Dell Freezes Over
The unthinkable has happened: the once impregnable computer behemoth has shown itself to be just another company—susceptible to the kinds of competitive pressures, stock-price plunges, and morale problems from which it was once immune. (To say nothing of laptops flambé.) Now what? Not surprisingly, a reboot is under way.
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What is noteworthy here is the attitude of the two men. Their unapologetic message is that Dell’s run is not over, that the stock market is wrong, that the industry analysts and journalists are once again being foolish and shortsighted, and that the burgeoning global market for computer systems has so much room for growth that in some ways Dell is just getting started. I did not expect them to agree with their critics; still, the fierceness of their rejoinder was striking.
“What is interesting is the relatively random nature of the proposed solutions,” says Dell. “Let me give you an example. In 2000 Dell had a six percent share of the U.S. consumer market, okay? By 2005 our share of that market had risen to about thirty percent. Six percent to thirty percent. And now you see articles written where the suggestion is that the reason Dell isn’t doing well is because Dell doesn’t sell through retailers. Hello? Hello? Is anyone paying attention to what is actually going on?” Dell and Rollins remind me of certain unassailable truths: Dell still ranks number one in the world in desktops, notebooks, and total PCs. Dell controls 19 percent of the global market but owns fully two thirds of the world’s computer profits. In servers and external storage systems, businesses that Dell entered only within the past few years, it ranks third and fourth, respectively. While all the other major computer companies are getting out of the business of actually manufacturing computers, Dell is not only expanding but expanding within the U.S.
But everyone is talking about the trend line, I argue. What they’re saying is that those competitive advantages are disappearing. Do Dell and Rollins maintain, with straight faces, that those advantages are still there? To this they answer, loudly and simultaneously, “They’re still there.”
“Will those advantages contract a little and widen a little, then widen again?” Rollins asks. “Yeah, they do that sometimes. Some of our competitors have clearly done better. But does one robin make a spring? No. This company is still very healthy. You don’t do what this company did and not expect a few bumps. But you can’t look at it and say the ride’s over.”
“We went from being three times as profitable as the competition to being two and a half times as profitable,” Dell says. He pauses, looks at Rollins, then says, “So sue me.” Both men laugh.
Such assertions will no doubt seem, to competitors, to be telling examples of the Dell hubris, of the company’s blinkered inability to see or comprehend the peril that now surrounds it. But most of what Dell and Rollins talked to me about was not their competitive prowess. They focused instead on what Rollins readily admits was a “confluence of mistakes” that led the company astray in the past year and of its deeper challenge of trying to change the way its managers treat their people. Dell and Rollins concede that they did not see the troubles coming, that they and their managers misunderstood the nature and strength of the competition and priced their products too high, causing them to lose market share to more-attentive and aggressive rivals, something a growth company must never do. They acknowledge that competitors such as HP and Lenovo have partially reduced Dell’s once awesome cost advantage and that Dell’s customer service fell off disastrously. The latter, at least, happened for known reasons: Dell shifted resources elsewhere, cut its one-year warranties on average to ninety days, and hired many temporary workers with marginal training to man the phones. The result was that consumers, who account for 15 percent of the PC market (the other 85 percent are businesses), bought fewer Dell machines. “Every time something goes wrong, no matter how big or small, we really feel bad about it,” says Dell. “This is one of those times. And so right now we are completely in the mode of ‘We are going to get this fixed.’ We are maniacally focused on how we drive improvement.”
So they have unleashed a flurry of tactical moves meant to put the company back in fighting trim. Dell is spending $150 million this year alone on its customer service problems, hiring two thousand new people to answer the phones and retraining five thousand more. It will slash $3 billion in costs. In April it began cutting prices on some of its most popular products, knocking $700 off its Inspiron line of notebooks and $500 off its Dimension desktops. It launched a full line of new hardware products, including servers and storage systems, and unveiled a remote-service system called Dell Connect, which allows technicians to seize control of your computer keyboard and screen in order to help you fix it. It started a corporate blog featuring videos of engineers explaining products and a Web chat between Dell execs and ordinary people. Dell even opened two new retail stores—containing no actual products, mind you, but as a way to enhance its direct sales by letting consumers finger the merchandise before buying it online or by telephone. And to promote all this, the company unveiled a massive new advertising campaign with a new slogan, “Purely Dell,” reminding consumers that Dell builds all of its computers exactly as they order them and hyping improvements in customer service.
Whether all this will do what Dell and Rollins intend will soon be evident. They are clearly not talking about a long, slow turnaround. It is a high-stakes bet, because if they are wrong, they are going to be hammered on Wall Street as never before.
IN FEBRUARY 2002 Dell and Rollins presided over a meeting at Dell’s headquarters that many employees consider a turning point in the company’s history. It was less a business discourse than a confessional. The two men stood before some 150 vice presidents and senior vice presidents and did what wealthy, autocratic executives of Fortune 25 corporations never, ever do: They admitted, in significant detail, their personal shortcomings and weaknesses.
These startling mea culpas were the product of a survey of these same vice presidents in which they had been asked, pointedly and anonymously, what they thought of their leaders. Dell and Rollins had received poor grades, and they then decided, for reasons that mystified their employees at the time, to own up to it. For Dell, this meant acknowledging that he was cold, distant, aloof, obsessed with technology, charts, and graphs; Rollins copped to being too dictatorial, too opinionated, failing to listen or be open to different points of view. They both conceded that they needed to be nicer, more inclusive, less like remote and remorseless inquisitors brandishing incriminating profit-and-loss statements. In spite of their unparalleled success, they had failed on the most basic levels of human interaction. “Michael started to explain that he wanted to get better,” recalls Paul McKinnon, Dell’s senior vice president for human resources. “And there was this sense in the room—everyone was on the edge of their seats—that people wanted to try to help him. It was so awkward, but he did it, and it was an electric moment. Here was someone worth more than some small countries, and he so clearly wanted to be a better manager and leader.” It was also the first salvo in a cultural revolution. All managers would henceforth be subject to similar reviews and would be expected to share the results with their staffs, as Dell and Rollins had. They would then be graded on their performance. The message was, We’re going to be warmer and more caring, and so are you.
Why the sudden move toward touchy-feely management at a company widely considered to be built on a brutally demanding, performance-obsessed work ethic? To answer that question, you have to know something about the culture that emerged at Dell during the go-go years of the nineties. It was indeed a place where people routinely worked seventy- to eighty-hour weeks. It was also a place where employees who got Dell shares and options got very rich very quickly, richer than almost anyone else at any company in the world. By the late nineties, making a personal fortune had become inextricably linked to the idea of working at Dell.
“Every time your spouse would say, ‘You’re killing yourself, you don’t see your kids. Is this really worth it?’” McKinnon explains, “you’d say, ‘The stock went up ten points this week,’ and she would say, ‘You’re right, it is worth it. I was wrong.’ It was an immediate pellet you got every week for busting your tail. You didn’t have to be here very long to feel like you were going to get fabulously rich by noon tomorrow. The stock split three times after I came. It was the most exhilarating thing I will ever experience in my life.” In 1995 a Dell marketing executive named Ben Bentzin—who has since left the company and run twice for elective office in Austin—received a set of stock options as an attaboy for having done a good job on a particular project. They had no value on the day he got them, of course, but turned out to be worth $10 million. And this was in addition to all the options and shares he and others got in the normal course of work.
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