Dell: Early Growth and On-Going Innovation

Stanford University
Course Lectures
  • Michael Dell, CEO and founder of Dell, Inc., describes how the idea for Dell, Inc. originated. Dell was fascinated by the emerging field of the personal computer and disenchanted by the way technology was being provided to the consumer. To challenge what he noticed was a very lengthy and expensive process, he experimented with the concept of selling the product directly to the customer.

  • Dell explains the culture and dynamics of Dell, Inc. during its early years. The company was run by hardworking, versatile people who were action-orientated and willing to listen. Many of those early employees went on to fill important positions at the company later on. Some employees, however, had a hard time as the company grew, even though they had performed well when the company was smaller. At a fast-growing company, Dell notes, the job grows faster than the person. A certain kind of job will vary enormously during different stages of the growth of the company.

  • Dell cautions against forming very close friendships in a company. He believes this blinds entrepreneurs from objectively assessing the work-environment of the company. At the end of the day, an employee should be evaluated by how well they do their job, not how fun they are to be with.

  • Dell talks about how he setup a board of directors to raise capital for Dell, Inc. After initial talks with investors at Goldman Sachs, he was told Dell, Inc. was not ready to go public yet because it was a young company without a board of directors. As a result, he formed a small board that turned out to be very helpful in bringing in capital.

  • Dell describes what he looks for his board of directors to do in a business that changes rapidly. He requires each director to select and learn as much as possible about an area of Dell, Inc. During board meetings, the directors report what they have learned. This method, Dell notes, is much more effective in increasing the knowledge of the board and understanding the business of the company. To ensure that the company gets a board of experienced leaders, Dell uses a well-established company process to evaluate their development capacity.

  • In 1989, following the year when Dell, Inc. went public, Dell explains how the company had a large problem with inventory management. As a result, the company failed to transition properly in the industry from one technology to the other. However, because of this critical mistake, the company learned how to correctly manage their inventory, and according to Dell, became the best in the world at it. Later on, Dell also notes the company did not have the systems and processes to deal with rapid growth. This experience, however, proved to be another learning lesson for the company, as it installed a much better set of processes that helped further its growth.

  • Dell talks about some of the reasons behind Dell, Inc. going public. The transition was done primarily to raise more capital, attract more people, and acquire a measure of financial transparency. Tens of thousand of employees that the company would need to hire would be easier to find, as there was a lower risk and widespread recognition for joining a public company.

  • Dell describes three critical inflection points in the business model of Dell, Inc.: 1) During the early stages of the company, expanding outside the United States, even though the company had very little capital and people; 2) An unprecedented on-site service program for PCs; and 3) Going into the server business. These decisions were made through fair amounts of discussion, data analysis, and observations of industry trends.

  • Dell describes the process of self-disruption at Dell, Inc. He explains how the company examines its internal processes and constantly considers recreating ways to do them better. The company also adopts a mindset of looking at how these processes would be done differently if they were to start from scratch.

  • Dell explains where he would look to start a new company. According to him, there are many companies that are slow to innovate. He would focus on a creating a company in a large, fast-growing, yet inefficient industry that is not keeping pace with change.

  • To implement processes at Dell, Inc., the company studied what other corporations were doing and came up with a unique set of processes that complemented their culture and business. Dell points out that the processes were centered on executing efficiently, since the company was selling to hundreds of thousands of customers daily. Without these specialized processes, Dell, Inc. would not have been able to succeed, he adds.

  • To reach out to customers, Dell describes how Dell, Inc. has created blog sites, an idea-generation forum called Idea Storm, and translations of its sites in Spanish. In this manner, the company has begun to build online communities, which has sparked enormous participation from customers, says Dell.

  • During its inception, Dell explains how the computer industry was run by engineers. Over a thirty-year period however, customers began to have an important role in the industry, but many companies were still being run by engineers working to promote complexity. With complicated products being sold, says Dell, customers had to rent specialized software and hire consultants from the computer companies to get their products to work. As a result, to the advantage of the computer companies, customers spent excessive amounts of money on personal computers; a model that Dell calls fundamentally flawed.

  • To overcome the flawed model of the early PC industry (which benefited only PC companies, not consumers) Dell talks about how his company made the PC easy to use and less expensive. This approach is being used today to improve the IT industry. Dell, Inc. provides cost-effective IT services and products. In this manner, companies can spend less on maintaining their IT infrastructures and more on creating new capabilities. This allows for new business innovations, says Dell, which can stamp out the competition.

  • Innovation is a process, not a thing, says Dell. At Dell, Inc. the company works to find the right mix between solving the needs of customers and using the correct technology. Additionally, Dell points out that the company has a team that focuses on future technology prospects for the next 18 months or later. Ideas and trends discussed by the team may turn into real projects or they are monitored to keep track of their influence in the industry.

  • Dell explains how process is critical for organizing large numbers of people in a company, particular if it has grown rapidly. As part of its business development process, the company allows anyone to get involved in improving things they see could be done better. These improvements can be shared easily across the world, says Dell.

  • Dell describes the PC industry today as a jump ball environment where no company can stay in a strong position for long. The development of wireless networks, miniaturization, and the influence of the internet has changed the competitive landscape of the industry, he says. One of the biggest threats is the changing computing model. To combat this threat, Dell, Inc. is focused on online servers and storage, new online devices, and anticipating shifts in business.