Swivel Retro—Originally posted Monday, March 31st, 2003, the following article written for Swivel eight years ago is about as relevant today as it was when first published. Leaders today must understand how to reduce costs and continue to innovate during economic uncertainty.
VANCOUVER—As the war on Iraq entered its third week, with business people everywhere watchful of the effects the mid-east conflict will create economically, chairman and CEO of Dell Computer Corporation, Michael Dell delivered an encouraging address to the Vancouver Board of Trade.
In what was essentially a lesson in the history of the company, Dell used his experience in overcoming difficulties and meeting customer needs to present a clear path to enterprise success. He noted that five out of the top ten companies in North America were founded during economic downturns. Dell started in 1984 with $1,000 and now has revenues of about $35 billion.
Dell pointed to three key factors in his company’s (and any company’s) success:
* Operational efficiencies: Passing savings on to customers
* Relevant high-value products & services: Customers determine direction
* Expanding into new geographies: Unmet areas
Operating costs for Dell Computer are roughly 10%. Dell spelled that out by explaining that for a $1000 computer, the company spends about $100 in design and manufacturing costs, as compared to competitors IBM (22.8%) and HP (22.5%), whose operating costs are magnifying as Dell’s subside. He attributed his competitors’ growing operational expenses as a problem of revenues receding faster than costs are dropping.
Dell spoke of the nature of the company’s e-commerce model and informed that it is not based on a “push system” whereby a product is created, warehoused, then sold, but rather, is based on a “pull system”. A product is sold; the suppliers are contacted; the system is built; then delivered. At this juncture the company has about ninety hours of inventory. ‘And it all runs on Dell servers,’ he quipped. ‘Dell’s model virtually integrates customers and suppliers’.
Dell Computer now operates the largest e-commerce engine in the world, with more online revenues than Hilton Hotels, Amazon.com, and Starbucks combined. Typical orders are built and delivered in 3-5 days. The company owns completely its entire supply chain, which Dell said attributes to a 6% cost advantage over outsourcing.
‘Operational efficiency drives customer satisfaction’. Dell displayed graphs showing that the company has lead in price/performance, and cost of ownership satisfaction for many years.
Delving into current areas of interest, Dell spoke of emerging trends toward wireless communication, and hailed Linux as ‘the new UNIX’. He noted that his company now supports 802.11 wireless, and ships more Windows and Linux systems than any other system manufacturer. He also spoke of a shift in the direction of ‘high performance clusters’ rather than the pricey supercomputers of the past.
To illustrate that the company’s business model works in any economy, Dell pointed to recent growth statistics such as those of sales in China (72% growth last year) and Germany (46%) among others.
The event was held at the Sheraton Vancouver Wall Centre.
To learn more about Michael Dell, visit his home page.