17 Oct Michael Dell returning Dell Computers to customer-centric model
Orlando, Fla. – Michael Dell admitted the company he founded in 1984 (with all of $1,000) had lost some customer focus, and as a result some market share to boot.
Dell, who returned to the company earlier this year as chairman and CEO of Dell USA Corp., also known as Dell Computers, followed a tough act – Microsoft’s Steve Ballmer – in a “mastermind” interview at last week’s Gartner Symposium/ITxpo 2007, but he gave the audience some insights into the Fortune 500 company’s “comeback” strategy.
Taking questions from Gartner research vice presidents John Enck and Mark Margevicius, he responded to questions about the company’s business model, improving customer service, how it intends to regain the top position in the PC market, and how it is enabling “green IT.”
Whereas Ballmer outlined how Microsoft plans to remain on top in established businesses and close the gap between itself and frontrunners Google and Yahoo! in online advertising, Dell talked about his company’s efforts to regain traction in its core mission – in terms of personal computers and servers, it had fallen behind Hewlett Packard – and grow beyond that in the solutions environment.
Dell said the Round Rock, Texas-based computer manufacturer, which reported $55.9 billion in 2006 sales, is focused on bringing back customer centricity, and that it has launched a number of initiatives aimed at improving business and getting costs back in line. That was, in part, a reference to the company’s growing international profile, but it also refers to a myriad of product and service directions.
There are a number of initiatives to improve business performance. and Dell cited “change vectors” such as building a new consumer business and growing distribution into emerging markets with new plants in India, Poland, and Brazil.
Notebooks – Dell Computers has introduced a new range of laptops – and mobile computing also are a huge focus because company forecasts these markets will move even faster than Gartner predicts. In the second quarter of 2007, Dell trailed only Hewlett-Packard in worldwide mobile PC shipments, moving over 3.3 million units and consuming 14.57 percent of the market, compared to HP’s 4.8 million units, good for 20.95 percent of the market. Overall, nearly 23 million units were shipped by the top 10 vendors worldwide.
The enterprise and the data centers are other areas of concentration for Dell Computers. The company sees fantastic opportunities in this space, whether it’s cloud computing data centers or ultra-dense blade architecture, or serving small and medium business with remote IT or “virtual CIO” management.
Dell said the company will not forget its core of large corporate and institutional customers around the world, but signaled the company’s interest in moving the business from a product focus to more of a solution focus.
Enck asked about other signs of Dell Computer’s transformation, and Dell mentioned s simplifying IT. In talking to customers, he hears that complexity is a huge issue for them because legacy environments get stacked up and there is architecture for each part of the business.
“A lot of companies spend 70 percent or more of their IT budget just to maintain old systems,” he said, noting that Dell wants to help clients free up money to re-invent and re-invest in their businesses.
He cited flex computing strategies, including one that take disks out of the client environment and places them in the SAN and a centralized controlled data center where all patches and image transitions are handled centrally. Admittedly, it’s not a solution for all customers, but this is first step in helping customers simplify environments and remove costs.
To provide a status report on clients’ end-to-end infrastructure, and move Dell Computers more in the direction of solutions and services, the company has produced an online IT simplification self-assessment.
Customers no longer are as interested in product portfolios as they are the services that go around them. “It’s not as though we’re going into all services,” Dell said. “We’re going into the services in the infrastructure areas.”
Services already are about a $6 billion business for Dell, including the client life cycle, infrastructure services, and next-generation support in terms of remote management. Dell has completed some acquisitions in tools, technology, and IP to help accelerate its progress down that path.
Referencing a question from a conference attendee, Margevicius asked what Dell Computers is doing to get its products and services delivered in a more timely fashion.
Dell said the company is taking steps to improve its global partner program, and it has determined that its channel-to-partner business is about $9 billion (out of $61 billion total revenue). Dell, who serves on the Foundation Board of the World Economic Forum and on the executive committee of the International Business Council, said the company is undertaking a dramatic expansion of partners to address this issue in the United States, China, Brazil, Mexico, Japan, and other countries – and extend the benefits of its supply chain into the channel.
Dell said the lead times for products have been higher than “any of us would have liked,” but with new international partners he expects customers to have many different avenues to support its products.
“Are all potential channel partners going to be happy with our strategy? Well, probably not, but that’s okay,” Dell said. “I think we can find plenty that are, and I think our business can grow and we can satisfy more customers and provide customers more ways to buy our products – whether it’s through channel partners, value-added solutions, retail partners, or directly from Dell.”
Outside the box
Responding to Enck’s question about migrating from a box supplier to a provider of software and services, Dell noted the company sells almost twice as many computers to businesses as its next nearest competitor, so it has a platform to evolve the business from products to solutions. When Dell Computers looks at virtualization, creating a better managed client environment with flexible computing, dealing with mobility questions, or create a cloud environment to serve up huge amounts of data, Dell said it’s a solution conversation as opposed to a box conversation.
“We’re evolving our capability, we’re evolving our talent, and acquiring tools and technology to help us get there, but let’s not underestimate what we’ve actually done,” Dell said.
He said the company already has several million “seats” where it manages a customer’s entire IT lifecycle – from software licensing to help desk to asset management to image development and image creation – and charges on a per month, per user basis in multi-year contracts.
With enterprise customers growing tired of managing their desktop PCs, the company has developed a platform to evolve business from products to solutions such as virtualization, and its newest business unit, the Dell Data Center Solutions Division, has introduced a cloud computing solution to address data center optimization and energy efficiency.
Dell Computers created data center solutions because it talked to its top 10 to 20 server and storage customers about its general-purpose products, and Dell said they were frank in saying the company had a “bunch of stuff” that is not applicable to their environments. That’s when the company concluded that it needed custom solutions for them.
Having developed energy-smart severs that use half the power or regular servers, Dell believes the company could reduce the need to build additional data centers. Everyone one of its products is going through a systematic energy reduction, and he said it would be very important to communicate this to customers.
“We can save customers money in energy consumption,” he said, noting there is likely to be a significant costs and public relations damage associated with large “carbon footprints.”
Dell said the company, known for delivering hardware through its direct-sales model, couldn’t use the same profit-and-loss lens to look at services as it would the hardware business. As Dell Computers moves up in the solutions space, it will have a different profit-and-loss mindset and different metrics to measure its progress.
Not in a box
According to Dell, IT departments are poised to simplify their systems, which has changed the conversation from “box talk” to solutions. “We’re pouring it on virtualization because the technology can take cost out and improve power efficiency, making systems easier to mange,” Dell said. “Customers will want that.”
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