Can a private Dell re-invent itself?

Going private might allow Michael Dell and his team more flexibility but the malaise runs a lot deeper and turning Dell around is going to be an almighty task.

Now that its founder Michael Dell and a team of private equity investors are going ahead with making Dell a private entity, the question is will this make any difference to the technology company.

There's no easy answer to this question simply because the playing field has changed inexorably since the days when Dell was the talk of the town.

Turning around Dell is going to be a massive task as the company has lost the advantages that made it the world’s biggest PC manufacturer. At the same time, the industry itself is shrinking as corporate and the consumer customers move from personal computers and servers to tablets and cloud services.

 The triumph of logistics

Dell’s real success lay in logistics. In the early 1990s the company – along with its competitor Gateway – developed a global just-in-time assembly network which took advantage of cheap Asian suppliers, efficient air courier networks and call centres.

Bringing these together meant Dell and Gateway could deliver a custom made computer to a customer in just over a week without the hassle of holding warehouses of stock, employing sales staff or renting stores.

Price was the ultimate advantage and these companies could undercut competitors with their efficient networks, lack of inventory and no retail overheads.

Caught on the hop 

Unfortunately for Dell, competitors caught up and by the early 2000s most PC manufacturers were using similar manufacturing methods and were able to match their price points.

By 2006, HP overtook Dell as the world’s biggest PC manufacturer.

Worse yet, Apple adapted Dell’s logistic systems to corner the high end of the PC market and then expand into consumer devices.

Dell’s reaction was to compete solely on price and to do so they cut component costs and outsourced support to lowest cost providers.

This backfired horribly and the poor quality products coupled with execrable after sales support deeply damaged Dell’s brand with the Dell Hell debacle being the public face of widespread customer unhappiness.

Dell in the post PC world

Making matters worse for Dell is that the market has shifted away from personal computers.

Dell has a tragic track record of diversifying out of the PC markets, all of its attempts to move into consumer electronics with PDAs, smartphones, tablet computers and entertainment devices have been, at best, embarrassing.

Enterprise computing has been more successful but even here Dell has shown little innovation and most of their entries into the corporate markets has been through acquiring specialist companies rather than doing anything different.

Part of this to failure to diversify has been because of Dell’s relationship with Microsoft. The various versions of Windows intended to be used on PDAs and tablet computers turned out to be wholly unsatisfactory and left the market open to Apple with the iPhone and iPad.

Going private

That Microsoft is going to have a financial interest in the privatised Dell is not encouraging for the company’s prospects.

Neither is the continued presence of Michael Dell. His return as the company’s CEO in 2007 has not solved the company’s problems.

It’s difficult to see where the problem was being a public company, Dell’s woes were not because of troublesome board members or activist shareholders. Going private might allow Michael Dell and his team to experiment without the accountability of quarterly reporting, but that barely seems worth $26 billion.

Dell could surprise us all by reinventing its business and claiming a role in the post-PC world, but right now its hard to see how.

Paul Wallbank is a business technology writer, broadcaster and blogger and author of eBusiness: Seven Steps to Online Success. Read more of Paul's thoughts here.

 

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