Computer Engineer
9-710-442
FEBRUARY 14, 2010
JAN W. RIVKIN
Revitalizing Dell
From the early 1990s until the mid-2000s, Michael Dell and his company thrived in the tumultuous personal computer industry. Revenue of Dell Inc. rose from $3.5 billion in 1993 to $55.9 billion in 2005, making Dell the world’s largest producer of PCs, while net income climbed from $149 million to $3.6 billion. In many of those years, Dell earned more on PCs than all of its main rivals combined, and among top vendors, only Dell consistently reported positive margins on PCs.1
Dell owed much of its success to its vaunted “Direct Model”: While competitors sold primarily through distributors, resellers, and retailers, Dell took orders directly from customers, built computers to customers’ specifications, and shipped machines straight to customers. Rivals studied the Direct Model and copied many of its elements, leading one observer to comment that “everyone in PCs wants to be like Mike.”2 Yet to the puzzlement of industry experts, including Michael Dell himself, no competitor equaled Dell’s performance through the mid-2000s. In July 2004, at age 39 and with a net worth of more than $14 billion, Michael Dell stepped down as CEO, handed day-to-day operations of the company to his hand-picked successor, and became chairman.
In subsequent years, Dell Inc. largely continued to follow its traditional strategy, but its growth stalled, its net margins dropped sharply, and Hewlett-Packard (HP) eclipsed Dell’s global market share in PCs. In January 2007, with the value of Dell’s common stock off by 40% since the management shift, Michael Dell returned as CEO. Additional moves, including an effort to sell PCs indirectly through retailers and a major acquisition of an IT services company, met a mixed reception.
By December 2009, Dell’s stock value was down an additional 60%. How might Michael Dell revitalize a company that had long defined success in its industry?
The Personal Computer
FEBRUARY 14, 2010
JAN W. RIVKIN
Revitalizing Dell
From the early 1990s until the mid-2000s, Michael Dell and his company thrived in the tumultuous personal computer industry. Revenue of Dell Inc. rose from $3.5 billion in 1993 to $55.9 billion in 2005, making Dell the world’s largest producer of PCs, while net income climbed from $149 million to $3.6 billion. In many of those years, Dell earned more on PCs than all of its main rivals combined, and among top vendors, only Dell consistently reported positive margins on PCs.1
Dell owed much of its success to its vaunted “Direct Model”: While competitors sold primarily through distributors, resellers, and retailers, Dell took orders directly from customers, built computers to customers’ specifications, and shipped machines straight to customers. Rivals studied the Direct Model and copied many of its elements, leading one observer to comment that “everyone in PCs wants to be like Mike.”2 Yet to the puzzlement of industry experts, including Michael Dell himself, no competitor equaled Dell’s performance through the mid-2000s. In July 2004, at age 39 and with a net worth of more than $14 billion, Michael Dell stepped down as CEO, handed day-to-day operations of the company to his hand-picked successor, and became chairman.
In subsequent years, Dell Inc. largely continued to follow its traditional strategy, but its growth stalled, its net margins dropped sharply, and Hewlett-Packard (HP) eclipsed Dell’s global market share in PCs. In January 2007, with the value of Dell’s common stock off by 40% since the management shift, Michael Dell returned as CEO. Additional moves, including an effort to sell PCs indirectly through retailers and a major acquisition of an IT services company, met a mixed reception.
By December 2009, Dell’s stock value was down an additional 60%. How might Michael Dell revitalize a company that had long defined success in its industry?
The Personal Computer
Links: Virtual Supply Chain,” InternetWeek, November 2, 1998. 30 Christopher Helman, “The Second Coming,” Forbes, December 10, 2007. 13, 2002. 33 “Dell Computer to Change Name to Dell Inc.,” Europemedia, May 6, 2003. 35 Dell Computer Corporation, Annual Report, 1997, p Dell’s Momentum?”, Deutsche Morgan Grenfell Technology Group, June 11, 1997. 37 Daniel Lyons, “Games Dealers Play,” Forbes, October 19, 1998, pp 38 Daniel Lyons, “Games Dealers Play,” Forbes, October 19, 1998, pp Dell’s Momentum?” Deutsche Morgan Grenfell Technology Group, June 11, 1997. Dell’s Momentum?” Deutsche Morgan Grenfell Technology Group, June 11, 1997, p. 3. press release, April 17, 1998. Buying,” Wall Street Journal, January 3, 2005. Business Chief To Rely More on Resellers, Wall Street Journal, December 9, 2004. November 4, 2008. Jason Dean, “Lenovo Ousts CEO, Returns to Roots—PC Maker Hands Control Back to Chinese Executives, Refocuses on China Market as It Battles Downturn,” Wall Street Journal, February 9, 2009. November 11, 1998, p. B1. November 11, 1998, p. B1. 51 Saul Hansell, “Compaq Plans to Sell Directly to Consumers,” New York Times, November 11, 1998.