Dell's formula of success

Date: 2015-10-07; view: 506.

Note

PDA — personal digital assistant, a handheld computer device

1. Read the first part of the text and explain the following, using the information of the text and your background knowledge.

1. to piggyback off the inventions of others

2. a high-tech Robin Hood

3. a mixture of price sensitivity and tech savvy

4. to uncork a downward price spiral

5. suddenly computers were a commodity

6. to break even

7. to establish a category

2. Using the information of the above texts answer the questions and fill in the table.

1. What model of production does Dell use — push or pull?

2. Why is he often called “a parasite” or “fast follower” by his competitors?

3. In what way could the company destroy the profit potential of the markets?

4. What does his model based on? What is the secret of Dell's success?

5. What does the company have to do to stay in the first league?

6. Why do some analysts believe that the company is losing its focus?

7. Where do you think Dell's model might be vulnerable?

READING AND SPEAKING (2)

3. Read the following article and pick out and arrange all the background information related to the company. Compare it with that in Reading and Speaking (1).

Where Dell Went Wrong

In a too-common mistake, it clung narrowly to its founding strategy instead of developing future sources of growth

By Nanet Byrnes and Peter Burrows T

DELL, HOW IT ALL began is never forgotten. Even on Jan. 31, as founder Michael S. Dell returned to the role of CEO after 18 months of bad news and faltering financials, the press release trumpeted how, 23 years ago, Dell launched what would become a $56 billion business with just $1,000 and a simple idea. That stroke of genius — to bypass the middleman and sell custom-built computers directly to the customer — was one of the revolutionary business models of the late 20th century. Rivals from Hewlett-Packard Co. to IBM learned to fear its power. And once Dell began using the Internet to let customers configure their own PCs, no phone rep required, the company earned a place among other champions of the New Economy including Wal-Mart, Cisco, and Southwest Airlines.

Dell's storied beginnings have given way to another classic business tale, one far less happy. Like many long-forgotten former champions, Dell succumbed to complacency in the belief that its business model would always keep it far ahead of the pack. While Dell broadened its product line, it never dealt with the vast improvement in the competition or used its lead in direct sales and the cash generated to invest in new business lines, talent, or innovation that could provide another competitive edge. "Dell is a textbook example of single-formula growth: We make PCs cheap. This is what we do_' and we do it a lot,"' says Jim Mackey, managing director at the Billion Dollar Growth Network, a research consortium focused on large-company growth. "You can grow very fast when you're on a single formula, but when you get to a certain point, you don't have the ability to create new growth."

Long-term success demands constant reinvention. Research done by Mackey and others shows that most fast-growing companies hit a point somewhere over $50 billion in revenue at which they falter. By then, growing apace demands billions of new sales every year. Rarely is the original, unchanged business model up to the job. The only way around the challenge: Nurture the next growth platform long before it's needed.

Most don't. Distracted by the demands of their current success, they are lulled into a false sense of security. "When it's all you can do to keep up with the growth your current business model is providing, you just don't feel that urgency," says Harvard Business School professor Clayton Christensen. "It's hard to get worried." He visited Dell's Round Rock (Tex.) offices in 1998 and again in 2000, and warned Dell and then-CEO Kevin Rollins that they needed to focus on growth five to eight years out, on the model that would augment their built-to-order machines. A great admirer of both men's intellect, Christensen says he naively hoped they would take his advice. Instead, Dell pushed its model into new types of hardware, such as storage, printers, and TVs, in the hopes of making easy profits by selling products made by other companies. In some areas, like printers and TVs, the customization that made a Dell PC seem special isn't a factor. In others, like services, low-cost competitors had a head start.

Michael Dell maintains that his company's business model is still its key advantage. Dell, he says, has acquired too much middle-aged fat and lost the intense focus and drive that made it an icon. In his internal e-mail explaining the recent departure of CEO Rollins, Dell's founder promised that the company will fix customer support problems, 'boost its services business, and focus more on small and midsize outfits in addition to the megacorporations that bring in the bulk of sales. While he won't rule out big strategic shifts, such as a move into retail, Dell says: "I do think that Dell's core strengths historically will be its core strengths in the future."

Many critics say the problem is that the company didn't begin a more orderly evolution when times were better. For half a decade, it was the only major PC company that earned a profit. By cutting out the middleman and keeping research and development and inventory costs low, it often enjoyed profit margins 10 points higher than money-losing rivals. Rather than use that cushion to develop fresh capabilities, Dell gave its admirers on Wall Street and in the media what they want: the highest possible earnings.

Hubris crept in. In 1999, Dell bought a startup called ConvergeNet, which had a sophisticated storage product that turned out to be not ready for prime time. Dubbing rival EMC Corp. the "Excessive Margin Company," Dell seemed to expect storage to follow the same pattern PCs had, moving from pricey, feature-laden models into a standards-based commodity. Dell underestimated the competition and is an also-ran in the segment.

By 2005,PC rivals, particularly HP, which has taken the market-share lead from Dell, had closed the efficiency gap and were enjoying resurgent sales at retail stores.