People-Intensive

Date: 2015-10-07; view: 461.

DELL'S LOYALTY to its business model could make it difficult to recapture growth. Dell has suggested a new offensive to enlarge its computer services business, which so far has focused largely on repair and upgrading of Dell's hardware. According to Bill Scheer, senior analyst at Kennedy Information Inc., which tracks information technology consulting, such "hardware" services are the slowest-growing segment of the $147 billion market, currently increasing an estimated 6.3% a year, vs. 7.6% for the market overall. Hardware repair profits can be good, but don't lead to the massive deals that help sell higher-end hardware and software to tie it together.

Consulting experts say Dell will have a hard time moving up the value chain. For one thing, it's a people-intensive business that doesn't benefit from the company's expertise in efficient manufacturing. And when Dell first started making PCs, it entered an industry with lots of built-in fat, namely reseller commissions and retailer markups. Lower-end consulting has already been made far lower-cost and more efficient by companies like Wipro Ltd. and Infosys Technologies Ltd., which sell programmers' time at $50 a hour that 10 years ago would've billed at $125 an hour or more.

Dell has struggled to find other growth areas large enough to matter. After a promising start in printers, moving quickly to No. 3, the most recent quarterly data from research firm IDC shows Dell's market share at 3.6%, down from 6.2% the previous year. Its once-promising move into networking gear has fizzled, and its share in the storage systems market is flat compared with a year ago.

And Dell's management bench doesn't seem as deep as it should be. When Dell ousted its chief financial officer on Dec. 19, the company ended up filling the spot with an outsider, board member Don Carty, the former CEO of AMR Corp., — the parent of American Airlines. Industry sources say many of the recent management departures were not terminations but rather people burned out by an increasingly dismal turnaround effort. Dell spokesman Bob Pearson says the company has good bench strength and "we feel fortunate that [Carty] could do this:"

These are the kinds of challenges Dell was protected from for years. How well its founder handles them will determine whether his legacy is building a great company that lasts — or having a great idea that ran out of steam.

With Louise Lee in San Mateo, Calif.

BusinessWeek, February 19, 2007

4. Analyse the context and comment on the following.

1. Dell's storied beginnings have given way to another classic business tale.

2. Long-term success demands constant reinvention.

3. Dell is a textbook example of single-formula growth.

4. Nurture the next growth platform long before it's needed.

5. They are lulled into a false sense of security.

6. Dell underestimated the competition and is an also-ran in the segment.

7. Consulting experts say Dell will have a hard time moving up the value chain.

8. It entered an industry with lots of built-in fat, namely reseller commissions and retailer markups.

9. Dell's management bench doesn't seem as deep as it should be.

5. Summarize the information about the weaknesses of the company and its management. Discover the reasons for the company's setbacks and failings.

6. Discuss the personality of Michael Del and determine what he can be praised and blamed for. Make projections about possible future development of this company.

READING AND SPEAKING (3)

7. Read the following article and sum up the developments in the company. Explain Dell's words “The direct model has been a revolution, but is not a religion”.

What's Dell Doing at Wal-Mart?

The author, president of Endpoint Technologies Associates, wonders whether the computer maker's latest experiment will work

By Roger L.Kay

Last week, Dell announced that it would begin selling two Dimension desktop computers through Wal-Mart Stores. It was a watershed moment. For years, Dell embraced the tagline "Be Direct," a phrase that highlighted one the company's main differentiators: It sells directly to consumers rather than by way of retailers. The Wal-Mart deal, limited as it is, represents the most visible departure from the company's hallowed mantra.

But the change is at least as much talk as substance. For example, Dell recently came clean about its indirect commercial operations. In the course of publicizing its intentions to step up its indirect business, Dell disclosed that it already sees about $4 billion in annual revenue from indirect sales in the U.S.

A Public Shift

The company has four groups that sell indirectly: Solution Provider Direct, which sells to VARs of all stripes without going through a dealer such as Ingram; Global Alliances, which sells to large systems integrators like EDS and Accenture; Industry Solutions, which sells hardware to other vendors that jigger the technology in some way (e.g., adding a GPS system) before reselling it; and a branch that sells to VARs that service the federal government. That's a lot of indirect business for the Be Direct company.

However, the Wal-Mart announcement represents a public shift in philosophy and has therefore set off a round of tongue-flapping and finger-wagging among the digerati. Despite the noise, there's a good explanation for what's going on. Dell is going through a transformation akin to the one the U.S. went through under Franklin Delano Roosevelt during the Great Depression.

When FDR took over in 1932, he undertook a series of rapid-fire legislative moves. Passing one bill after another, he set out to fix what was wrong with the nation, and when something didn't work, he'd rescind it. The key to the Roosevelt administration's success was its willingness to try things.

With Both Barrels

In the same way, Michael Dell is guiding his company forward by trying different things. Distribution through Wal-Mart is one of them, but, as the company has made abundantly clear, not the only one. This small deal could get larger or go away, depending on its success. In any event, Dell is going to expand its distribution in numerous ways, and part of the formula is to shake things up through rapid decision making.

Dell has been courted by every retailer in the world. As a highly desirable supplier, it can pick and choose partners. Look for a Gatling gun approach to distribution in the future.

The deal with Wal-Mart does bring up a question, though, about what kind of image the company is trying to convey. Wal-Mart, as a general merchandiser, is pretty down-market. This type of thing doesn't square with Dell's efforts to polish its brand image.

Plenty of Company

The good news for Dell in shifting toward indirect sales is that the company finds itself at the right end of a one-way street. A vendor that moves from indirect to direct sales can irk existing distributors, angering some enough to switch to rival suppliers. This factor kept Compaq from using direct sales to compete against Dell in the late 1990s. But when going in the reverse direction, from direct to indirect, the only players who suffer are internal salespeople.

One thing is for sure: Dell won't have Wal-Mart all to itself. Hewlett-Packard, GatewayAcer, Toshiba, and Lenovo, among others, all sell through the big retailers.

In some cases, Wal-Mart bends its suppliers to provide custom packaging and is known for dictating terms, such as "Thou shalt keep inventory in warehouses near our distribution points." But Dell does the same to its suppliers. It will be interesting to see which company in this new relationship gets to hold the whip handle and which feels the business end.

BusinessWeek, Viewpoint, June 1, 2007