and be relegated largely to selling to consumers and very small businesses.

In his first few days back in the CEO spot, Michael Dell has already announced that he is going to reduce corporate bureaucracy and build/buy his way into a services organization. Those are two good starts. I expect it will take more time (and money) to tackle the R&D and channel issues.

Of course, maybe Mr. Dell is going to completely reinvent his company, like Steve Jobs did with Apple when he returned as CEO. Jobs took a struggling computer company and made it an exciting consumer electronics company. Could the same be in store for Dell? The company has already dabbled in televisions, MP3 players and other consumer items, so the experience is not unprecedented.

At any rate, I wish the company well. I think it’s important that we have a company like Dell to provide balance and competition in the computer industry. What do you think?

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