For Dell, being No. 1 is not enough
Despite industry slowdown, PC maker sets ambitious goal to double sales in next five years
By John Pletz
Austin American Statesman
December 9, 2002, Monday
Dell Computer Corp. is once again the No. 1 seller of personal computers and racking up double-digit sales growth in an industry that's barely treading water.
Next target for the famously competitive company? Doubling annual sales to $65 billion in the next five years. If Dell had that amount of sales this year, it would be bigger than Microsoft Corp. and rank No. 12 on the current Fortune 500 list. But it still would be smaller than rival hardware makers IBM Corp. and Hewlett-Packard Co.
When Michael Dell first floated the idea almost a year ago, the industry gasped in disbelief, having just racked up its first yearly decline in computer sales in 15 years. But such a claim is typical of Dell, who hadn't yet moved out of his University of Texas dorm room in 1983 when he declared to his parents that he wanted to compete with IBM. Much of the responsibility for meeting the $65 billion milestone falls to Joe Marengi and Ro Parra, who co-manage Dell's Americas business, a division that accounts for about 70 percent of Dell's sales.
For Parra, the goal has a familiar ring.
"Several years ago, when I was running the government group at Dell, we got to be No. 1," Parra said. "I was in a review with Mort (Topfer) and Michael, and one of them said: 'Now that you're No. 1, when will you get to be twice as big as No. 2?' "
Doubling the company is no small feat even in a young, fast-growing industry that expects to grow exponentially. But the PC business is settling comfortably into middle age, and shipments now are growing little from one year to the next.
"They're somewhat ambitious goals, but you need ambitious goals," said Tim Woolston, a fund manager at Boston Advisors Inc., which holds 121,000 Dell shares and advises a portfolio that owns another 177,000 shares.
Marengi and Parra don't have a magic bullet. The strategy is simple: Cut costs, add more customers and sell more stuff to those customers. It's the same strategy Dell has relied on to generate growth in a down market during the past two years.
Dell already slashed its costs by consolidating manufacturing facilities and cutting about a quarter of its Central Texas work force. It has stepped up consumer sales, recently reaching No. 1 in the U.S. market.
And in the past year, Dell launched new product lines, including printers, personal digital assistants and low-end switches that allow PCs and other devices to be connected in networks.
Taking rivals' customers
Dell also will continue to focus on taking customers from rivals, such as Hewlett-Packard. In the past year, since H-P said it would buy Compaq, Dell moved in quickly to grab customers who were uncertain about the merger's consequences for them.
Dell's market share in PCs and Intel-based servers grew from 14.5 percent to 16 percent. The combined share of H-P and Compaq fell from 17.7 percent to 15.5 percent.
"Basically what they're looking for is 20 percent annual growth during those five years," Woolston said. "That's not impossible. Some of it hinges on things beyond their control: One is a global economic recovery, and the other is a recovery in their sector. The caveat is the law of large numbers: The bigger you get, the harder it is to double."
Dell last doubled sales between 1997 and 1999, climbing from $12.3 billion to $25.3 billion when industry sales were growing about 20 percent annually. To double now, Dell needs more than twice as much in raw revenue growth in an industry where sales have been shrinking or flat during the past two years.
The two people who will be largely responsible for making sure the company reaches its goal come from different backgrounds. Marengi oversaw large-corporate sales, while Parra led the education and government business.
Parra, 43, has risen steadily through the ranks since joining Dell in 1993 from computer company GRiD Systems Corp. and electronics retailer Tandy Corp..
Marengi, 49, came to Dell in 1997 from software maker Novell Inc., where he was president and chief operating officer.
But they share common traits of keeping a close eye on the details and making tough decisions quickly, said one former Dell manager who spoke on condition that his name not be used because he still works in the industry.
"Making it that far, at that level, is difficult," he said. "Both are personable, but there's that very hard, measurement philosophy they share with Michael (Dell) and Kevin (Rollins) -- hit the numbers, constant evaluation."
Marengi and Parra came to head the Americas business when Dell restructured its business in response to the steep slowdown in computer sales two years ago, abandoning a recent shift toward global business units based on customer groups -- such as large corporations, government and education, or small and medium business -- in favor of older geographic divisions that had less duplication in staffing.
The two co-manage the sales, manufacturing, service and support operations for North and South America. The arrangement, which is known in Dell-speak as "two in a box," got its start when Topfer came to Dell as vice chairman in 1994 to help run the company with Chairman Michael Dell.
"Could this job be done by one person? Absolutely," said Parra, who is one of the company's longest-serving senior executives behind founder Michael Dell. "But I guarantee it's more effective with two."
The two keep a low public profile, content to let the limelight fall on Dell and President Kevin Rollins.
"It's a no-name management team," Marengi said. "It's a bunch of people who just work and get things done. Michael's the rock star."
Balancing act
Marengi and Parra say they're spending a lot of time these days on developing the next generation of management. It's part of an initiative called "The Soul of Dell," which involves, among other things, spelling out a code of business conduct that is the same for all Dell employees around the world.
"Through the Y2K and Internet bubble, . . . we were growing 40, 50, 60 percent a year," Parra said. "The strategy till then of running the organization was to keep the wheels on and keep the vehicle moving straight. As time goes on, we're potentially going to look at the last two years as a good thing because it enabled us to address some issues we had that were hidden by tremendous growth."
One area that stood out was better training for the company's 4,000 managers.
"We used to take our best salespeople and say, 'You're now a manager, all right?' and give them no training to manage," Marengi said.
Parra added: "At least once a week we have a new group of managers coming in for training. Three, four years ago, I don't know that we had those type of training classes. If we did, nobody paid much attention to them."
But it's a delicate balancing act. Dell doesn't want to drastically change the culture that helped launch the company from upstart to industry giant.
"This organization is addicted to winning -- whether it's such-and-such market share or getting to $65 billion over the course of five years," Parra said. "It's what this culture is about."
jpletz@statesman.com
Copyright 2002 The Austin American Statesman |
