Dell: A Case Study of MBA Thinking

Yesterday the Wall Street Journal reported Dell's quarterly profit dropped 54%!  Wow, 54%!  Are the automakers even down that much?  But I digress...  So what is Dell's strategy to change this issue?  According to the Wall Street Journal article it is to focus on "profitability at the expense of market share."  While I think this is blatantly ridiculous, clearly it's not working.  So what is Dell's real problem?  Dell's problem is the breaking of a classic branding rule: you can't be all things to all people.  Yet the breaking of this rule is common thinking amongst some so-called business experts and Wall Street analysts.  Dell has lost it's focus of computers to go after the MP3 market, smartphone market, televisions and a recent acquisition of Perot Systems to put them into the tech outsourcing business dominated by companies such as IBM and HP.  Is this a good idea? According to some of these experts...YES!  What is the best way to grow (because that's what business is all about)?  Sell more stuff!  But what happens when you just sell more stuff or try to?  You lose focus.

What Dell needs to do is re-focus.  Dell used to be a highly profitable company, ironically, when they sold less stuff.  Think about it; how did Dell become the company that was #1 in the PC market with the best stock performance on the 500 companies listed on the S&P during the 1990's?  By selling one product, with one distribution method, to one consumer; personal computers direct to businesses.  Then what happened?  Analysts said Dell needs to keep up with their previous level of growth (there's that word again).  Dell listened to the analysts and in 1997 they announced they would go after consumers.  Then in 2003, they dove - pun intended - headfirst into the consumer electronics market.  You can even get a Dell in Walmart and Sears.

What Dell needs to do is simple, but they will never do it.  They are third behind HP and Acer by unit shipments, only have a 1% profit margin in their consumer business, and now they are trying to take on IBM in the service sector.  Is that common sense?  No.  Dell needs to return to their roots; sell off the other businesses and get back to selling one product, one way, to one market.  There is no need to sacrifice market share for profitability.  Dell proved that in their early years, maybe they have forgotten.

Nobody said it better than Al Ries and his 2005 book - Focus: The Future of Your Company Depends On It.

Is your brand focused?