Dell signals new direction with rethink of direct sales

 

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By Simon Aughton

Posted on 30 Apr 2007 at 10:49

Michael Dell has revealed that he is considering moving away from the direct sales model, which made the company that bears his name the world's biggest supplier of computer systems.

It is the first time anyone at Dell has publicly admitted to doubts about the company's business model, which relies on building and shipping each PC to order.

'The direct model has been a revolution, but is not a religion,' Dell, who founded the company in 1984 and recently returned to the position of chief executive, wrote in an email to the company's 80,000 employees.

'We will simplify our business model and go beyond it to give our customers what they need,' he added. 'This is one of the most exciting periods in our history, but it requires all of us to stand together as one Dell to make profound changes and take well thought-out risks. We will simplify our organisation to make it easier to hear customers.'

Dell had hinted at a rethink in a speech he gave in March to MBA students at Duke University, North Carolina, shortly after re-taking the company's reins from former CEO Kevin Rollins. His departure capped Dell's annus horibilis in which it lost its leading position in both the US and global PC markets to HP. It was Rollins who first described Dell's business model as a 'religion' in an interview at the beginning of 2006.

The company has already experimented with alternative ways of selling its computers and peripherals, following Apple's lead by opening two retail stores. However one closed just recently and perhaps unsurprisingly given that it carried no inventory - visitors to the store could order a PC but then, like every telephone or Internet Dell customer, had to wait a couple of the days for the machine to be built to their specification and delivered to their home.

Following Michael Dell's email, that could soon change. The company is introducing new manufacturing and distribution systems with the intention of shifting its focus to a more traditional retail operation, where customers can go into a shop and leave with a Dell machine, like they can when buying from all its competitors.

Declining market share is but one factor in the rethink. The increasing popularity of laptops does not fit as well with the direct sales model as desktop machines, since they are less easy to custom-configure. The cost advantages that Dell enjoyed for desktops therefore did not apply for laptops, which it had to assemble in advance.

However all this does not mean the company is abandoning customisation entirely; only last week, for instance it, introduced a flash memory option for certain of its laptops and earlier this month demonstrated its commitment to better responding to customers by resurrecting Windows XP. What it does plan to do is make it easier for individual and, crucially, business customers to buy IT kit.

'We know our competitors drive complexity and needless cost into customers' environments,' Dell wrote. 'We intend to break this cycle.'