Boss Talk: Michael Dell Looks Beyond PC Business - WSJ.com
Michael Dell doesn't want to talk about personal computers anymore. As Dell Inc.'s chief executive works to turn around the once high-flying PC maker, he has bet on diversifying away from the company's best-known product.
The 46-year-old has been acquiring high-end technologies—such as storage and security systems—that Dell can sell to businesses to lessen its reliance on selling low-margin desktop and laptop computers.
Dell bought services provider Perot Systems Corp. for $3.9 billion in 2009. Last year, it lost a high-profile bidding war for 3PAR to rival Hewlett-Packard Co. but later scooped up another data-storage company, Compellent Technologies Inc., for $960 million.
Michael Dell, in New Delhi last month, says the rapid rise of tablet computers surprised him.
After some shaky years, the Round Rock, Texas, company's results have improved recently. The company has stabilized its PC business. That said, it has made little headway in smartphones or with its Streak line of tablet computers. Dell shares are off about 35% since Mr. Dell returned as CEO in 2007.
Mr. Dell, who co-founded Dell out of his university dorm room in 1984, remains a believer: He spent $100 million in December to add to his already sizable stake in the company. He recently spoke with The Wall Street Journal about his strategy, his acquisition plans and his view of Apple Inc.'s iPad. Edited excerpts:
WSJ: You've been back as CEO for four years now. What has surprised you the most about the evolution of the tech industry in that time?
Mr. Dell: I'd say [the] rapid rise of the tablet. I didn't completely see that coming.
Tablets aren't really new, in the sense that the tablet PC idea's been around for a while. Obviously, more recent products have been much more successful.
What's interesting [is that] business users are not going to give up smartphones. Won't give up PCs. So now you have a PC, you have a smartphone and you have a tablet. Sounds pretty good. Industry growth.
What's also interesting is Apple's great success with the iPhone. Android comes along, even greater success. I think you'll see the same thing on tablets, with enormous numbers of Android tablets with Dell certainly playing a role in that as well.
WSJ: Do you think Android tablets will outpace iPads moving forward?
Mr. Dell: Not tomorrow. Not the next day. But again, if you look at 18 months ago, Android phones were like, "What is that?" And now there are more Android phones than iPhones. I don't see any reason why the same won't occur with Android tablets.
WSJ: In 2007, you made a big push in the consumer business and said it was going to be one of the pillars of the companies. Would you still position that the same way?
Mr. Dell: Two-thirds of Dell's profit is not the PC. Of the one-third that is the PC, the vast majority of that is not consumer. I'm just level-setting what Dell is today, because I think a lot of people look at Dell and they go, "Oh, Dell is a consumer PC company." That's not really at all what Dell is today. Certainly we want to grow our consumer business and we want to grow it profitably.
Last quarter we had a modest profit in consumer. It looks like we'll be well-positioned to have a similar kind of modest profit this year. We're investing a lot in our products. But is the fundamental epicenter of the company going to change from enterprise solutions, services, data centers, storage, virtualization, security? No. But we want to participate in many markets. Consumer is one of them.
WSJ: What convinced you that enterprise was the direction to steer the company?
Mr. Dell: If anything changed it was understanding what Dell's actually doing. Look at all the companies Dell has acquired in the last four years. They're all focused in the new areas I've been talking about: storage, services, data center, security, virtualization, networking, software, enterprise.
WSJ: Should we expect more acquisitions along those lines?
Mr. Dell: Growth for Dell will be a combination of investing organically, inorganic acquisitions and partnerships. Certainly we became a $61 billion business primarily with organic growth. If you look at our profitability it's clearly been impacted by the successful acquisition and integration strategy. We tend toward what would generally be referred to as small-to-medium-size acquisitions. So we don't really see that changing.
WSJ: Would you ever consider spinning off the PC business?
Mr. Dell: I don't have any plans to do that.
WSJ: Dell is making a big push in cloud computing where you're not just up against your traditional competitors, but companies like Rackspace and Amazon.com. How do you anticipate that shaking out?
Mr. Dell: The companies you just mentioned are Dell customers. So we're helping them build the infrastructure that enables their cloud offerings. The kind of cloud offerings that we're providing are more secure and more dedicated to the needs of larger commercial organizations. They're not aimed at the start-ups or the consumer.
WSJ: Are companies like Amazon and Facebook—because of their enormous scale—gaining power to dictate terms and drive profits out of the server business?
Mr. Dell: It's not unlike how we would think of a flagship customer. Facebook will define a new requirement.
Well, it turns out that there are 10 more companies that want the very same thing. And then after that there are a hundred more companies that want the same thing. If they're right about what they've defined, it benefits us and many other customers.
WSJ: What's your opinion on the overall health of the economy right now?
Mr. Dell: I think the economy is cruising a bit. We're seeing healthy trends in emerging countries, in [small and medium business], in large enterprise. I think [the] public sector is a little more challenged with some of the budget issues. But there, again, it creates some opportunities, because when budgets are constrained, it causes people to look for ways to save money and many times that's using more IT.
