In the late 1990s Dell's value exploded (see chart here). From a share-adjusted price of $2.00, value exploded 30X in the internet boom from 1997 to 2000. People loved Dell because it had a Success Formula completely aligned with market conditions at the time. Dell had eschewed R&D, offering products which were combinations of off-the-shelf components. Offering a huge variety of a limited product line – PCs and laptops – Dell focused on how to take orders fast and deliver the product fast. While other companies put energy into product development, Dell put its resources into supply chain optimization at a time when internet use was exploding and the technology was becoming pretty much generic.
Since peaking, Dell's value has declined 8 3% -from about $100/share to $10. On the slippery slope of decline, value fell more than 60% since September. Dell was so focused on executing its Success Formula it missed some important market shifts. First, competitors were able to copy Dell's early advantages and provide customers lower prices. Second, customers moved away from wanting the highest growing PC products (servers) on the Dell technology standard products from Microsoft – moving increasingly to Linux solutions. And third, customers simply quit buying PCs and laptops at old growth rates. They are much more willing to keep products longer, rather than switch every year or so, and focus has moved to Blackberries and other mobile products – away from the products Microsoft offered. As a result of these market shifts, Dell's relentless focus on execution provided continuously declining marginal returns. Doing more of what it always did led to declining value at Dell.
Now the rumor is Dell will be launching a mobile phone (read article here). But a quick look shows there has been no change in the Dell Success Formula. The company is still trying to sell a product with no technology added by Dell – using instead off-the-shelf technology from Google and (surprise) Microsoft. Like it did in PCs, Dell looks to copy leading competitive products – this time targeting the Apple iPhone. It appears Dell thinks it can use its now long-in-the-tooth supply chain "strength" (which looks a lot less competitive advantaged than before) to take "me too" products to market in hopes customers will jump at their "standardized" distribution approach.
Only now isn't the 1990s, and mobile phones aren't anything like PCs and laptops. There are many low cost distribution avenues for mobile phones that get products into customers hands really, really cheap and really, really fast. And customers aren't looking for "standard" products, instead showing a very high affinity for new gadgets and bells (just ask Motorola that hung onto its market leading RAZR too long instead of bringing out new products). And thirdly, supply chain issues were important in PCs and laptops largely because most were bought by corporations – not individuals. But mobile phones are not a corporate IT purchase. Individuals by mobile phones.
In a different environment, isn't it surprising Dell would think its old Success Formula could produce good results? When things change, doing more of what you used to do well isn't likely to bring back old returns. Businesses have to change their Success Formulas to meet new and emerging market needs. Dell has to dramatically change its Success Formula if it hopes to regain competitiveness – not just put another me-too product into its old Locked-in processes. Even if Mr. Dell has returned as the CEO.