Dell has had a fair amount of news coming out of Texas recently, but today’s missive, their preliminary earnings report for this quarter, has a whopper in it:
“Initiated a comprehensive review of costs across all processes and organizations from product development and procurement through service and support delivery with the goal to simplify structure, eliminate redundancies and better align operating expenses with the current business environment and strategic growth opportunities. As a part of this overall effort, Dell will reduce headcount by approximately 10 percent over the next 12 months. The reductions will vary across geographic regions, customer segments, and functions, and will reflect business considerations as well as local legal requirements.”
In case you haven’t kept track of Dell (Nasdaq: DELL), it currently employes 65,200 people [ref]. That means that over 6,500 employees of Dell are going to be polishing their résumés starting tomorrow morning…
What I find most interesting about this is what it demonstrates about the evolution of the computer industry. Dell started out and grew huge through its direct sales model: rather than have retail stores, it pioneered Made To Order with a sophisticated Web site that let even the least technologically savvy individual — or business — order exactly the PC they needed, from monitors to memory, disk to networking card, and even specific software options.
Of course, nothing stays still and it didn’t take long for other companies to develop online custom ordering sites and compete with Dell. Far worse for its reputation, though, was that as the industry changed, it became more difficult to retain the high margins that Dell gained by outsourcing all of its components, so it too had to compete on price, which was painful for a company built around quality and reliability.
This era was launched by the blogosphere among others, and is known as Dell Hell, for the many, many stories people shared online about their terrible experiences with Dell customer service, experiences so bad that some customers doubtless threw their computers away and swore off the Dell brand forever.
Meanwhile, companies like Apple Corporation (Nasdaq: AAPL) are demonstrating that ordering computers through a Web site is perhaps just a bit less appealing than a nicely designed storefront. Online orders are down, competitors are succeeding with storefronts, but when Dell tries its own stores, Dell Direct Stores, they fail.
So the latest step? Dell signs a partnership with über-retailer Wal-Mart (NYSE: WMT) to try and actually sell more products and redefine its position in the marketplace.
It’s just too bad for the 6,500 Dell employees that are going to be on the street as a result of this latest experiment. (the latest quarterly Dell results, btw, are millions lower than the same period last year)
Maybe Michael Dell has just lost his magic touch after all?
They’ll always be someone who’ll do it better and cheaper than you can. But that’s the beauty of our market structure. In the end, the consumer is more likely to become the beneficiary of increased competition.
To try to put a positive spin on the employees that will be let go, perhaps this will free them up to pursue other ventures more meaninful for them, or even improve their skills to get better positions in the workforce. There’ll be 6500 more people to fill positions in other companies/industries. Maybe some of them will start their own companies.
-RY
Hi Dave. Dell seems to be the antithesis of Jim Collins’ Good to Great. They’ve gone from great to good to in serious trouble. They seem to have forgotten their original primary strength, customer service excellence; their knowledge of their customer, a tight-fisted demanding shopper; and their market, a commodity marketplace. I’m afraid Randy may be over-optimistic – I think many laid off employees will struggle.
Interesting Dave, I didn’t realise that Dell were in so much sh.t. I have been unhappy with them in the past, and I’ve noticed that they don’t seem to be doing anything different. Ordering a pc from their site is fun the first time, but they don’t do anything to make you want to go back.
Do you think they will be able to pull things round? Usually, once you start competing on price, you’re on a slippery slope to hell.
Can Dell turn things around? I dunno. One thing that really strikes me as a primarily Mac user is that there’s no well-defined leader in the PC marketplace but instead a lot of infighting and competition almost for the sake of competition. What’s really different between a Dell, HP, Gateway, Sony and Toshiba PC if they’re all using the same 19″ LCD screen, same internal components, and all running the exact same operating system with the same capabilities? The case design? The warranty? The ephemeral “brand identity”?
I also agree with you that commoditization is a dangerous transition for any company, as my co-author Linda Sanford and I explore in our book “Let Go To Grow: Escaping the Commodity Trap”.
Thanks Dave. It seems to me that when companies are all offering the same product, they need to offer a better service to have the edge. Maybe a faster service, longer guarantee or something. But, it’s difficult to come up with something that none of your competitors can easily offer too.
Every time I come up with better USP for one of my businesses, I have a competitor who does exactly the same thing. It’s really tough trying to find something they can’t copy.
I’m going right over to amazon now to order your book – hopefully that will help.