Dell was started by Michael Dell in 1984 with
the idea of selling custom built computers directly to the customer.
This direct business model has made Dell the world’s leading computer
systems company. They design, build and customize products and
services to satisfy a wide range of customer requirements; from the
server, storage and professional services needs of the largest global
corporations, to those of consumers at home. Revenue for the last four
quarters totalled $54.2 billion and the company employs approximately
63,700 team members worldwide.
Dell’s direct business starts and ends with the customers. They have
literally defined e-commerce, and they are one of the few businesses
that successfully survived the e-commerce recession of the 90’s. Dell
increased their share price enough last year to become the number one
company in computer sales.
Dell's combination of direct sales and manufacturing-to-order means
practically no inventory, and incredible success in matching products
to consumer demand. Over the past five years, Dell has expanded this
model beyond PCs to servers, storage and communications equipment.
“A key part of Dell's success” says Dell’s spokesman Clive Allen, is
that the site offers consumers choice and control. Buyers can click
through our site and assemble a computer system piece by piece,
choosing components like hard drive size and processor speed based on
their budgets and needs.”
“This direct contact with consumers gives Dell a competitive
advantage” Allen explains, "Because we know exactly what our customers
are ordering, it's a one-to-one situation. We get feedback on how our
site is working so we're constantly making adjustments to it to make
the experience for our customers easier."
Dell is too clever to think he's intelligent enough to predict the
future; he assumes that the world of IT increasingly resembles a
global financial market, where the collected knowledge of all
participants exceeds that of any particular business. Dell lets other
companies dream up products never before imagined and risk their
futures. Dell is content to ask consumers what they want and then sell
it to them. It’s that simple.
Dell spends little on R&D and doesn't even pretend to be a technology
innovator. Instead the company uses its influence to get early access
to its partners' most innovative products and components, then uses
its wonderfully sensitive market-testing machine (a combination of its
web site and direct-to-consumer sales) to dictate what comes next. If
new products sell, they are built to order and shipped. If they don't
sell, they may never be made at all. It's perfect business theory,
applied perfectly to corporate planning.
Not only did Dell’s competition help to force the Compaq and
Hewlett-Packard merger in 2002, but they surely contributed to the
problems at Gateway, which couldn't make money and compete with Dell’s
prices. Dell was also partly responsible for IBM's decision to leave
the consumer PC business in 2000. PCs may be a commodity, but what
Dell really sells is the economics of connecting customers to
suppliers. And it's proving more radical and harder to copy than
Despite Dell’s success, there have been few followers. For years,
executives from all kinds of industries have studied Dell’s plan
hoping to apply the winning formula to their own companies. "If this
works for computers, it's going to work for automobiles, furniture,
carpets, appliances, anything," predicted Larry Bossidy, Ex-CEO of
AlliedSignal, in 1999.
Today, however, nobody outside of the computer business has
successfully copied the direct plan. Many companies depend too much on
their retail networks to go fully direct. In PCs, only Gateway has
come close, although it could not make the model work well enough to
avoid the need for retail stores and the inevitable inventory.
Compaq and HP talked a lot about doing it Dell's way but couldn't bear
the pain of destroying their retail channels.
The one clear lesson from Dell is that the system only works in pure
form. If you try to live in both worlds - direct as well as retail
sales - you get the expense of both without the clarity of either.
So what is Dell? A one-off phenomenon, lucky enough to exploit a
combination of factors that turn out to be unique to the PC industry?
Or a truly explosive business model so disruptive that it can be
adopted only through forcing change? Michael Dell knows the answer,
but he also knows it takes a while to evolve. "These things just don't
happen as fast as a lot of people predict," says Dell. "We've had a
number of corporate customers who come back time and time again, and
you could see them struggling with the change."