Dell Executive Memo

MEMORANDUM

Known for its low-cost, direct-sales model, Dell was able to ride the wave of computer hardware business. Dell was founded in 1984 when direct-sale model of PCs was thought plain nuts. Now, bearing the name of its founder, Michael Dell, the company is one of the largest technological corporations in the world, employing millions of people worldwide. As the No. 1 company in the U.S. computer hardware business from 2001 to 2006, Dell is no doubt the leader no matter in desktops, notebooks or servers. "Dell has thrived as downward-spiraling prices and commodification washed over the PC industry, benefiting the company's customers and bashing its competitors." (Serwer A, 2005) As to Michael Dell, the founder of Dell, " he is neither blessed with the tough-guy charisma of Jack Welch nor the folksy charm of the late Sam Walton". (Park A, Burrows P.2003) Perhaps this egoless demeanor of Michael Dell just helped in modeling the overall corporate culture and management style of Dell.

Inside Dell's business model, Six Sigma Doctrine was widely applied. It seeks "to improve the quality of process outputs by identifying and removing the causes of defects (errors) and minimizing variability in manufacturing and business processes." (Wiki) Under this doctrine, Dell developed its own six management principles, including: " Be direct, no excuses, no victory laps, leave the ego at the door, no easy targets, and worry about saving money not saving face." (Park A, Burrows P.2003) Be direct indicates the straight questions and answers as to questions everything and challenge their bosses. No excuses principle means that no variations from desired outcomes should be ignored or excused, this combined with " no easy targets" forces managers and employees pursue continuous efforts to achieve stable and predictable process results. No victory laps principle reminds people of leaving status quo and always being ready to move on. Leave the ego indicates company's favor of " two-in-a-box" management, in which "two executives share responsibility for a product, playing off each other's strengths and watching out for each other's weakness." (Park A, Burrows P. 2003) As to the last one, unlike its rivals, Dell always responds quickly and is ready to " pull the plug on disappointing new ventures". (Park A, Burrows P. 2003) Though Dell did an excellent job of transferring from no-name PC players into a powerhouse brand with its super efficient business model and far-flung supply chain knitted together so tightly, however, Dell is facing a problem of exodus of talents due to the critics as impersonal and over stringent management disciplines. "A survey taken over the summer, following the company's first-ever mass layoffs, found that half of Dell Inc.'s employees would leave if they got the chance." (Park A, Burrows P. 2003)

As to solve this issue, new management principles are needed and Dell should also get more open to outsiders. Interactive and intimate relationships among managers and employees should be established and cross-level reporting system could be applied from bottom up. Firstly, Michael Dell could hold more casual and impromptu dialogues or small meetings with managers or employees from all levels in order to catch up with the latest change of market. Instead of being over concerned about expenses and operating margin, Dell can grant more independency and trust to different departments and project managers to explore potentially promising yet perhaps not obviously profitable in current period. New motivation and reward mechanism could be established as to attract new managers and keep old ones. Since " 32% of its outstanding options are priced above the current share price", stock option is not the only choice of motivation, a freedom platform offered to explore and appreciate promising managers or employees sometimes is more preferred by talents. Just as what Kate Ludeman, an executive coach who has worked with Dell since 1995, has said, "they need to work a lot on appreciating people". (Park A, Burrows P. 2003)

Brain drain is not the only issue that is harassing Dell, an innovation dilemma is a more serious challenge facing it. Firstly, Dell's bare-bone R&D budget has hindered new products of Dell and lagged its overall growth rate. Compared with "IBM that spent $4.74 billion, or 5.9% of its revenues, or research and development in 2002 and HP that ponied up $3.3 billion, or 5.8% of revenues, Dell only spent $455 million or 1.3% of revenues on R&D". (Park A, Burrows P. 2003) This is not a good signal in a frequently changing market, especially in a computer hardware market that technology accounts much more than other business fields. "Its penny-pinching ways leave little room for investments in product development and future technologies, especially compared with rivals." (Park A, Burrows P. 2003) In addition, despite of the decent revenues and profits gained through its low-cost model, "Dell is still struggling to find its identity in a world dominated by giants like Oracle, IBM, and even Hewlett-Packard, which offer corporate customers a far larger menu of hardware, software, and service". (Benner K. 2011) The business of Dell was too PC-heavy and contributed almost 80% of all the revenues gained in 2002. (Dell's fiscal review