Michael Dell’s decision to retake the reigns at the company he had propelled to leadership of the systems-building sector was supposed to bring back the good times. But while Dell built this company on a reputation for ‘frictionless’ supply chains, his vision for a return to corporate health relies on borrowing a few tricks from competitors.
The Dell CEO would doubtless refute any copycat suggestion: publicly, at least, he likes to emphasise the company’s differences. “Our competitors thrive on complexity,” he insists. “We intend to make money by making things simple.”
But he must also be acutely aware that competitors have eroded his company’s previous advantages. Rivals have been able to mimic some of Dell’s supply chain innovations, with several from emerging economies rewriting the economics of PC making. At the same time, price is no longer paramount in the server market, with buyers looking for more than just commodity boxes.
Nevertheless, the core strategy behind reviving Dell’s fortunes remains the same as it ever was, Michael Dell insists: building custom machines to order. Companies can mitigate systems integration woes by following this approach, ordering servers with pre-installed, tested applications, operating systems and virtualisation software, a formula that saves them a fortune on consultants’ fees, he adds.
Dell reckons around 70% of the typical IT budget goes on support and maintenance for existing infrastructure – if CIOs can lower that, they will have greater opportunities to innovate. They may even hope to improve their standing within their organisation, he adds.
Gunning for rivals
Dell’s newly appointed, combative chief marketing officer, Mark Jarvis, expands on this point. He accuses rivals IBM and Hewlett-Packard of being “purveyors of complexity”. When you buy IBM software, “a large bus full of IBM consultants pulls up outside your business and they finish [the implementation] for you – at your expense,” Jarvis maintains.
HP get similar treatment: “They’re the IKEA of the IT business. [Products] come in a series of boxes and you assemble them yourself,” says Jarvis.
But the Dell recipe for custom-built computers, shipped directly to customers, has undergone some changes, not least of which is a new-found fondness for partners. One of Michael Dell’s first steps as reappointed CEO was to embrace a relaxation of its strict adherence to a direct-only sales model. Now he claims Dell does “about $9 billion” of its sales through partners. Dell’s last set of quarterly results suggest that such a figure would account for 15% of its sales.
While building a reseller channel to match rivals IBM and HP looks like a massive success, a degree of caution is needed. Many resellers remain suspicious of Dell, and fear being on the wrong side on an unequal partnership. Meanwhile, many IT services companies have historically purchased Dell equipment on behalf of clients, so that $9 billion figure is unlikely to be all new business for Dell.
Moreover, it is not just rivals’ channel strategies that Dell is drawing on as it looks to revive its fortunes. While much has been made of HP’s resurgence under CEO Mark Hurd, a huge chunk of its revenues and profits come from its printer and ink business. Michael Dell sees that as a weak spot it can exploit. “In the next couple of years disruptive technologies are going to change the way that dots of ink gets put on paper,” he says – Dell will be at the forefront of that revolution.
Meanwhile, Dell also plans to increase the revenues it derives from services – a strategy exemplified by IBM. There is no intention to build an IBM-like services arm, explains Dell, but there is a huge opportunity to exploit the intellectual property within the company to help customers simplify their IT infrastructure, he insists. “Take virtualisation: we’re the largest VMware reseller in the world.”
The Dell founder is a formidable competitor, and his return seems to already be bearing some fruit. In its second fiscal quarter, the company regained the number one slot in server units shipped in the US, with a 33% share. And with an investigation of its accounting practices ending, it may again be able to provide comparative numbers on its performance. As Dell himself says: “We are still in the early stages of transforming our company.”