Dell has been generating quite a bit of news lately with Michael Dell’s return as CEO, and Kevin Rollin’s quick exit. There is a fair amount of discussion in regards to if Dell will succeed in turning around the company: with his vision, strategy and style. However, for me, as a curious observer of business turnarounds, Dell’s current dilemma is a great opportunity to visit business strategy 101 and reinforce the need for innovation for growth.

Dell was able to establish itself as the low-cost leader in the PC market, mainly due to its direct sales business model as well as the incredible efficiencies it achieved via its supply-chain strategies. Today, Dell lost its market position to HP and hopefully realizing that efficiencies are not the means to an end; competition is global and fierce; customers are constantly evolving and business can’t stay still.

Although economics 101 dictates that the demand increases with decrease in price, the real world doesn’t always follow this philosophy. In fact, commodization is a kiss-of-death for many firms: the price becomes the only way to differentiate; profit margins decline as increased volume isn’t sufficient; growth comes to a halt. This further impacts the company negatively as customers struggle to find a unique value and benefit in the firm, leading itself to perceptions of poor quality, poor brand and poor service. Unfortunately Dell is impacted with this perception/reality, as it is not viewed as an innovative company and is currently suffering problems with its customer service.

In the times of stress, it is human nature to resort to old habits and lead from our strengths or what we know best. For businesses, this tends to translate to cutting back on innovation investments and focusing on bottom line for margins or having a single-minded focus on its innovations. Along these lines, Dell is also planning to further improve its efficiencies in its supply-chain. I believe Dell has one of the best-in-class supply-chain efficiencies in the industry, yet it is quickly loosing footing. As such my logic dictates that although this strategy might help with its margins as the low-cost provider, its not going to drive the needed growth.

Change is constant, so is customer taste and buying patterns. Although today’s customers are price sensitive, they do prefer quality, innovation and customer service, and are willing to pay for it. Research shows that it can cost five times more to gain a new customer than retain an existing one. Unfortunately, Dell’s recent customer service problems seem to further alienate their existing customers. At the business level, reiteration of the customer commitment and firm understanding of why the customer chose, and is going to choose, your company’s products is the next important step in starting your differentiation process.

For growth, the firm needs to focus on its top line by retaining its existing customers and attracting new ones. New product and service innovations, as well as incremental value improvements to existing offerings would fuel the growth Dell needs. Sanjay Dalal of the blog Creativity And Innovation Driving Business shares his thoughts on the new products and services Dell can target for the new customer segments, such as: educational computers for students, cool computers for teenagers, appealing computers for women, the home bundle, and best business computers.

Although innovations are good, defensible innovations are what the firm needs. As I discussed in my post Innovation and the Degree of Innovativeness, innovation is multidimensional, and the more dimensions you are innovating (technology, process, product, service, business model, value-delivery, brand, design, quality, market, customer/segment, …), the more difficult for your competitors to copy you.

For Dell, innovating or updating their direct sale model to further support the new customer segments and products as Sanjal Dalal suggested, perhaps through strategic partnerships, would improve their competitive standing. Strategic partnerships, leveraging the strengths of individual businesses to form an alliance that is beneficial to both parties, is another method by which new growth opportunities can be created for a specific goal – promotion, product bundles, technology integration, services, channels… For Dell, strategic channel partners could also come in handy as Dell grows its non-US markets where the direct sale model is not central to consumer buying habits.

Ideas for innovation are everywhere: security and secure infrastructure is a concern for all enterprises, demand for mobility and connectedness is rising, green-ness is not hype and always there is a growing need for energy efficient systems, and customers need systems that just work as computing infrastructure grows in complexity. As the competition intensifies with globalization and new technologies, brand becomes even more important for firms as they compete for differentiation. Interestingly enough, I was never aware of the green-efforts that were pursued by Dell; perhaps another opportunity for improving their image.

Starting with your customer and your brand is good first step towards determining your overall strategy for growth. However, don’t stop there: look for dimensions you can innovate and continuously add value. These strategies will help in your quest for growth.

Technorati Tags: Dell, strategy 101, innovation, low-cost provider

Related Posts:

Trackback URI | Comments RSS