Restructured Dell Needs Improved Focus

I suffered from cognitive dissonance while reading a BusinessWeek feature article on strategic and operational overhauls that are said to have occurred at Dell.

In the article, Michael Dell and a few of his executives stress that the company has gone from being structured around its products to being structured around customers: consumers, corporations, small and midsize businesses, and governments and educational buyers.

That’s commendable. At the end of the day, it’s all about having customers buy products, thereby generating revenue and earnings.

My problem with Dell, though, is that restructuring around customers doesn’t do nearly enough. At one point in the article, David Eiswert, manager of T. Rowe Price’s Global Technology Fund, nails the issue when he explains that he dumped all his Dell shares because the company is overmatched by resource-rich competitors.

Actually, the problem is worse than Eiswert thinks. While he focuses on the PC business, where he says Dell doesn’t spend enough on research and development to create exceptional technology, Dell’s problem extends across all the customer-centric markets in which it hopes to succeed.

Put bluntly, the problem is focus.

Can Dell compete against Apple, Acer, HP, Sony, and scores of others for the allegiance of consumers? I would say no — not to the degree that it can become a top-two player.

That opinion notwithstanding, if Dell is to succeed in the consumer market, it will have to commit far more resources to that effort than it allocates today. It is going up against well-fortified competitors, and, if Dell wants to play to win, it will have to pay to win.

At this point, Dell’s consumer efforts are half-hearted, which is why it is losing PC market share to Acer and HP, and also why it’s Android-based smartphone — a commodity that several handset OEMs will offer — appears dead on arrival.

What about the other customers Dell endeavors to serve?

Let’s start with corporations, also known as enterprises. Again, because it lacks the resources of an IBM, HP, Cisco, or Oracle, it will have to focus keenly on doing a lot more with a lot less.

Where’s the strategy, though? With data-center convergence all the rage, how will Dell fill gaps in its product portfolio that HP, Cisco, IBM, and perhaps even Oracle already have considered and addressed. It’s possible that Dell has something up its sleeve, but how can it fight effectively in this high-maintenance market while simultaneously waging a costly war on the consumer front?

Next up are small and midsize businesses (SMBs) and government and education customers. These are battles Dell can win. The Perot acquisition, if harnessed properly, can give Dell a strong profile in healthcare and government markets. Dell has been doing relatively well in the SMB space, too.

To boost the returns it gets from those customers, however, Dell must hone its focus and make follow-on investments in those market segments. That means following the Perot purchase with technology-related acquisitions that strengthen Dell’s value propositions to healthcare and government customers. It also means that Dell should look at acquiring or developing technologies that reinforce the value it brings to SMBs. These are markets where Dell can lead rather than follow.

That’s not true of the consumer space. I was disappointed to read that Ronald Garriques, head of Dell’s consumer division, seems to be getting so much of Michael Dell’s time and resources. Dell is regressing in the consumer market, losing share to competitors overseas and in North America.

It’s not all Garriques’ fault, obviously. Dell just doesn’t have the DNA to win the consumer fight. The numbers bear that out. I’m not saying Dell should exit that market tomorrow, but I am arguing that Dell ought to consider playing to its strengths rather than to its weaknesses.

As for the enterprise, Dell needs to think long and hard about what’s trying to accomplish. If it’s going to go up against the big boys in the enterprise, it must give customers a compelling reason to choose it over incumbents that have more data-center credibility and a stronger overall product portfolio. It lacks a lot of data-center pieces, and I know it was caught off guard when CIsco got into the server business with its Unified Computing System (UCS).

Dell is a big company, but it’s not as big as many of its competitors in the consumer and enterprise markets. Having restructured itself around customers, Dell must now determine which customers it can serve best.

One response to “Restructured Dell Needs Improved Focus

  1. After following Dell (and working for Dell) for many years, I concur with this article. I have expressed this “lack of focus” or, put another way, “trying to be everything to everyone” has been a failure by many measures. I am amazed that Michael has not taken a stronger hand in refocusing Dell…he apparently is letting some of his lower managment team do virtually all the management calls..or it certainlylooks that way. I know his has made several deragatory comments about his own company’s products lately and otherwise seems to be “left behind” in the Android race…too little …too late.

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