Simply put, Dell's efficiency pays off
By Kevin Maney
USA Today
ROUND ROCK, Texas — Michael Dell doesn't look like Michael Dell.
He strides into a conference room at Dell Computer's headquarters here, and he's buff. Gone is the saggy, nerdy Michael of a few years ago, replaced by a version that looks downright brawny.
Which makes him a walking, talking metaphor for his company. The technology recession has been good for Dell. The company was forced to work harder and hone its business model. Dell entered the tech crash as a phenomenon. It's coming out looking like a superpower.
While most tech companies have struggled since the crash began in 2000, Dell has nearly doubled its revenue since its 1999 fiscal year to an estimated $35 billion in fiscal year 2003. Dell has stolen major chunks of market share in every one of its markets, from PCs to servers, and it is going after new markets such as printers.
In the larger picture, management experts say, Dell is on a path similar to a few companies that perfected a formula and repeated and reapplied it for decades. Those include McDonald's, Southwest Airlines and Wal-Mart. For inspiration, Michael Dell often looks to Wal-Mart founder Sam Walton.
If Dell stays on that path, the implications are profound. Southwest and Wal-Mart reordered their industries, devastating some competitors and forcing others to do business a new way. For tech buyers, a Dell reign would mean lower prices on a broadening array of products, much as Southwest has deflated prices in markets it serves.
Dell faces huge challenges amid a weak economy, maturing PC market and the inherent difficulty of posting rapid growth the bigger one gets. But Dell could be on a tear for a long time. Though McDonald's is stumbling now, that's almost 50 years after it was founded. Dell is just 19 years old.
Dell's power can be missed because what it does — super-efficient manufacturing and direct sales that bypass retailers — seems so simple. Yet McDonald's took a simple concept and built an institution on repeating it.
"These are companies that fixate on pursuing a single mission — not a mission statement, but an actual, honest-to-goodness mission," says Larry Downes, author of "The Strategy Machine."
"If you look at a lot of truly great businesses, others can understand what they do, but they can't do it," Dell says.
Dell's gains helped drive Hewlett-Packard and Compaq Computer to engage in the tech industry's biggest merger ever to more effectively battle Dell, and the two are jostling for the No. 1 spot in PCs. As Dell has entered new markets, including network switches and hand-helds, it has rattled incumbents such as Cisco Systems and Palm.
Internally, CEO Dell has challenged his company to double its revenue again in another five years — and that's exactly what will happen if Dell continues to grow at its current rate.
If Dell slows anytime soon, analysts say it will be because of the weak PC market. Dell's stock, in the upper $50 range in early 2000, has fared better than most in tech since the tech bubble burst. It closed at nearly $24 yesterday.
The company has spent the past couple of years honing the skills, processes and culture that make Dell tick. Kevin Rollins, who runs Dell side-by-side with Michael Dell, calls the quest The Soul of Dell. "It's not just about how much bigger we can get and how much more money we can make," Rollins says, "but about how we can make it sustainable."
Dell spends little on product research and development — $440 million a year vs. $4 billion a year at Hewlett-Packard. Yet in the entrance of one of its factories here, the walls are lined with framed certificates for patents. Almost all of them are for manufacturing processes — which reveals Dell's priority.
The one thing Dell does better than anyone is efficiently make and deliver computers. It's Dell's foundation, much as Wal-Mart rests on its ability to manage and move inventory better than anyone.
Dell has no warehouses to store parts and takes delivery of parts only when it has orders that need them. It holds, on average, seven hours of inventory vs. weeks of inventory for most tech manufacturers.
Each PC or other product is built by one person, and it can be tracked back to that person if something goes wrong, making individuals accountable and keeping quality high.
Dell interacts with customers directly through the Web or phone — or, in the case of corporate customers, through a direct sales force. By cutting out retailers, Dell saves money and time.
