Where Dell went wrong?

Tháng Hai 4, 2010

With the resignation of Kevin Rollins as Dell’s CEO, one of the oldest yet most important adages of PC industry is proven: no company can stay on top forever. Relentless competition, product commoditization, prickly customers and the aggressiveness to become number one or two in the fields always tend to bring down a company.

So where did Dell go wrong?

In a common way of speaking, Dell succumb to the belief that its business model would always work and keep it far ahead against other competitors. It clung too narrowly to its own founding strategy, forgetting to search or develop future sources of growth.

While Dell indeed broaden its product lines, it never really used it lead in products direct sales to invest in new business lines, talent, or innovation to deal with the constant improvement of its competitors.

Dell is a textbook example of single-formula growth, “We make PCs cheap. This is what we do, and we do it a lot” said Jim Mackey, MD at Billion Dollar Growth Network.

Although single-formula can help a company grows very fast during certain stage, once it reaches certain point of development, single-formula simply doesn’t have the ability to expand or create new growth.

Together with that, one of Dell’s fatal mistakes is that it hired too many “former management” consultants like Rollins himself. While having great credentials themselves, those consultants are usually very disconnected from people and only associates themselves with their fellows. In their mind, their top priorities is how to cut back on services to reduce cost without anyone noticing.

Unfortunately, with the overgrowing Internet these days, customers become more educated, and they have easy access to communities sites to share their thoughts and experiences. With the changes in Dell’s way of treating its customers, there is no surprise that they will turn to other brands like Hewlett “the computer is personal again” Package, Lenovo or Acer.

With its secret weapon for decades, the customer trust and satisfaction, backfired on itself, Dell faced a great downfall in business.

Although there have been many efforts from Dell, like having Michael Dell himself in the call center answering call, customers’ trust will still take a while to win back.

A second mistake is that Dell has no style itself. For half a decades, despite being a very profitable major PC company, Dell didn’t invest that money into researching for new product lines but rather return those as earning for stakeholders. Because of that, the company has been a boring PC maker for a very long time. While PCs and electronics consumers have become a large part of business in the recent years, Dell could only come up with TVs, but still in a very low market share, 15%.

Dell didn’t begin an orderly evolution during its prime time, now it is paying for the consequences.

Dell is also a people-intensive business that doesn’t benefit from the expertise of efficient manufacturing, making it a very hard time to move up the value chain. While other competitors like HP can reduce its products price with the advantage of being a manufacturer itself, Dell’s computer price gradually become “un-cheap” if not more expensive than others’ computers. Statistic showed that in the year of 2002, Dell’s average price was $1084, while HP is only $1009. For a long time cheap price is one of Dell’s key advantages, but that advantage has faded.

Not being a manufacturer also works against Dell, because by no mean it can improve its PC capabilities by utilizing new technologies and such, Dell’s PCs fall out of strict customer favor quickly.

These are the kind of challenges that Dell has to face for years. How well its founder handles them will determine whether his legacy is building a great company that lasts or just having a great idea that ran out of steam. We will wait and see :)