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A chat with Michael Dell // USA Today Online (6/21/99)
<<'Information democracy' changing face of business
Michael Dell, CEO of Dell Computer, may not be as rich and famous as Microsoft's Bill Gates, but he's a richer Texan than Ross Perot and this year at 34 became richer and perhaps better known than Gates was at that age He is often invited to speak to CEOs almost twice his age, who want Dell to tell them how to adapt to the Internet and e-commerce. Dell Computer has been the top-performing stock for the past three, five and 10 years, although it's flat this year and 33% off its 52-week high. Dell, a billionaire at 31, became the youngest CEO of a Fortune 500 company at 27. He will get 1,500 speaking invitations this year (up from 100 in 1997), and will turn almost all of them down. He spoke last week with USA TODAY management reporter Del Jones.
Q: You are the hottest business speaker out there. It seems like every CEO wants your advice on dealing with the Internet threat. What do they want from you?
A: Businesses were set up and established based on traditional economics, typical commercial situations. You lived in a particular area of the world, and if you wanted to buy something, you traveled to go get it. There was a piece of land, there was a building, there were assets that were sitting there waiting for you to buy. That all costs money.
The Internet came along and changed all that. Customers consider the whole world. Buildings and real estate are less important. It's no longer trying to forecast what somebody was going to buy and hope they come and buy it.
In our case, we get information from customers that allows us to make the product better than if we were just guessing and sending stuff to stores because we can build to order. A lot of executives looked at this, and went "Wow. You don't have to have a lot of inventory, you don't have to guess what people want." It kind of changed the whole system.
Q: So why don't others just imitate Dell and be done with it?
A: Where it gets tricky is a lot of businesses are set up in a traditional way. They have these vast distribution systems with dealers and brokers and all these folks in the middle because of the way things used to work. In some industries, nobody has leapt out there and changed the rules. If that's the case, they can stay in that state of traditional existence until somebody says, "OK we're going to change this business." It could be one of the existing companies; it could be a new company.
Q: Won't we look back and say the smart companies waited, watched and learned and let the others make the mistakes before jumping in?
A: The difference between being the standard bearer and the fast follower is a lot different than in the past. In any category, look at the difference between companies who went on the Internet first and those who went second. There is really a big separation. Part of it is the learning curve, part is mindset. It's hard for a traditional company to just totally switch gears and grasp this.
Q: But decisions aren't easy. Look at Merrill Lynch. It faces an attack from online brokerage companies. Its choice was between its brokers and cannibalizing itself to compete with low online commissions. What are the leaders in other industries to do?
A: They have to deal with this pretty aggressively. They have to set up some alternate business that is going to use the best ideas and be innovative and aggressive. Then, they must let customers decide. Ultimately, customers are going to decide anyway. If you resist, it's a no-win situation.
Q: Yesterday, a brokerage company could charge $100 for a commission. Today, somebody is doing it online for $7. What is going on?
A: We're seeing information democracy and the transparency of information destroying false economics. Before, a company might have had information. For me to get it, I had to pay. Now, it's free. These companies have to adjust to that. To charge more, they have to provide additional value and service. Unless you can come up with a business model that thrives on the consumer having more information, you're in a lot of trouble.
Q: Is there a good side for companies trying to get out of trouble?
A: Yes. If you have perfect information about what your customers want, you need very little inventory. You can build to order and operate with far less capital. Go to a store, and look up. What you see on the shelves are the failed forecasts of somebody who tried to guess what somebody was going to buy. Invariably, they're wrong.
Q: Doesn't it seem almost too easy for Internet competitors to spring up?
A: They have access to capital. Traditional companies are in a real dilemma, because if you start an Internet activity, it's a drain on your earnings. Competitors have access to capital and don't appear to have any devotion to earning a profit. That's a very difficult challenge for a traditional company.
Perhaps some of this seems irrational -- I'm sure some of it is -- and that all gets sorted out in the market. But a traditional company has to wake up and smell the coffee here. This is coming very quickly, and they can't afford to ignore it.
Dell's advice:
**Don't guess what your customers want. Use the Internet to know precisely, then build to suit and slash inventory.
**Be aggressive. Don't just try a few Internet experiments or bolt on a Web site. At the very least, set up an Internet business to compete with your company. Then, let the customers decide.
**If your business doesn't thrive on customers and suppliers having more and more information, you're in trouble.
**Cannibalize your core business or somebody else will. Do it soon.
Q: What is the most common mistake businesses make regarding the Internet?
A: Some are treating the Internet as a separate thing or something they should bolt on to their business. They have a Web page, and things will be fine. Well, that's not the way it works. A Web page doesn't really change your business. They must think about how customers and suppliers can use that information to change every part of business. If your customers can now access all this information, do you need all the processes and steps in your old business?
Q: Given a choice, would you rather run a large, profitable company or an attack.com start-up?
A: I'm predisposed to be an attacker, not an attackee. But that doesn't necessarily apply to being big or small. Big companies can and are going after the Internet business very aggressively. It's all in the approach. Do you sit back and see what's going to happen and do a few experiments? Or, do you just say, "Damn it, we're changing. Let's go."
Q: But suppose you happen to be running a company that is the attackee. What should you do?
A: (Long pause). I think you've got to become an attacker. This is not a game for the attackee. Companies that take a passive approach to this are going to get hurt.
Q: Dell is an attacker. Compaq is your attackee. They sell computers in stores and risk upsetting all those retailers and doing grave damage to themselves if they simply copy you. What can they do?
A: I prefer not to give them any advice. I have a few ideas, but I'm not going to share them.
Q: How much of an Internet strategy is driven by responding to customers and how much is driven by cost savings?
A: There certainly are very tangible savings where 75% of our orders are now done on the Internet, and one-third of our tech support. It's incredibly cheap. Taking phone calls costs at least $3 apiece. It's almost nothing on the Internet. Tech support costs almost nothing on the Net because you have to develop the content anyway for our support teams that answer phone calls.
Q: How is the Internet going to have an impact on companies down the road?
A: The vast majority of sales and support are going online. There will be phone-Web integration. We're already starting to do micro-broadcasting. We'll have a Webcast online for a new product. It's sort of like owning your own TV station. Diagnostics will be enhanced, so if you're having a problem with your PC, instead of calling a tech, you hit a button. The status of your PC is electronically taken and sent to a server for an answer. If you need a person on the phone, you'll get someone who understands, because they have gotten this information already online.
Q: Is IBM CEO Lou Gerstner right when he predicts that big, established companies such as Wal-Mart will get their act together, go online and drive the Internet upstarts out of business?
A: I don't think there's a conclusive answer. Wal-Mart has some distinct advantages with their scale and pervasiveness. However, they also have to forecast what you're going to buy and stock thousands of stores. If they're wrong, they have all this inventory. That's a hard model to crack. Over time, more and more of those goods may go right over the Net. They'll have to be very aggressive about that and be willing to cannibalize their core business, or somebody else will. You have to kill or be killed.>> |
