Victor Cook

Dell, You Can't Make a Tune Out of Just One Note

Peyton,

I elaborate on the equation for maximum earnings potential in my August 8, 2007 post on "Morgan Stanley, Merrill Lynch and the Fable of Three Bears." Check it out.

If you really want to dig in the dirt there's a link in that post to an audio slide show I did on "The Rule of Maximum Earnings," based on Chapter 5 in my book "Competing for Customers and Capital."

If you still have questions, or want actually to apply this to a business, you should get your hands on a copy of my book, then go to Appendix A "Definitions and Derivations" pages 250-252 and code the expressions into a spreadsheet and test them on financial accounting data.

If Only Dell Had Listened to the Numbers

Good quesiton. The idea behind the Sun acquisition was to get entry into the IT departments of major corporations. This was required in order to allow individuals to buy machines online as if they were buying for their own use outside corporate firewalls.

This in turn required design and installation of new accounting and control systems to manage end user buying decisions in place of centralized IT buying decisions. And that in turn would have required Dell to put in place the hardware and software support needed to service end users (Competing for Customers and Capital, pages158-59).

Sounds far fetched I know. But it also seemed far fetched at the time that major supermarket chains would ever link their accounting and control systems to with P&G in order for both to better manage inventory costs. A drag on short run profits but with the potential for much greater volume and value creation in the long term.