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January 13, 2008

Comments

Adelino de Almeida

Yes, Dell was innovative, creative and not at all risk-averse when the business started. None of these qualities lasted once the business took off and solidified it's position in the market. From this point on Dell grew by optimizing operations and driving out costs rather than by trying to generate more revenue (e.g. by producing more attractive products or even testing other business avenues) Solidity became calcification.

Victor J. Cook, Jr.

Adelino,

Thanks for the insight. Considering his innovative assault on the PC market back when Dell Inc. took off, it never occurred to me that Michael Dell and his company were conservative.

It's a shame that this risk-aversion kept Dell from capitalizing on the strongest enterprise marketing efficiency ratio I've ever observed. Over the ten quarters beginning May 2002 Dell's MER averaged 0.37 compared with 2.12, 1.45 and 0.86 for SUNW, IBM and HPQ respectively. In other words, Dell spent just $0.37 for enterprise marketing resources that cost SUNW $2.12! This is another of the many reasons that the students considered Sun an attractive acquisition target.

BTW, I noticed on your TypePad bio that you worked at Dell. When were you there? And in what capacity?

~V

Adelino de Almeida

Dell is a very risk-averse organization and grew primarily by increasing efficiencies (i.e. "cost cutting") rather than by going after customers or markets. Customers bought based on customization and price, and over the years these quit being elements of value in a commodifying market, rather than acquiring new markets as you so correctly indicating, Dell continued to try and squeeze more efficiencies from a model that was already optimized and continued to plug stodgy models at uncompetitive prices. Dell might get back on track to become number one but that would require a radical cultural change that is very unlikely to take place.

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