Learning from mistakes to Virtual Integration- Michael Dell the author.
Scott:
Excellent take on MD and his book from Austin American Statesman.Anybody who bets again this man is a FOOL,is what I am saying.
=================
'Direct from Dell: Strategies that Revolutionized an Industry'
By Michael Dell with Catherine Fredman
Author puts the emphasis on business
By Jerry Mahoney
American-Statesman Staff
Published: Feb. 21, 1999
Investors' unforgiving reaction last week to news that Dell Computer Corp.'s fourth-quarter revenue growth slowed significantly may have been jarring to many of the company's 28,000 employees.
That's understandable. The last time the company had true financial problems was 1993, when Dell employed 7,500 people.
Employees, investors and Dell watchers who want a glimpse of real trouble inside the 15-year-old PC company will find it in Michael Dell's book, "Direct from Dell: Strategies That Revolutionized an Industry."
Dell posted its only losing quarter in 1993, when it was forced to abandon a new notebook computer line. It finished the year with a loss of almost $36 million.
For a company whose name is synonymous with sustained, extraordinary growth, the chapters on the early 1990s provide a cautionary tale on the unrestrained pursuit of growth. Realizing it had to grow or die in 1992, the 8-year-old company aggressively cut prices. Revenue soared 127 percent to $2 billion, but the company "hit the wall."
Dell, the chairman, chief executive and founder, was 28.
"We still had the infrastructure of a $500 million company," he writes. "Just about every system we had installed a couple of years before was now unable to support our business. . . . Most important, we had outgrown some of our people. We didn't have people with the experience of running a $2 billion-plus company. . . . By now, I knew I needed help."
That conclusion was an echo from four years earlier, after an embarrassing and painful mistake with inventory.
That the young CEO, albeit absorbed in the task of guiding his company across uncharted terrain, hadn't filled the holes in management indicates he hadn't yet learned a lesson he stresses more than once in the book: face facts and respond to bad news promptly.
In 1989, Dell already was proud of its ability to closely manage inventory. But it ended up with a hoard of virtually worthless memory chips when practically overnight the technology moved a generation beyond the 256-kilobyte chip it had just bought.
Liquidating the chips depressed earnings in one quarter to only a penny a share.
"To compensate, we had to raise the price of our products," Dell writes. "Growth slowed down. And we had to postpone plans to launch operations in new countries. For the first time in the company's history, we didn't deliver. To our stunned disbelief, we had quickly become known as the company with the inventory problem."
He admits he was scared about losing the trust of customers, employees and shareholders.
"But I was also scared because for the first time, I started thinking I might be in over my head."
He was 24.
Learning lessons
Dell calls such crises "lessons," and he shares them only because they help explain the evolution of the company's model of selling computers directly to customers instead of the traditional retail method.
Dell watchers who buy the book hoping to learn what the road to riches and computer-industry stardom felt like for the young entrepreneur may be disappointed. Dell notes at the start that the book is neither a memoir nor a history of the company.
It is a dispassionate, first-person account of the evolution of the direct model. Every computer is built-to-order after it is paid for, thus eliminating the risk of unsold PCs losing value on the shelf.
Because of the painful early lessons, the mantra "growth, growth, growth" was replaced in 1993 by a focus on "liquidity, profitability and growth," in that order.
To help imbue the corporate culture with those goals, Michael Dell gave managers pyramid-shaped Plexiglas paperweights embossed with those terms. It's a sign of the single-mindedness of the Dell culture, that six years later, Dell managers seem to automatically insert the terms into their conversations.
'Virtual integration'
A vital feature of Dell's success is "virtual integration," a play on words that Michael Dell apparently coined. It refers to the radical idea of letting suppliers and customers inside your business. Over the Internet, that is. Dell has exploited the medium -- speeding its evolution at the same time -- more than most companies in any industry.
Through dedicated Web sites, companies that supply Dell with computer chips, disk drives and other components can see what Dell's customers order, at the same time Dell sees it, and dispatch trucks to Dell's factories with the needed parts.
Michael Dell calls it the "demand-supply" model.
"We'd come upon a new way of doing business," he writes. "With our new model, suppliers had to get used to the fact that we weren't going to play the same game that had always been played in our industry. We said, 'Forget the warehouse. . . . We want you to ship product every day or every hour as we need it, and the reward is that you'll be able to sell us more.' Some got it, some didn't. Those that did were rewarded with our business -- and lots of it."
Michael Dell didn't foresee some of the advantages that stemmed from new practices.
As the inventory process evolved, Dell reduced the number of suppliers from 140 in the early days to about 40 today.
The constant and direct contact with customers, which is sometimes harrowing for employees, has become one of the strongest features of Dell's system.
Michael Dell credits customer feedback with steering the company away from developing products that probably wouldn't sell well.
"Our best customers act as leading indicators for where the market is going and tip us off to ways of improving what we already do well," he says. "They raise the bar, encouraging us to continually evolve from a company that sells components of a solution to a company that provides the entire solution."
In one of the relatively few examples in the book, Dell relates how a trip to British Petroleum's offices in London sowed the seeds for the company's innovative factory process that installs a customer's proprietary software on every computer before its shipped.
Dell also credits customers for pulling the company toward online sales. The company introduced its www.dell.com site in June 1994 as a technical-support site for savvy users. Soon, the users were sending e-mail to Dell, asking to configure their PCs online. Dell complied, though orders still had to be taken by phone. By June 1996, customers were able to buy desktop and notebook computers over the Web.
Michael Dell says that in December of that year, Amazon.com was attracting attention because it sold $15 million worth of books online in one quarter but wasn't profitable.
"When we came out and said that we were doing $1 million a day and making money, the industry spotlight turned on us," he says. "The attention achieved exactly what we wanted. It drove traffic to www.dell.com and helped us establish a leadership position."
Such morsels will reward average readers who might find "Direct from Dell" dry overall in its straightforward detail.
A business text
In a recent interview, Dell described the book as a business text. As such, there is nothing about the none-too-friendly competition with Compaq Computer Corp. or "lessons" that don't directly touch on the core strategy -- for example, the 1994 loss of $24 million in derivatives tied to foreign interest rates, which forced the company to abandon that risky investment strategy.
There's very little in the book about the company's decision, which has been questioned by several analysts, to partner with service providers such as Wang Global and Unisys Corp. instead of building its own service division.
While the company's senior-management team is well-regarded in the industry, the book doesn't go into detail about the hiring of Vice Chairmen Mort Topfer and Kevin Rollins or Chief Financial Officer Tom Meredith.
Michael Dell does disclose what he looks for in managers and how he challenges them during the job interview.
Snippets from childhood
Michael Dell's many admirers will enjoy the precocious snippets from his boyhood in Houston in the early pages. At 12, he made $2,000 on a mail-order stamp business.
"I learned an early, powerful lesson about the rewards of eliminating the middleman," Dell says. "I also learned that if you've got a good idea, it pays to do something about it."
Selling subscriptions to The Houston Post during his 16th summer, Dell quickly saw that recent homebuyers and newlyweds were more likely to subscribe than names on a list the paper provided. He hired friends to look up marriage licenses, and he wrote a letter to people who bought expensive houses.
That fall, he proudly submitted the results of the summer job as part of a high school economics class project.
His teacher became upset when she realized he actually had made $18,000, which was more than her salary.
Other youthful acts, including his by-now legendary start in the PC business while enrolled at the University of Texas, temporarily upset his well-educated parents.
But his behavior also foreshadowed what already is a singular career in American business.
|
