Excellent question, for the answer will dictate whether the company’s stock will be a sound investment. The stock price has risen since Michael Dell resumed the CEO position, but I consider that event a result of the Wall Street opinion that Michael Dell will automatically and quickly return the company he founded some 20 ago to its previous glory. The formidable tasks to be faced will not make this easy for Mr. Dell and his corporation.
Not only must Dell regain the trust of those who fell away because of years of poor customer service, but the company must change its business model to address tremendous industry changes as well as those looming in the future—all daunting challenges. Regaining customer trust takes time—even years—and requires flawless execution of customer satisfaction.
Dell, since its inception, has been a marketing and sales company for personal computers and laptops—with emphasis on business accounts with IT Departments. Dell did no design and development, choosing to purchase sub-assemblies and assembling them according to customer requirements. But the PC business changed to a consumer-driven business, and Dell had to accommodate the change in their customer base.
To reach the consumer, Dell tried kiosks in places where consumers congregate. The strategy failed. Consumers wanted to be hand-held prior to purchasing a computer. Most of the kiosks were unattended or manned by poorly trained personnel from rep sales firms. Dell has since dropped this channel strategy in favor of selling computers through Wal-Mart and Best Buy. Best Buy already enjoys a very successful relationship with Hewlet-Packard. Once again, time and outstanding execution is a must for success. As long as H-P retains their status with Best Buy, Dell will be waging an uphill battle.
Dell also wants to attack the Small to Medium Business (SMB) market. This market is served by Value Added Resellers (VARS), so the Dell direct sales force must keep hands off. Once a VAR invested time and effort to prime an SMB customer, Dell direct sales has had a habit of snatching that customer away from the VAR. The result: many VARS do not trust Dell—another confidence hurdle for Dell to resolve. Meanwhile, IBM and H-P are capturing more and more small and medium customers at Dell’s expense.
Dell is beefing up its activities as a solutions and services provider. Sounds great, but they are late in this effort, being a distant third behind H-P, which is a very distant second behind leader IBM. Both H-P and IBM have been in the solutions provider business for a long time with well-trained staff and a host of products.
The competition is already well ahead of Dell in critical new areas such as cloud computing, Software as a Service (SaaS), and virtualization. Dell must address these changes that have already occurred in the industry.
And what about desktop/laptop virtualization, a disruptive technology that will cause the current offerings in this market to radically change. The PC as we know it now will change dramatically, driving a drop in the market number of systems sold. To paraphrase an Information Week columnist “The only thing certain about personal computers of the future is no single dominant computing approach will emerge over the next few years. The idea of a standard computing platform will vary based on organizational, departmental, and user requirements.”
Dell has always been a marketing and assembly company spending effort driving down supply-chain costs. They did little or no design and are not known for innovation, yet innovation is necessary to bring them back to their former leadership position.
Their current activities seem to be concentrated in the cost-cutting area with very little effort to adjust for the future. Dell has a long way to go.
To those who want to invest in a “computer company,” I would recommend either Hewlett-Packard or IBM.
Copyright by Bill Durrenberger September
12, 2008
Disclaimer: The statements and information presented in this article reflect
the opinions of the author and do not constitute a recommendation to buy or
sell specific securities. Before
purchase of any investment, the buyer should consult a financial adviser
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