2008 Professor Paul Burns.

Extract from: Corporate Entrepreneurship: Building the

Entrepreneurial Organization (2
nd
Edition), Paul Burns, Palgrave Macmillan, 2008.
Dell

We learned the importance of ignoring conventional wisdom and doing things our
way....Its fun to do things that people dont think are possible or likely. Its also
exciting to achieve the unexpected.

Born in 1965, Michael Dell is the ninth richest man in the world
with a fortune in excess of 12.5 billion. Michael started Dell
Computers in 1984 with just 620. Since then the company
has grown at five times the industry average growth rate to
become one of the biggest manufacturers and marketers of
PCs in the world. Its share price has increased 36,000 percent
in the last decade. Today Michael is CEO of a company is
worth over $18 billion and employing some 37,000 people,
globally.

His entrepreneurial career started early. At the age of 12 he made 1,200 by selling
his stamp collection. At the age of 14 he devised a marketing scheme to sell
newspapers which earned him over 11,000. From the age of 15 his interest in
calculators and then computers started to grow. He purchased his first computer
an Apple II in 1980 and immediately took it apart to see how it was built. Within a
couple of years he had started buying microchips and other bits of computer
hardware in order to build systems because he realised that he could buy, say, a
disk drive for 500 which would sell in the shops for 1,800. In 1983 he began a pre-
med degree at the University of Texas but continued his lucrative business selling
upgraded PCs and add-on components out of his dormitory room.

Dell assembles computers. Originally assembled in the USA, they are now
assembled also in Ireland, Malaysia, China and Brazil. However, from the start
Michael Dell knew what the critical success factor for his business was. He used an
expert to build prototype computers whilst he concentrated on finding cheap
components. And the company still sources its components from around the world.
Dell grew at an incredible pace, notching up sales of 3.7 million in the first nine
months. The company pioneered direct marketing in the industry whereby systems
are built to the customers specifications after an order is placed, and then shipped
directly to the customer. More lately, it has pioneered the development of integrated
supply chain management, linking customers orders directly to its supply chain.. At
all times it has focused clearly on a low-cost/low-price marketing strategy.

We built the company around a systematic process: give customers the high-
quality computers they want at a competitive price as quickly as possible, backed
by great service.

Every division in Dell is tasked to continuously improve
efficiency and reduce costs and workers undertake
extensive training through its team-based Business
Process Improvement programme. This is aimed at
reinforcing the importance of cost reduction, but also
putting in place processes and procedures that allow
efficiency savings to be implemented, giving the team control over implementing new
ideas. As Dell says; Empower workers with the tools to make a difference and the
innovation will follow. And productivity at Dell, measured by the number of
computers built per employee, has increased 240% in the last five years.

2008 Professor Paul Burns. Extract from: Corporate Entrepreneurship: Building the
Entrepreneurial Organization (2
nd
Edition), Paul Burns, Palgrave Macmillan, 2008.
Dell was a pioneer of e-business. What makes Dell special today is its fully
integrated value chain - B2B2C. Suppliers, including many small firms, have real
time access to information about customer orders and deliveries via the companys
extranet. They organise supplies of hard drives, motherboards, modems etc. on a
just-in-time basis so as to keep the production line moving smoothly. From the parts
being delivered to the orders being shipped out takes just a few hours. Inventories
are minimised and, what is more, the cash is received from the customer before Dell
pays its suppliers. These systems and processes are part of Dells competitive
advantage. They help keep Dells costs low and to build to order. In the 1990s, in
order to protect this, the company started applying for patents, not for its products,
but for different parts of its` ordering, building and testing processes. It now holds
over 80 such patents.

Dell has created a three way information partnership between itself and its
customers and suppliers by treating them as collaborators who together find ways of
improving efficiency:
The best way I know to establish and maintain a healthy, competitive culture is to
partner with your people - through shared objectives and common strategies....Dell
is very much a relationship orientated company....how we communicate and
partner with our employees and customers. But our commitment doesnt stop there.
Our willingness and ability to partner to achieve our common goals is perhaps seen
in its purest form in how we forge strong alliances with our suppliers.....Early in
Dells history we had more than 140 different suppliers providing us with
component parts....Today our rule is to keep it simple and have as few partners as
possible. Fewer than 40 suppliers provide us with about 90 percent of our material
needs. Closer partnerships with fewer suppliers is a great way to cut cost and
further speed products to market.

Dells market place is highly competitive. Dell prides itself on good marketing of
quality products but, most important, speedy delivery of customised products
factors it believes are reflected in the Dell brand.
The idea of building a business solely on cost or price was not a sustainable
advantage. There would always be someone with something that was lower in
price or cheaper to produce. What was really important was sustaining loyalty
among customers and employees, and that could be derived from having the
highest level of service and very high performing products.

Nevertheless, whilst it might not sell the cheapest computers in the market place, the
price it asks must always be competitive and that means costs must still be kept as
low as possible.

2008 Professor Paul Burns. Extract from: Corporate Entrepreneurship: Building the
Entrepreneurial Organization (2
nd
Edition), Paul Burns, Palgrave Macmillan, 2008.
We had to learn the basic steps that most companies, which grow and mature
more slowly, learn when they are much smaller in size. We were moving in the
right direction with our emphasis on liquidity, profitability and growth. But we were
also challenged by a cultural issue. We had created an atmosphere in which we
focused on growth....We had to shift to focus away from an external orientation to
one that strengthened our company internally.

For us growing up meant figuring out a way to combine our signature informal,
entrepreneurial style and want-to attitude with the can-do capabilities that would
allow us to develop as a company. It meant incorporating into our everyday
structures the valuable lessons wed begun to learn using P&Ls. It meant focusing
our employees to think in terms of shareholder value. It meant respecting the three
golden rules at Dell:
1. Disdain inventory.
2. Always listen to the customer.
3. Never sell indirect.

Up-to-date information on Dell can be found on their web site: www.dell.com

Questions
1. How much of a generic product is a Dell computer?
2. What do you think of Dells marketing strategy?
3. From what you know about the company, is Dells competitive advantage based
solely on its external architecture? What else might contribute to this?