Wednesday, May 29, 2024

Dell’s Formula for Success

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I’m at the annual Dell analyst meeting this week and the company has a lot to be proud of this year. After nearly a decade of being pounded on for not being Apple, Dell has executed on a uniquely Dell strategy.

I personally think this strategy is far better than what we are currently seeing from many tech vendors. It’s the real lesson we get from Apple.Currently we have Oracle trying to be IBM, Google trying to be Microsoft, everybody and their brother in the hardware space trying to be Apple (and Cisco in particular really sucking at it). Microsoft is trying to be IBM or Apple (depending on the month).We saw both Sun and Netscape fail trying to be Microsoft.

Companies that are standing out at the moment, Apple and IBM, are largely doing so by being a better IBM and Apple, respectively, and it is that strategy that Dell is following.I think that is a sustaining lesson. Companies should try to define what they are best at, what has made them successful, and focus on those core aspects.

At its heart Dell is a customer-focused business provider of hardware. By returning focus to that area Dell is reporting stunningly good results this week.


Vision and Leadership

This starts at the top. There are a lot of companies where the CEO is under pressure to leave because they aren’t qualified (skills are a mismatch or they simply don’t have the skills), are using their company like a personal toy, and are overly focused on cost cutting and not focused enough on growing the company.Michael Dell isn’t one of them.

Like the CEOs at EMC, IBM, Intel – and yes Apple – Dell has pushed his company into being sharply focused on his vision for the future of the company.

Key milestones over the last 12 months are the completion of 12 acquisitions and another $1B invested into organic market growth. They pulled in over $1B in enterprise solutions and services and entered the strategic solutions segment.

Dell started as a client company and significantly improved the profitability of that unit. Gross margins came up a whopping 32% in storage and networking as well.Overall, fiscal 2011 was a stunning year with Non-GAAP operating income up 40% to $4.1B. The first quarter in fiscal year 2012 already is showing an increase in cash flow from operations of 24% to $4.2B.

Part of this success came from putting their emphasis on markets that are the most lucrative.They continue to support global enterprise and consumer markets but much of their efforts go into the public, education, and healthcare vertical markets, and the large business and small to medium business markets.

These segments represent a $1.94 trillion dollar market while, collectively, the consumer and global enterprise businesses (both of which consume an inordinate amount of cost, bid process and account management for enterprise and marketing for consumer) represent only $510B by comparison.

In short Michael Dell isn’t trying to make Dell be everything for everyone, either.This is called focus and I wish more companies would learn this word (as I’ll bet would most investors and customers).

He is far from done, but I can’t play down how critical it is to have someone with a vision at the top of a firm if it wants to be successful.


Strategy and Focus

Once you focus on a defined market set you can then define the customers that make it up.The problem that the groups that Dell is focusing on share have to do with the massively increasing complexity and security in their environments, coupled with increased pressures on conserving costs.They get to this conclusion by effectively studying the targeted segments and then defining solutions to address these concerns.

In short, rather than throwing products at a market they hope will buy them, they develop products specifically for needs that are defined after studying the buyers that would eventually have to buy them.

This also forced them to reevaluate how to do acquisitions, where often the focus is on integrating the people and products (which often destroy a great deal of what was acquired). Dell’s focus is on making the acquisition as successful as possible.

No surprise that virtually every acquisition they have made of late has proven to be successful.I don’t think we should forget this lesson: if you focus on making the acquisition successful, rather than focusing on molding the acquisition into the buyer’s image, the result is more often successful.

It is far easier to measure the success of a defined unit and manage it than it is to measure the success of a part of something larger that is itself undergoing massive changes.

The other interesting aspect of this is you get divisions that were (if you bought successful companies) already successful. In contrast, otherwise, you almost start over tossing out what was working and trying to create something else. You work against a near 70% failure rate for the integration approach to mergers and acquisitions.


Wrapping Up: Strong Leadership/Vision, Focus, and Metrics-Based Execution

We spend a lot of time pounding on companies and their CEOs for not performing according to our wishes and expectations.I don’t think we spend enough time talking about what firms are doing right. When we do, we tend to focus excessively on just the obvious metrics like attractive products and financial performance.

I think we should focus more on how a company gets there. It’s generally as a result of a viable vision from the top, coupled with strong leadership skills to get the firm where it needs to go.

It’s essential to identify who the customer is, and couple this with research into what the customers not only do need, but will need going forward.Companies like EMC, Apple, IBM, and Intel are defined by this sharp focus and leadership.

Michael Dell pulled his company hand over hand painfully back into this group and he, and his team, deserve the credit for the effort. But we should use this as a learning moment. Rather than the more normal practice of trying to emulate what the company does, folks should learn to emulate how Michael Dell did it.That’s the formula for success.

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