Dell Disaster

by Adam Hartung | Aug 28, 2006 | Defend & Extend, General, In the Swamp, Leadership, Lifecycle, Lock-in, Quotes

I need to thank one of my readers for bringing to my attention a recent BusinessWeek article on Dell (see article here.)  As he pointed out, this article comes almost exactly 3 months after I talked about how Dell’s Lock-in was disastrous.  There are some great quotes worthy of sharing:

Regarding Lock-in:

• "Dell remained slavishly loyal to its core idea of ultra-efficient supply-chain management and direct sales to consumers, even as rivals have stepped up their game and markets have shifted to take away some of Dell’s key advantages. Instead of adapting, critics say, Dell cut costs in ways that compromised customer service and, possibly, product quality."

Some readers may recall on April 16, 2006 when I pointed out Wal-Mart’s problems and discussed the risk of being a 1-Trick Pony:

• "They’re a one-trick pony. It was a great trick for over 10 years, but the rest of us have figured it out and Dell hasn’t plowed any of its profits into creating a new trick."

Regarding identifying Telltales of big problems that indicate a company is moving into the Swamp – or Whirlpool:

• "Dell’s culture is not inspirational or aspirational," says Geoffrey Moore, a tech consultant and author of Dealing with Darwin: How Great Companies Innovate at Every Phase of Their Evolution. "This is when they need to be imaginative, but [Dell’s] culture only wants to talk about execution."

Of course, in an execution focused company there is no room for White Space, and you don’t get innovation:

• "They don’t feel they’re part of something at Dell, and they generally leave because they feel frustrated," says Snyder. "Dell is not a fun place to work, and it’s less fun now than it used to be."
• "Even the CEO admitted so in 2003 – "There are some organizations where people think they’re a hero if they invent a new thing," he said. "Being a hero at Dell means saving money."
• "Inside Dell, ideas that break from the model are discouraged, say former Dell managers. Notes one: "You had to be very confident and thick-skinned to stay on an issue that wasn’t popular. A lot of red flags got waved—but only once."

Lock-in makes you an easy target for competitors:

• "But it was clear some time ago that Dell’s model was not keeping pace and was not going to be such a big advantage in the future… And while experts believe Dell got the best prices on components when it was outgrowing all of its rivals, these days newly ascendant HP and Asian rivals Lenovo Group (LNVYG) and Acer are offering plenty of growth themselves."

Once a company commits to a Defend & Extend strategy, it becomes so structurally Locked-in it becomes almost powerless to change: 

• "So why hasn’t Michael Dell—clearly a brilliant guy—changed tactics? For starters, say rivals and Dell alums, shifting gears would upset investors who expect hyper-profitability from Dell’s hyper-efficiency. And having stuck to his guns in the past, he can’t risk letting customers think that "Direct from Dell" is no longer the cheapest, smartest way to go."

By following the Siren’s song of "operational excellence" Dell adopted a Defend & Extend strategy that has placed it at great risk.  Now it lacks the tools for innovation that could help the company to have a longer, more successful future.  Without a serious Disruption, and new leadership that can implement and manage White Space Dell’s future is easy to predict.