Dell Computers in 2003: Strategy, Culture, and Industry Leadership

Company Background and History

An interesting fact about Michael Dell is that when he was just fifteen years old, he bought his very first personal computer—an Apple II—in 1980. He subsequently took the entire computer apart in order to learn exactly how it had been made and what its various components were. Soon afterwards, when IBM introduced its first personal computer, Michael Dell began buying, upgrading, and selling IBM-compatible computers. This was the simple and modest beginning of the direct sales technique that Dell employs even today. It is also notable that while still attending university in 1984, Dell created a company he named "PCs Limited" in order to market his computers (Allan, 15).

The company's sales at the outset ran at a rate of between $50,000 and $80,000 per month. Soon afterwards, Dell left university and incorporated the company as Dell Computer Corporation that same year. Products were still being sold under the brand name PCs Limited, and Michael Dell's primary aim was to market sophisticated, build-to-order personal computer systems directly to end customers using accepted direct sales and marketing techniques. These techniques successfully eliminated the markup to dealers and resellers, offering a significant pricing advantage. Dell was not entirely satisfied, however, and decided to improve profitability further by producing his own computers (Allan, 15).

For this purpose, Dell used a chip set for the Intel 286 microprocessor supplied by Chips and Technology Inc., with Jay Bell serving as design contractor. By 1986, Dell was able to display at the Comdex Show one of the fastest-performing 286-based, 12-megahertz computer systems available. It was priced at $1,995, compared to IBM's 6-megahertz machine priced at $3,995. By the end of that year, Dell Computers had achieved $60 million in sales. The company subsequently opened Dell UK in 1987 and made its first public offering of shares in June 1988 (Allan, 16).

Historically, personal computers were sold either through a direct sales force to businesses—as IBM did—through company-owned stores such as Gateway, or through independent retail outlets such as CompUSA. As a result, most PC manufacturers had to bear the large overhead expenses associated with a direct sales force and the complex business chain it entailed. Michael Dell, using creative thinking, took the cost out of PC distribution by bypassing numerous distributors and selling directly to the end user. This business model made sound financial sense, as the company's performance clearly demonstrates. While Dell Computer's share of the global PC market was approximately 4.2% in 1994, it had risen to about 10% by 2000, making it the global market leader in personal computers (Depamphilis, 180–181).

Historic Financial Performance and Results

By the early 2000s, Dell was selling approximately $22 million per day in computers through the Internet alone, accounting for roughly 35% of its total annual revenue from personal computers (Depamphilis, 181). A Fast Company article from November 2002 noted that even during a period of economic upheaval, Dell was outperforming most competitors by winning additional PC market share while also expanding into the enterprise arena—including servers, switches, and storage products (Tischler, 110).

On the whole, Dell Computers experienced strongly positive sales figures from 1997 to 2000. Sales dropped by 5.9% in 2001 but recovered by approximately 6.7% the following year. Net profits peaked in 2000, then declined an estimated 28.5% in 2001 before growing by 14% in 2002. The company's working capital rose steadily alongside its long-term debt, and revenues were expected to continue growing over the following years (Davis).

Most analysts attribute Dell's success to its direct business model, but the company's achievement also depends on several other factors rooted in its organizational structure and culture—including effective internal communications, strong employee, customer, and supplier relationships, and a deep awareness of future market trends. Central to this success is the leadership of Michael Dell, who keeps the company's goals in sight and translates them into effective strategic plans, ensuring that employee actions align with those plans. An organization's work environment and structure are sometimes referred to as the "Sphere of Control," representing the area in which there is significant potential to manage the events and resources that affect the entire organization (Hansen).

Organizational Culture and Structure

The "Sphere of Influence," by contrast, encompasses the corporate culture and internal supply chain upon which the Sphere of Control can exert its effects. At Dell, the company's mission, vision, and values are made clear to all employees through the corporate website. The organization's focus is on being "first to volume, not first to market," meaning Dell aims to innovate in mass production rather than in pioneering new technologies. One of the keys to the company's success is what it calls massive communication—every available communication channel is used, sensitive issues are broadcast openly, and employees are kept consistently well-informed.

Although recruitment is a recognized challenge at Dell, the company offers a broad range of benefits to keep employees satisfied and engaged. The organizational culture is deliberately open and energetic, and employees consistently speak positively about the company. Dell treats education as a direct investment in the company's future; Dell University is designed to serve as a center of innovation, and this cultural emphasis is reinforced by the massive communications strategy. Accountability is maintained through a performance management system closely tied to the company's goals and competencies. A focus on the customer, clear priority-setting, an emphasis on problem solving, and the building of efficient teams are all fundamental elements of Dell's organizational culture (Hansen).

Dell Computers offers comprehensive solutions that make it simpler and easier for small and medium-sized businesses to create, develop, manage, and deploy powerful enterprise infrastructure and relevant business solutions. Dell and Microsoft work together to provide customers with innovations in hardware, software, licensing, and services, in part because Dell has implemented Microsoft solutions internally within its own organization (Microsoft Solutions).