Dell Computers Reorients Itself

For years, Dell focused on being the low-cost, efficient producer of computers. As one report put it, “Dell long stuck with its old playbook of cranking out PCs as efficiently as possible.”15 Dell had focused on making the computer a commodity and sold online using generic parts. Dell focused on optimizing the business it already had while the market shifted. Its competitors, Hewlett-Packard, IBM, Apple, and others, marketed newer, sleeker laptops with better Internet capabilities using retail stores for distribution.

In 2007, company founder Michael Dell returned as CEO after three years of relative distance from operations. He replaced his senior management team, added new products and services, and focused on what customers wanted. However, the marketplace was changing radically as smartphones and similar products became the hot, new focus.

The troubles for Dell had begun when the market shifted. Growth in the corporate market lessened while the consumer sector flourished. As well, developing markets overseas became critical—markets that were less willing to buy over the Internet and use direct delivery. Additional processing power became less critical, and consumers demanded special features and more attractive machines. Dell saw the clear need to alter what it was doing. A diagnosis of what would work led to an overhaul of its products and the company.

After taking over, Michael Dell responded to the marketplace. He set up mechanisms to get customers’ input. He shifted Dell’s distribution strategy to sell in retail outlets, too. This required a shift in mindset for Dell managers as they had to establish new distribution systems and manage their relationships with retailers. New machine designs were created and new hardware, including smartphones, were offered. Dell began selling mini-notebooks to appeal to overseas markets. And the company responded to changes in the corporate sector by providing systems solutions, not just computers.

To implement his strategy, Michael Dell installed a new senior management team. One of his first moves was to hire Ron Garriques, the executive who introduced Motorola’s Razr phone, as head of Dell’s consumer business. Garriques shut down work on the Mantra, a standard line of Dell products. As well, he stopped the introduction of Dell specialty stores and developed relationships with retailers. Product design became a new, central focus.

Michael Dell also brought in Brian Gladden from GE. Gladden believed that Dell needed to be restructured, that its systems and processes were not sophisticated enough for a company of its size. One major move was to shift how Dell focused on external markets by organizing around market segments, such as consumers, corporations, small- and mid-sized businesses, and governments and educational buyers.

Culture change was necessary to shift Dell to a more responsive, flexible company. Group leaders had clear financial targets but were given significant discretion in determining how to achieve these targets.

New products were developed and Dell began selling what in 2010 was the world’s thinnest notebook. Design and style were emphasized, along with “tech appeal.” Smartphones were also introduced, but Dell announced it was exiting this product category in December 2012 as they continued to search for a strategy that would work in this very competitive sector.

While Dell Inc. remained one of the leading companies in the technology industry, key financial ratios from 2006 and 2010 illustrate its problems: profit margins fell from 6.5% in 2006 to 2.7% in 2010. In 2006 Dell reported revenue growth at 13.6%; in 2010 the company reported a 13.4% decline in revenue.16 Ever-the-optimist CEO Michael Dell said the business climate was improving and “repeated his expectations for a ‘powerful’ hardware refresh cycle beginning next year (2010).”17 Somewhere in the 2011–2013 period, Michael Dell decided to take his eponymous company (#51 on Fortune 500 list in 2014) private. He had concluded that further changes were needed and that being a publicly listed firm was getting in the way of accomplishing the longer-term objectives. By November 2013, he celebrated his public to private deal with 350 employees in Silicon Valley. As one of the world’s richest men, Dell mixed in “his 16% ownership, valued at more than $3 billion, and another $750 million in cash, with $19.4 billion from Silver Lake Partners (a private equity firm) for a 75% stake in Dell Inc.”