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... and practices into a companys operations. A USA Today article labeled him "the guru of choice on e-commerce" because top executives across the world were so anxious to get his take on the business potential of the Internet and possible efficiency gains from integrating e-commerce into daily business operations. 7 Michael Dell was considered a very accessible CEO and a role model for young executives because he had done what many of them were trying to do. He delegated authority to subordinates, believing that the best results came from "[turning] loose talented people who can be relied upon to do what theyre supposed to do. " Business associates viewed Michael Dell as an aggressive personality and an extremely competitive risk-taker who had always played close to the edge.
Moreover, the people Dell hired had similar traits, which translated into an aggressive, competitive, intense corporate culture with a strong sense of mission and dedication. Inside Dell, Michael was noted for his obsessive, untiring attention to details trait which employees termed "Michael managing. " Michael Dells Business Philosophy In the 15 years since the companys founding, Michael Dells understanding of what it took to build and operate a successful company in a fast-changing, high-velocity marketplace had matured considerably. His experience at Dell Computer and in working with both customers and suppliers had taught him a number of valuable lessons and shaped his leadership style. The following quotes provide insight into his business philosophy and practices: Believe in what you are doing. If youve got an idea thats really powerful, youve just got to ignore the people who tell you it wont work, and hire people who embrace your vision. It is as important to figure out what youre not going to do as it is to know what you are going to do.
We instituted the practice of strong profit and loss management. By demanding a detailed P& L for each business unit, we learned the incredible value of facts and data in managing a complex business. As we have grown, Dell has become a highly data- and P& L- driven company, values that have since become core to almost everything we do. For us, growing up meant figuring out a way to combine our signature, informal style and "want to" attitude with the "can do" capabilities that would allow us to develop as a company. It meant incorporating into our everyday structure the valuable lessons wed begun to learn using P& Ls. It meant focusing our employees to think in terms of shareholder value.
It meant respecting the three golden rules at Dell: (1) Disdain inventory, (2) Always listen to the customer, and (3) Never sell indirect. Ive always tried to surround myself with the best talent I could find. When youre the leader of a company, be it large or small, you cant do everything yourself. The more talented people you have to help you, the better off you and the company will be.
A companys success should always be defined by its strategy and its ideas and it should not be limited by the abilities of the people running it... When you are trying to grow a new business, you really need the experience of others who have been there and can help you anticipate and plan for things you might have never thought of. For any company to succeed, its critical for top management to share power successfully. You have to be focused on achieving goals for the organization, not on accumulating power for yourself. Hoarding power does not translate into success for shareholders and customers; pursuing the goals of the company does. You also need to respect one another, and communicate so constantly that youre practically of one mind on the most important topics and issues that face the company.
I have segmented my own job twice. Back in 19931994, it was becoming very clear to me that there was far too much to be done and far more opportunities than I could pursue myself... That was one of the reasons I asked Mort Tower to join the company (as vice-chairman)... As the company continued to grow, we again segmented the job. In 1997, we promoted Kevin Rollins, who had been a key member of our executive team since 1996, to what we now call the office of the chairman. The three of us together run the company.
Beyond winning and satisfying your customer, the objective must be to delight your customer not just once but again and again. I spend about 40 percent of my time with customers... Customers know that I am not looking for insincere praise, or an affirmation of our strengths. They know by the quantity of the time that I spend and the kinds of questions that I ask that I want to hear the truth, and that I want to walk away with a list of ideas about how we can work to make a valued partnership that much more significant...
When you delight your customersconsistentlyby offering better products and better services, you create strong loyalty. When you go beyond that to build a meaningful, memorable total experience, you win customers for life. Our goal, at the end of the day, is for our customers to say, "Dell is the smarter way to buy a computer. " The pace of decisions moves too quickly these days to waste time noodling over a decision. And while we strive to always make the right choice, I believe its better to be first at the risk of being wrong than it is to be 100 percent perfect two years too late. You cant possibly make the quickest or best decisions without data.
Information is the key to any competitive advantage. But data doesnt just drop by your office to pay you a visit. Youve got to go out and gather it. I do this by roaming around. I dont want my interactions planned; I want anecdotal feedback. I want to hear spontaneous remarks...
