Although Dell has suffered significantly over the past few years, with revenue below management projections for seven straight quarters, Dell in its heyday is still studied and known as the master of the supply chain. In 2005, only eight years ago, Dell was the number two computer company in the world. So how did a company, now heavily scrutinized in the media, achieve such a high level of success since it’s founding in 1984?
The answer is relatively simple. Initially based out of his college dorm room, Michael Dell decided to take a unique business approach from his competitors. Dell sold his computers directly to consumers, cutting out both wholesalers and retailers. Utilizing this strategy, known as disintermediation, Michael Dell sold $180,000 worth of PCs during his first month in the business.A direct business model approach allowed Dell to lower prices, sell more desktops, and boost overall margins significantly. Another key element of Dell’s model was its decision to manufacture in-house, enabling Dell to configure desktops from start to finish in about 4.8 hours and to move inventory within 72 hours. These computers particularly appealed to consumers because of their ability to customize specific preferences, which gave Dell a competitive advantage and drove revenue. According to Forrester Research analyst David Johnson, “what Michael Dell was all about was getting products to people faster and more directly and at a lower cost than anyone could.”
However, the same business processes and customization that made Dell a success also has contributed to its current precarious state. Many argue that Dell is a “one-trick pony”, incapable of expanding its PC dominated business and surviving in today’s world of smartphones and tablet computers. According to Vivek Sood, author of The Five Star Business Network, “Dell’s only trick so far was its cash actualization acumen. It stood up the industry model in the PC industry on its head, reduced the Cash-to-Cash cycle from an average of 46 days to a negative number and created a competitive advantage that lasted it nearly a decade and a half. That one trick allowed the company to coast for the last several years, while its former suppliers metamorphosed themselves into formidable competitors.” To learn more about Dell’s current affairs, check out this Forbes article, “Dell outlines the death of the PC”:
While this is all good and true, a vast number of people already know the story of Dell, and frankly, many don’t care that much about its future. So what’s the takeaway? Why talk about Dell in the first place?
In my opinion, technology based companies should use the story of Dell as a reminder that they must be constantly innovating. Today’s success and hottest trend might very well be tomorrow’s old news. Another company dubbed a “one-trick pony” by critiques is Google, receiving a lot of attention in the past year, particularly after it announced its decision to shut down Google Reader. Some argue that Google’s biggest problem is its inability to develop new lines of business that can keep the company growing. A January 2011 article by Bloomberg Businessweek reported that Google still produced 90% of its income from key-related advertising. While I’m personally optimistic about Google’s future (see video below), most importantly I want to emphasize that Google, like many other tech companies, must constantly seek new ways to satisfy customer needs and keep up with changing consumer preferences. One trick just might not be enough to cut it in today’s day and age. We are living in a technological era and really have no idea what the future will look like. If companies cannot innovate, business tycoons in today’s spotlight might be the next Dell—and hopefully that’s something they are wary of.