Michael Dell: Evolving Past the Direct Sales Model

In a memo to his employees leaked to the press like a sieve from multiple sources over the weekend, Dell Computer CEO Michael Dell advised his employees that in the company's coming reorganization, quite a few possibilities are on the table, including a move beyond the direct sales model he himself devised and championed.

"The Direct Model has been a revolution, but it is not a religion," Mr. Dell writes. "We will continue to improve our business model, and go beyond it, to give our customers what they need. We will simplify our organization to make it easier to hear customers and respond to them."

It's exactly the advise IDC's Quarterly PC Report chief researcher David Daoud gave Dell in a recent interview with BetaNews. "What Dell needs to do is go through a period of time where they need to revisit, how is the company working internally, who is responsible for what, how is the company structured, what kind of channels is it going to be using," Daoud told us last week. "These are very critical aspects of the business that the consumer out there is not necessarily close to or knowledgeable of."

Last February, Dell hired former Solectron CEO Michael R. Cannon as President of Global Operations - the new #2. In his memo, Mr. Dell states he's already put Cannon to work re-evaluating the company's manufacturing and supply chain, and exploring the very real possibility of a new manufacturing and distribution model. It was Dell's existing model in this regard that is credited with having made his company an American success story.

But in a tremendously changing market, and with the business PC becoming, by many accounts, "commoditized" - a kind of service with a predictable cycle, which one supplier can provide almost as easily as another - Dell Computer no longer appears to have the same edge. Customers expect suppliers to distinguish themselves with service and support; and to that end, that company may have chosen the exact wrong time to outsource much of that function.

In his memo, Michael Dell appears to give every indication that he gets it - that he understands the problem as intensely as he understood the problem facing him a quarter century ago, during the foundation of PCs Limited.

"For those of us who have worked for a while in this industry, we know our competitors drive complexity and needless cost into customers' environments," he writes. "These so-called 'service divisions' create a never-ending cycle of activity with unclear return on investment. We intend to break this cycle. We will build different kinds of services and offer key technologies that will help customers escape this complexity trap and unlock the true potential of technology."

In other words, Mr. Dell intends to distinguish Dell Computer by making it possible to not offer the extended services that competitors such as Hewlett-Packard rely upon to cement customer relationships, as if problems are the only platform upon which solutions can be delivered.

Of course, this time around, Mr. Dell has the extra burden of overcoming an established bureaucracy, so it will be interesting to learn how well his "One Dell" message is being received internally. Possibly, the very leak of the memo could be indication from company insiders that they're willing to risk a rap on the wrist if it means getting out the message that their company is, in their view, headed for recovery.

"In the case of Dell, it's worked quite well up until recently," David Daoud told BetaNews, "but now they're facing a change, a shift in the market, which will force them to revisit their business model."

"This is a defining moment in our history and in our relationships with our customers," Michael Dell closed. "Just as we re-invented the way consumers and organizations buy hardware, we are going to re-invent the way the world gets access to IT."