I want to happen upon someone who is stumped by a customers questioned help answer it if I can... I show up at the factory to talk to people unannounced, to talk to people on the shop floor and to see whats really going on. I go to brown-bag lunches two or three times a month, and meet with a cross-section of people from all across the company. 8 Developments at Dell in Early 2000 Dells unit shipments in the fourth quarter of 1999 were 3. 36 million units, compared to 2. 3 million units in the fourth quarter of 1998. In laptop PCs, Dell moved into second place in U.
S. sales and fourth place worldwide in 1999. In higher-margin products like servers and workstations running on Windows NT, Windows 2000, and Linux, Dell ranked number two in market share in the United States and number three worldwide. In Europe, Dell ranked first in market share in Great Britain, third in market share in France, and second overall behind Compaq Computer. In Asia, Dells sales were up 87 percent over 1998, despite sluggishness in the economies of several important Asian countries. In 1999, about half of the industry's PC sales consisted of computers selling for less than $ 1, 000.
Dells average selling price was $ 2, 000 per unit in 1999, down from $ 2, 500 in the first quarter of 1998. The company had recently introduced a line of Web PCs that was intended mainly for browsing the Internet. To counter the decline in the average selling prices of PCs, the company was placing increased emphasis on its line of PowerEdge servers and its Precision line of workstations, where average selling prices were $ 4, 000 and higher, depending on the model. Market Conditions in the PC Industry in 2000 There were an estimated 350 million PCs in use worldwide in 2000. Annual sales of PCs were approaching 130 million units annually (see Exhibit 6).
About 50 million of the worlds 350 million PCs were believed to have Intel 486 or older microprocessors with speeds of 75 megahertz or less. The worlds population was over 6 billion people. Many industry experts foresaw a time when the installed base of PCs would exceed 1 billion units, and some believed the total would eventually reach 1. 5 billion ratio of one PC for each four people. Forecasters also predicted that there would be a strong built-in replacement demand as microprocessor speeds continued to escalate past 1, 000 megahertz. A microprocessor operating at 450 megahertz could process 600 million instructions per second (MIPS); Intel had forecast that it would be able to produce microprocessors capable of 100, 000 MIPS by 2011.
Such speeds were expected to spawn massive increases in computing functionality and altogether new uses and applications for PCs and computing devices of all types. At the same time, forecasters expected demand for high-end servers carrying price tags of $ 5, 000 to over $ 100, 000 to continue to be especially strong because of the rush of companies all across the world to expand their Internet and e-commerce presence. Full global build-out of the Internet was expected to entail installing millions of high-speed servers. Declining PC Prices and Intense Competition Sharp drops in the prices of a number of PC components (chiefly, disk drives, memory chips, and microprocessors) starting in late 1997 had allowed PC makers to dramatically lower PC prices sales of PCs priced under $ 1, 500 were booming by early 1998. Compaq, IBM, Hewlett-Packard, and several other PC makers began marketing sub-$ 1, 000 PCs in late 1997. In December 1997, the average purchase price of a desktop computer fell below $ 1, 300 for the first time.
It was estimated that about half of all PCs sold in 1998 were computers carrying price tags under $ 1, 500; by 1999, close to half of all PCs sold were units under $ 1, 000. Growth in unit volume was being driven largely by sub-$ 1, 000 PCs. The low prices were attracting first-time buyers into the market and were also causing second- and third-time PC buyers looking to upgrade to more powerful PCs to forgo top-of-the-line machines priced in the traditional $ 2, 000 $ 3, 500 range in favor of lower-priced PCs that were almost as powerful and well-equipped. Powerful, multi featured notebook computers that had formerly sold for $ 4, 000 to $ 6, 500 in November 1997 were selling for $ 1, 500 to $ 3, 500 in December 1999. The profits at Compaq, IBM, and several other PC makers began sliding in early 1998 and continued under pressure in 1999. Declining PC prices and mounting losses in PCs prompted IBM to withdraw from selling desktop PCs in 1999.
However, unexpected shortages of certain key components (namely, memory chips and screens for notebook computers) drove up prices for these items in late 1999 and moderated the decline in PC prices somewhat. But the shortages were expected to last only until suppliers could gear up production levels. Continuing Economic Problems in Parts of Asia Economic woes in a number of Asian countries (most notably, Japan, South Korea, Thailand, Indonesia, and to some extent, China) had put a damper on PC sales in Asia starting in 1997 and continuing through much of 1999. Asian sales of PCs in 1998 grew minimally (though sales were fairly robust in China); sales improved in 1999 but remained depressed in Thailand, Indonesia, and several other countries. China began experiencing some economic problems in 1999. In addition, sharp appreciation of the U.
