Essay: Michael S. Dell

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Michael Dell's Influence On Dell Computer Corporation

Michael Dell's leadership of the company he founded shows an innate ability to overcome difficult industry-wide shifts in direction while at the same time being able to completely redefine their business model, reinventing themselves in the process. The intent of this analysis is to illustrate how Michael Dell has architected his company so that his and his team's transformational leadership makes a significant and profitable impact on operations globally. Dell is highly customer-centered and also relies extensively on analytics, business intelligence (BI) and key performance indicators (KPIs). The Dell culture is a complex one that combines the greatest strengths of engineering expertise, financial and cost analysis, customer-based analysis and manufacturing process expertise all integrated into a unified, globally-based strategic platform (Economist, 2001). Driving this culture away from a purely being PC and systems-focused to embracing software, Michael Dell has shown the ability to reinvent the business model if his company multiple times (MacSweeney, 2006). The latest strategies defined in 2009 to dominate cloud computing and virtualization through the unique integration of systems software, hardware and interprocess integration shows how transformational of a leader Michael Dell is (Woodward, 2009). This transformation mindset was evident in how, despite many in the industry claiming his direct sales model that included innovative build-to-order processes, would disintermediate indirect, multichannel selling channels (McCartney, 1995). In fact Michael Dell never actually believed this as he saw the PC industry then and even more today as a very diverse, complex ecosystem that requires a very broad base of suppliers, buyers, channel partners and disruptive innovations to keep it moving forward (Dell Investor Relations, 2012). Michael Dell is a transformational leader in that he can quickly mobilize his company to pursue challenging, very difficult objectives despite economic conditions making the attainment of these goals difficult (Woodward, 2009). His transformational leadership is responsible for several significant innovations in the PC, tablet, laptop and server marketing, sales, production and service processes of one of the most profitable industries globally (Dell Investor Relations, 2012). This paper analyzes his most significant contributions to the PC industry specifically and complex manufacturing in general.

Transforming Markets Through Mass Customization

Having begun with the concept of build-to-order as the foundation of his business, Michael Dell immediately differentiated his business from the literally hundreds of competitors by concentrating on customization as a core strength. Over time, Michael Dell has defined a series of build-to-order strategies in his manufacturing operations, being careful to perfect customer fulfillment and delivery accuracy through piloting each build-to-order level or process first before selling systems based on each (Buffington, 2011). Michael Dell began with assemble-to-order and build-to-order strategies that resulted up to 30% of products being customized to specific customer needs (Haug, Edwards, 2009). This range of product customization was ideal for initial PC and laptop customization as many components of these systems could be used literally off the shelf in Dell warehouses to fulfill customer demand. As Michael Dell began to manage his business to align with profit pools, his focus shifted to a higher percentage of a given product being customized (Treacy, Wiersema, 1995). These levels of the Dell product strategy centered on configure-to-order and engineer-to-order, which had significantly fewer sales yet much more profitable ones. Figure 1 derived from the Dell annual reports shows the progression of this strategy.

Figure 1:

The Progression of Dell's Build-to-Order Strategy From Assemble-to-Order to Engineer-to-Order

Sources: (Buffington, 2011) (Dell Investor Relations, 2012) (Economist, 2001) (Dell, 1994)(Haug, Edwards, 2009) (McCartney, 1995) (Woodward, 2009)

Redefining Online Selling by Product Complexity and Profitability

A second major innovation that Michael Dell first brought to his company and later to the entire complex manufacturing industry was the ability to align online selling channels by the complexity of the product being sold (Dell, 1994). It was Michael Dell who pioneered the development of guided selling as a strategy to enable assemble-to-order product sales, in addition to using quote-to-order as a selling process for supporting product complexity in sales situation tot the build-to-order level. The color-coded heat chart shown in Figure 2, Dell's Mass Customization Strategies Compared, illustrates this dynamic. There are have been entire industries incapable of scaling from assemble-to-order form engineer-to-order (Buffington, 2011). Only Dell, IBM and Cisco have been able to transform build-to-order into profitable selling strategies (Haug, Edwards, 2009). Dell has been able to accomplish this while also seeing their inventory turns continually improve over decades of performance as well (Dell Investor Relations, 2012).

