Dell Inc.: Coach Michael Dell's New Game Plan

Beleaguered computer manufacturer fights to compete amidst foul calls, penalties and rivalries.

Michael Dell built his Round Rock, Texas-based business up from the bush leagues to become a dominant player in the tough, ultra-competitive world of computer manufacturing. Over the course of the past two decades, his company has won numerous awards and has become fixtures on many best-of lists (such as the IW 50 Best Manufacturing Companies and Fortune's 25 Most Admired companies), and Dell's meteoric rise and hyper-efficient direct sales model has attracted the attention of the media and investors alike.

Right now, however, the Texas tech company is in the game of its life, fighting sales fatigue and stiff competition that has adapted Dell's strengths to their own advantages. Michael Dell, who retook the reins in February after a two-and-a-half-year absence, has seen his company overtaken by rivals and under fire from federal investigators for financial irregularities. Like many coaches before him in the sports world, Michael Dell has responded with bold personnel moves and shifts in strategy, hoping that a new game plan will put Dell back to its old position on top of the PC market.

First, the lineup changes. On May 31, Dell announced plans to lay off more than 8,000 workers over the next year as part of a restructuring effort. For a company that experienced such rapid growth for so many years, the loss of 10% of Dell's global work force of 88,100 full- and part-time employees is shaping up to be a serious blow to morale.

Add the elimination of 2006 bonuses to the mix and Dell better be prepared to hold some pep rallies for productivity's sake. To his credit, the Dell restructuring wasn't just at the plant level -- Michael Dell also reduced redundant bureaucracy at the management layer, cutting back on those reporting to him from 20 to 12.

Dell Inc.
At A Glance

Dell Inc.
Round Texas
Primary Industry: Computers & Other Electronic Products
Number of Employees: 88,100
2006 In Review
Revenue: $55.9 billion
Profit Margin: 6.39%
Sales Turnover: 2.42
Inventory Turnover: 88.81
Revenue Growth: 13.62%
Return On Assets: 15.34%
Return On Equity: 55.08%
Dell is also in the midst of restating its 2006 earnings, a process that almost earned the company a career-ending delisting from the NASDAQ Exchange it calls home. As of press time, the company still hadn't filed formal earnings statements from the second, third and fourth quarters with the SEC, and is the target of a federal probe that has found accounting errors, evidence of misconduct and other flaws in its financial controls.

Significantly, for the first time in recent memory, the JIT specialists at Dell didn't even make the list of the AMR Research Supply Chain Top 25 (see IW editor-in-chief David Blanchard's observations here), an exclusion directly linked to its earnings restatement troubles.

To top it all off, chief rival Hewlett-Packard reclaimed the overall No. 1 computer maker spot this year partly by adopting Dell's direct sales model and its inherent logistics and pricing advantages for its own purposes.

Thankfully for Dell's shareholders and remaining employees, such flexibility from its No. 1 rival seems to have rubbed off on Michael Dell's decision-making team.

For instance, Dell has been dogged by persistent and well-publicized customer service complaints. However, according to company statements, increasing investment by 50% (to $150 million for 2007) in this area has served to reduce consumer hold times by 50% and call transfers by 33%, bringing about a 20% increase in customer satisfaction rates.

Despite this progress, Dell decided to take its customer service solution one step further -- to the Web -- by setting up an Internet feedback site called IdeaStorm. From this interactive forum, the company tapped into a market desire for PCs with pre-loaded Linux operating systems. Dell's announcement in early May that it will offer Ubuntu Linux marks the first (but surely not the last) time that a name brand computer manufacturer will be offering the cheaper, open-sourced Linux as an alternative to Microsoft Windows.

Similarly, Dell announced late last year that it would end its policy of using only Intel microprocessors, and would begin to offer PCs powered by chips from Intel rival Advanced Micro Devices as well. Both of these moves give the computer manufacturer some much-needed flexibility, and presumably more leverage, where vendors are concerned

Dell has also been shifting away from its famous direct-only sales model, moving from mall kiosks to a Dell-branded retail store in Dallas and, with last month's announcement that Dell will sell in Wal-Mart, into the mass-market retail channel. According to June 4 news reports, Dell is also looking for a similar retail distributor in China.

Finally, Dell is keeping up with the "green manufacturing" revolution championed by many of its competitors (such as Apple and IBM) by beating deadlines and exceeding Energy Star program compliance requirements with newly available configurations and product lines.

With a new commitment to customer service and feedback, some new players on the bench and with green now in the team colors, the company and its CEO must now try to focus on the game at hand -- getting back to No.1 -- while hoping that the earnings endgame doesn't drag it into another court entirely.


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