S. dollar against Asian currencies had made U. S. -produced PCs more expensive in terms of local currency to Asian buyers. In contrast, sales growth in the United States and Europe in 1999 remained strong, despite all the Y 2 K fears, mainly because of lower PC prices. Disk-drive manufacturers and the makers of printed circuit boards, many of which were in Asia, were feeling the pressures of declining prices and skimpy profit margins. Industry observers were predicting that competitive conditions in the Asia-Pacific PC market favored growing market shares by the top four or five players and the likely exit of PC makers that could not compete profitably.
The Uncertain Near-Term Outlook for PC Industry Growth While few industry observers doubted the long-term market potential for PC sales, there were several troubling signs on the near-term horizon, along with differences of opinion about just how fast the market for PCs would grow. A number of industry observers were warning of a global slowdown in the sales of PCs in 2000 and beyond, partly due to the economic difficulties in several Asian countries and partly due to approaching market maturity for PCs in the United States, Japan, and parts of Europe. Consequently, some analysts were forecasting gradual slowing of the industry growth rates from the 2025 percent levels that characterized the 1990 s down to the 1012 percent range by 2005. However, U. S.
shipments of PCs in the 199799 period had grown 2025 percent annually, a much higher rate than most industry analysts had expected. Some 45 million new PCs were sold in the United States alone in 1999. Sales of servers, along with low-end PCs and workstations, were the fastest-growing segments of the PC industry in 1999 and were expected to be the segment growth leaders in 2000 and beyond. On the positive side, some analysts expected that worldwide computer hardware sales in 20002003 period would grow at a compound annual rate of 15 to 20 percent, following cautious corporate buying in the second half of 1999 in preparation for meeting Y 2 K deadlines. Their expectations for 1520 percent growth were based on (1) the introduction s of Windows 2000 and Intel's new 64 -bit Itanium microprocessors, (2) rapidly widening corporate use of the Internet and e-commerce technologies, (3) wider availability of high-speed Internet access, and (4) growing home use of Pcs first-time purchasers succumbed to the lure of reasonably equipped sub-$ 1, 000 PCs and as more parents purchased additional computers for use by their children. The three most influential factors in home ownership of PCs were education, income, and the presence of children in the household.
Competing Value Chain Models in the Global PC Industry When the personal computer industry first began to take shape in the early 1980 s, the founding companies manufactured many of the components themselves disk drives, memory chips, graphics chips, microprocessors, motherboards, and software. Subscribing to a philosophy of "We have to develop key components in-house, " they built expertise in a variety of PC-related technologies and created organizational units to produce components as well as to handle final assembly. While certain "noncritical" items were typically outsourced, if a computer maker was not at least partially vertically integrated and an assembler of some components, then it was not taken seriously as a manufacturer. But as the industry grew, technology advanced quickly in so many directions on so many parts and components that the early personal computer manufacturers could not keep pace as experts on all fronts. There were too many technological innovations in components to pursue and too many manufacturing intricacies to master for a vertically integrated manufacturer to keep its products on the cutting edge. As a consequence, companies emerged that specialized in making particular components.
Specialists could marshal enough R& D capability and resources to either lead the technological developments in their area of specialization or else quickly match the advances made by their competitors. Moreover, specialist firms could mass-produce a component and supply it to several computer manufacturers far cheaper than any one manufacturer could fund the needed component R& D and then make only whatever smaller volume of components it needed for assembling its own brand of PCs. Thus, in recent years, computer makers had begun to abandon vertical integration in favor of a strategy of outsourcing most all components from specialists and concentrating on efficient assembly and marketing their brand of computers. Exhibit 7 shows the value chain model that such manufacturers as Compaq Computer, IBM, Hewlett- Packard, and others used in the 1990 s. (see Exhibit 7) It featured arms-length transactions between specialist suppliers, manufacturer / assemblers , distributors and retailers, and end users.
However, Dell, Gateway, and Micron Electronics employed a shorter value chain model, selling direct to customers and eliminating the time and costs associated wi...
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