Figure 2: Dell's Mass Customization Strategies Compared

Sources: (Buffington, 2011) (Dell Investor Relations, 2012) (Economist, 2001) (Dell, 1994)(Haug, Edwards, 2009) (McCartney, 1995) (Woodward, 2009)

Making Quote-to-Order a Viable Business Model, Transforming Mass Customization

Michael Dell's leadership style concentrates on a very high level of accountability and analytics-driven insights into operations, preferring to quantify from supply chain management through each phase of the company's value chain to have real-time updates on company profitability. One of the most critical success factors in Michael Dell's transformational leadership style is the ability to traverse very broad business models quickly and succinctly capture only the most critical aspects that relate to the company's current strengths (Woodward, 2009). This innate strength of his leadership style has helped Dell traverse from hardware and software-centric sales to services (DellIsola, 2002) which today is a larger percentage of total revenue than it ever has before (Dell Investor Relations, 2012).

The leadership focus on analytics, business intelligence and having real-time insights into the performance of the company-wide value chain is exemplified in Figures 3 and 4 of the analysis. Figure 3 is derived from a thorough literature review of Dell's current operations and also from their latest filings with the Securities and Exchange Commission (SEC) including Form 10Ks and 10Qs (Dell Investor Relations, 2012). Michal Dell manages to a set of metrics daily and evaluates overall performance to margin growth using these kinds of metrics. His leadership style stresses the need for subordinates to embrace these factors and internalize them as part of their own objectives as well (Woodward, 2009). This attribute of his transformational leadership style is considered a key success factor in the company's ability to transition from being entirely hardware centric, successfully adopting a more software and solution-based orientation (Gama, 2006). Figure 3, Dell Quote-to-Order Measures of Performance by Process Area show what Michael Dell reviews daily for each strategic production process including quote-to-order, the most profitable process the company is relying on today for growth (Dell Investor Relations, 2012).

Figure 3: Dell Quote-to-Order Measures of Performance by Process Area

Areas of Measurement

Baseline: What to Measure

Quote-to-Order Performance Evidence

Company-specific

Project costs and expenses

Use as a baseline for defining ROI

Number of orders per year

Determine configuration's impact on inventory turns

Current inventory and costs

Inventory turn savings

Customer Data

Lifetime cost per customer; avg. deal size by customer

Sales

Order cycle time

Order cycle times reduction of 65% or more recorded with mftrs. contacted

Cost of Sales

Days Sales Outstanding reduction from 60 to 29 days on average

Cross-sell and up-sell revenue

Increase of 33% on aggregate

Average sales price per order

Increase from 9% to 26%

Quoting and Ordering

Average costs to complete an order

95% reduction in cost per order

Special Pricing Requests

Over 100% ROI on automating Special Pricing Requests

Bad or incomplete orders

Incomplete order reductions of 20%

Customer Service

Number of customer complaints

98% reduction in cost of simple requests

Revenue lost to churn

60% when cross-selling is used with quote-to-order

Number of calls on order status

Median level of 500 per week to 70

Warranty and Returns

Reduction in warranty cost on customized products

10% reduction at a minimum

Labor cost reductions

Decrease order re-work from 15% to 2%

Sources: (Buffington, 2011) (Dell Investor Relations, 2012) (Economist, 2001) (Dell, 1994)(Haug, Edwards, 2009) (McCartney, 1995) (Woodward, 2009)

Michael Dell's focus on analytics and metrics combined with his approach to transformational leadership give the entire company an exceptional clarity of how process improvements also directly impact financial performance. Figure 4, Aggregate Impact of Dell's Streamlined Quote to Order Strategies shows how Michael Dell has architected internal reporting systems by each of the objectives his company has defined as critical for the long-term. The ability to track the impact of quote-to-order directly to business strategies has a direct impact on Dell's ability to see emerging markets as "profit pools" to invest in for the long-term (MacSweeney, 2006).

Figure 4: Aggregate Impact of Dell's Streamlined Quote to Order Strategies Performance

Sources: (Buffington, 2011) (Dell Investor Relations, 2012) (Economist, 2001) (Dell, 1994)(Haug, Edwards, 2009) (McCartney, 1995) (Woodward, 2009)

Conclusion

Michael Dell has completely revolutionized build-to-order manufacturing by taking a very analytics-based approach to creating a value chain that is resilient and agile enough to respond to market shifts while stable enough to grow over time. His approaches to transformational leadership concentrate on having his teams take complete accountability and personal responsibility for performance against agreed-upon key performance indicators (KPIs) and metrics of performance. In doing this, Michael Dell creates… [END OF PREVIEW]

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