The Edison/Arbitron results show that 51% of Americans 12+ are now using Facebook. Amazing recognition.
What it doesn’t comprehend is the difference in tools. Facebook and Twitter are not technology – they are media sites powered by very cool technology. That’s different than consumption devices like eReaders. Facebook and Twitter are tools for creating and distributing content. A Kindle or Tablet is a consumption device.
Also not comprehended is that as distribution platforms, they are interdependent and interrelated. I haven’t visited my Facebook page in ages. But I post to it constantly, via Twitter and Foursquare.
Last year, 7% of Americans surveyed used Twitter (and ExactTarget (client) research found 5% follow a brand on Twitter). This year, 8% of Americans use it. That’s not exactly hockey stick growth rates.
Hang on to your sombrero when you read this sentence: MySpace – which has become the butt of social media jokes that SecondLife is too pitiable to inhabit – has more than double the users of Twitter. Double!
300% more Americans listen to Pandora radio than use Twitter. Even Linkedin is bigger that Twitter, and when was the last time you got an invite to a Linkedin-focused conference?
If I had a hundred bucks for every client that had told me “there is no such thing as bad publicity” I’d be a rich man. I’ve never really bought the argument – although one shouldn’t confuse a igniting controversy with a catastrophic and negative event.
Studies suggest it all comes down to your prominence. Alan Sorensen, a economics professor at Stanford University School of Business looked at the effect of book reviews in the New York Times (study published in Marketing Science). Positive reviews by well known authors sold 42% more while negative reviews caused sales to drop by 15%.
It was a different story for unknown authors. Bad or good, a review bumped sales by a third. Can we apply the same idea to business. Say to a relatively obscure company? I’d argue it all depends on the product. Say you make an expensive lock to protect a racing bike – a bad review for a product that to which low subjectivity applies will crater sales. That’s different to, say, a low-cost book or MP3 file to which there is a simple purchasing cycle, low monetary value and high subjectivity.
And inquisitiveness resulting from a poor review shouldn’t been seen as a proxy for buying. The argument that Borat caused tourism enquiries to increase as proof of the positive effect of a negative review only holds water if the only measure was increased enquiries. It didn’t actually mean any more people visited.
At the end of the day good press matters as much as positive recommendations. And, while a negative review might be ok for the obscure, for anything of value (product or personal brand) it can be a killer.
James Franklin: If we look forward, what are those things that we haven’t discussed that are trends that really help companies and separate the ones that are getting innovation. How are we going to innovate in the years to go, and what do we have to do differently, because it comes up a lot? There are two things that come up, you say innovation and competitive advantage and that’s easy to say but probably not as easy to do. So maybe you could share some thoughts on trends going forward and how do companies, whether IT organizations or companies in general, start really tipping the balance in hitting those things. And if you have seen some examples of where its really working well that kind of ties in to what we have talked about, at how their employees and their workforces changed and companies have had to make changes to meet that and take advantage of it and see some success.
Gary Hamel: First I think the premise behind the question is one hundred percent right. We live in a world where at least in the medium term innovation is the only way you can create value. In the short term you can do another amount of cross-cutting, you can pick another two percent out somewhere, maybe you can do an acquisition and take some consolidation gains. But in the medium term there actually isn’t another strategy, other than innovation. And the innovation can be radical innovation on the cost side where we say how do we take the next seventy to eighty percent of the costs out, it can be on the demand side. But I guess here is the frank reality. I don’t know one company out of a hundred today that has made innovation everyone’s job. So when somebody says to me, "Gary we are really serious about innovation in our company," I would like to say okay, to test that lets go find first level employees. The folks on the tech support line and the call centers and the field sales organization and administrative assistance and I want to ask them three questions.
Number one, how have you been trained to be a business innovator? Has a company made an investment in teaching how to see new opportunities and develop robust plans for experimentation and testing of all those? Number two, if you have an idea how long would it take you to get maybe half of your time and a couple of thousand dollars to do little experiment with that idea. How many layers of bureaucracy, would you know where to go, could it happen quickly? And then number three, is anybody measuring your innovation performance? Will they notice if you don’t do it and if you do it successfully does it influence compensation or anything else? Well you ask those simple questions and ninety five percent of the employees are going to tell you I don’t feel I am part of an innovation process. Yes we have an electronic suggestion box, yes we have an award ceremony.
I think that’s the real challenge, Jim. If you think about how over the last decade companies dramatically reengineered their operating models around speed and agility and cost. I think now we have to reengineer our management models, our management practices, around the task of innovation because the things that kill innovation in a company are the fact that I am an employee and it takes me too long to get my idea heard or the only place that I can take my ideas is up to the chain of command. So where does IT play a role? I think in every single dimension of this challenge IT can play a role.
