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rakeshsharmak
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I am a freelance journalist.
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Reinvention and disruption
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  • Michael Dell Needs A Bite Of Apple

    As stories go, it is hard to surpass Apple's reinvention by Steve Jobs. The facts are riveting. A founder returns to his company to rescue it from implosion. Subsequently, he reinvents the company and makes it the most valuable company on the planet. Given the circumstances, it is not surprising that many expected history to repeat itself, when Michael Dell came back to lead the company he had founded from his dorm room.

    After all, the similarities were uncanny.

    Both companies were started by college kids. In their own way, both invented and contributed to the PC business. While Apple personalized bulky mainframes for lay users, Dell drove down prices by commoditizing PCs. In both cases, outsiders with substantial management experience (John Sculley for Apple and Kevin Rollins for Dell) were brought in to run the company but were fired later. Interestingly enough, both companies also received loans from Microsoft to shore up their dwindling fortunes.

    The similarities, however, end there.

    To be sure, both companies were subject to the whims of the stock market. However, they took divergent approaches to coping with the market's pressure.

    In his 1997 Worldwide Developers Conference (WWDC) address, Jobs underlined the importance of making great products and focus. "Good engineers, lousy management," he said, referring to Apple's lack of product focus. He emphasized the importance of engagement with the markets and journalists.

    Under Jobs' leadership, Apple focused on innovating its existing product portfolio. In the process, the company became an innovation powerhouse and reinvented three industries. "The press and the stock price will take care of itself," Jobs had said. It did take care of itself. After an initial period of uncertain spiral (during which the stock price fluctuated between highs and lows), the company's stock market price has risen. In fact, Apple even became the most valuable company last year.

    In contrast, Dell's second tenure at the company he founded has been marked by a consistently sliding share price, a slew of acquisitions that have yet to impact the company's bottomline and a significant lack of strategy or direction for the future. Eventually, the Austin-based company went private last week in a deal that valued the company at a quarter of its valuation during the 90s.

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    Although it is the third-largest PC maker in the world, Dell's future prospects look dim. A quick glance through its latest income statement reveals why. Eighty percent of the company's revenue is derived from PCs. Coupled with its profit figure, that share would be impressive, if the market for PCs was growing.

    It is not.

    In fact, Dell reported a 13 percent drop in its revenue from products on a year-over-year basis. Software and services, which was supposed to make up for the revenue shortfall from products, has increased only marginally (2%), in the meanwhile. Complicating the equation further is Dell's almost static figure of investment (2% of revenue) in research & development. Considering its revenues, that figure is not a small amount.

    However, Dell is a company in trouble.

    It needs to innovate quickly and efficiently. So far, though, the company is still playing catch up in the patent game. It has yet to devise a coherent cloud- and SaaS-computing strategy. The Austin-based company has taken the acquisitions route to spur innovation in this space. Its targets have been disparate and have ranged from services behemoth Perot Systems (which provided the company with a foothold in the government sector), disaster recovery software provider Appsure, security solutions provider Sonic Wall, SaaS integration provider Boomi, and virtualization software maker Qwest. Each of these acquisitions was expected to bolster the company's foray into the software and services sector. Given the rapidly changing nature So far, though, they have simply added to the company's headcount.

    ****************************************************
    The problem with Dell is a fundamental one. It began life as a company that offered low-cost alternatives to otherwise, expensive PCs. Their business model was similar to that of a catalogue delivery system. An efficient supply chain eliminated bottlenecks and made just-in-time delivery possible. The underlying assumption behind this strategy was that the PC market would endure. That assumption, as we know now, was incorrect.

    To control a market's dynamics, it is necessary to innovate and gain a first-mover advantage. When Michael Dell launched his company back in 1997, he understood this rule and rapidly expanded his made-to-order commodity PC business. Growth of the Internet made further economies of scale possible and enabled company expansion by providing a cheap distribution and marketing mechanism. However, economies of scale is a race to the bottom. Apple realized the limitations of innovating in PCs and invented new markets by crafting new products that made a post-PC world possible.

    With slow growth in the PC market, the company has already lost that advantage. And, it has been slow in reinventing itself. Part of Dell's problem is its owner, Michael Dell. He is known to be a cautious manager. Dell "blocked" Rollins' move to acquire services company EDS (which was subsequently bought over by HP) and resisted the company's move into software and services. His expertise, according to this article, lies in business models. Business models are only useful in conjunction with vision and strategy. So far, Dell's vision and strategy have been that of a follower, and not a leader.

    We live in an age of innovation. Information Technology has shortened cycle times and cheap products To regain its Mojo, Dell needs to be a leader again. Given the piles of cash at its disposal, which, incidentally is much more than what Jobs started with, the company already has the resources.

    All it needs now is a vision

    Tags: DELL, AAPL, Technology
    Feb 12 11:21 AM | Link | Comment!
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