One of the companies I know that’s done quite amazing here is Whirlpool. It’s a highly commoditized industry, domestic appliances, and they were already number one in the world. They have done everything the consultants ask, low costs, global manufacturing platforms, still with declining real prices you walk into a appliance store and they all look the same. So ten years ago Whirlpool said we want to make innovation everybody’s job, everyday. And what that meant was training thirty thousand people to be innovators. It meant making innovation the single largest component of long term executive compensation. It made creating an innovation pipeline where any employee all over the world has the same chance to share their ideas, where they got peer evaluation, or all of the insights you need to drive innovation, all that data that today has balkanized around customer insight, technology insight, competitor insight, that became available to every single employee around the world. And the proof is they have been raising real prices, they have taken a new product pipeline from zero to four billion dollars, and they have outperformed the Dow Jones and all of their competitors. So I am sure it can be done, but it takes the same kind of systematic approach that we have taken over the last few years to webify our businesses in the back office on the back end, then we webify them in terms of dealing with the customer, now we have to webify them inside, in a way that makes innovation something that’s happening all the time, everywhere. So it’s a big challenge, but a big payoff and I am pretty sure every company sooner or later is going to have to do this. I would rather it be sooner than later.
James Franklin: Gary, you have talked about a lot of great concepts, maybe you can share with us exactly how you are applying those concepts in your world, in your workplace, and tell us a little bit more?
Gary Hamel: I really do have this passion for reinventing management and its kind of weird because for most people management is boring. When you think about it, I don’t know many ten or twelve year old kids who would say "I want to grow up and be a manager one day." So a lot of people took a wrong turn somewhere on the way to being a fireman or whatever. But if you think about it, management of these tools and methods we use, how we allocate resources and make plans and set goals and so on, I mean they have really determine what we can do as a species. The management systems and tools we have, boy they were really good when the problem was getting human beings to show up and to just follow the rules and kind of be semi-programmamable robot, but now we have all these new kind of fundamental challenges we are facing about accelerating change and so on. So what we are doing is we are trying to crowd source this challenge of inventing the future of management. This started a couple of years ago. I got to kind of thinking about this and I invited together thirty-five who are some of the smartest people I could find around the world who think about these things. Some of them are academics like CK Prahalad, now sadly departed, and Henry Mintzberg and Peter Senge. But also some CEO’s, Eric Schmidt from Google came along, Terri Kelly who runs W.L. Gore, John Mackey from Whole Foods, and we basically said for those of us who care about organizations and management, what’s our equivalent to the Human Genome Project or to putting somebody on the moon, and over several days in a lot of conversation we teed up twenty five management moonshots.
Things like how do you create organizations that feel more like communities than bureaucracies, how do you dramatically improve the level of trust in organizations, how do you make our organizations much more open and able to learn from the outside? And we have teed all of those twenty five moonshots up online at a website called managementexchange.com and we are asking managers all over the world to come share with us what they are doing to make progress on those challenges and therefore to learn from others. If you think about it most of what human beings know today, it's still not up on the web. We have a lot of data, a lot of information, but this deeper pass of knowledge of how we are solving these fundamentally new problems is not really there yet. So we are trying to make it really easy for management innovators all around the world to come share what they are doing and sometimes its just an idea, just kind of a hack, right here something we should do. So anyone who goes there, you will find contributions from people at Dell, from Pfizer, Microsoft, Google, companies all over the world who share a passion of getting in front of this thing. It's really just creating that as a resource where anybody around the world can come and be inspired and share their idea. I am pretty sure that the web is going to play a huge role in how companies are run in the future and we just decided why not use it as kind of the backbone for reinventing management itself.
James Franklin: Well thank you Gary, I think those insights and examples you gave are tremendously helpful. Definitely I think as far as CIO’s, and quite frankly any leader in business today, those are the challenges we face and we really are at one of those inflection points. We have tremendous enablers available to us and I think it’s upon all of us as leaders to really encapsulate and capture many of those things that you just talked about and apply them in our businesses and really bake those into our strategies going forward, because management has to change. Our workforce is changing, the technology enablers are there and evolving, and I think there is a great opportunity ahead of us to do those things. Thank you very much.
The findings are contained in the latest edition, the eleventh, of the ITU's flagship ICT regulatory report 'Trends in Telecommunication Reform'. It says that an effective national broadband policy must "examine the options for stimulating the deployment of broadband and for maximising the positive economic impact of the technology."
According to the ITU, such a policy "will include strategic spectrum management that encompasses managing the transition from analogue to digital radio and television broadcasting, and the laying of a solid foundation for the rollout of next generation networks." It adds: "The advent of high-speed networks and new kinds of content also puts emphasis on the importance of the role of government and ICT regulators in stimulating the demand for broadband and in promoting investment in infrastructure.
According to the ITU, the report " confirms that ICT markets around the world are becoming more competitive in just about every respect, from international gateway services to wireless local loop and 3G." The report says that, in 2010, more than 93 percent of countries worldwide allowed competition in the provision of Internet services, and 90 percent in the provision of mobile cellular services. A further 92 percent have competitive 3G mobile broadband markets.