 |
 |
 |
 |
 |
 |
 |
 |
|
|
|
| "...The closest person we have to Henry Ford is Michael Dell" - Fortune |
||
 |
 |
Main Book Page |
|
 Revolutionizing an Industry I often wonder what new development will come along and totally change the face of our industry. You can be sure it will happen, it's just a question of when and what it is. It can be a new technology, a new operating environment, a new market, or even a new competitor. The most important question to Dell is: Will we be able to identify it? Will we be able to take full advantage of it? How we navigate the inevitable changes in our industry will define whether Dell is a good company, or a truly great company. The Internet has been, without question, one of those developments that I knew had the potential to totally alter our industry. |
|
|
||
Back to the Future When I first became interested in computers, one of the first things I did was set up a bulletin board system to correspond with people electronically. Anyone in the country who had a modem could call in and exchange messages with me and with other users. These systems—and there were tens of thousands of them—were the precursors to America Online and today's popular use of the Internet. My own interest in the Internet started in the early 1990s. The really serious "propeller heads" were all talking about an electronic network that could transport information, which was largely concentrated in universities and government systems. At that time, commerce on the Internet was pretty much restricted to ordering T-shirts. But it immediately struck me that if you could order a T-shirt online, you could order anything—including a computer. And the great thing was, you needed a computer to do this! I couldn't imagine a more powerful creation for extending our business. Back in the late 1980s, we had talked about developing a system that would enable our customers to order and configure PCs using modems. After thinking about it for a while, we concluded that it would be just too hard and too expensive to do at that time. There were so many different software platforms then (as opposed to a standard platform), requiring many different versions of the program, which we would have to support ourselves. Things started to change around 1989 when a researcher at CERN, Tim Berners-Lee, created the World Wide Web (WWW), which was the first practical hypertext system that brought a simpler interface between users and the Internet. Then in 1993, public interest in the Internet really took off when Marc Andreesen and others at the University of Illinois at Urbana-Champaign created the Mosaic browser, which touched off a whole new way of using the Internet to share and exchange information. The browser was a natural outgrowth of the electronic bulletin board system but on a much grander scale. Unlike the bulletin board system, which required that the end user create it, the Mosaic browser provided a standardized interface so that the Internet was accessible to any user. I was enthralled by the concept; I loved the idea of being able to turn on a PC and see what was going on anywhere in the world. As soon as I could get my hands on it, I installed the Mosaic browser on a machine in my house, and would spend tons of time on the Internet every night after my kids had gone to sleep. The World Wide Web provided a way to link our customers with all the information they needed to buy and manage their computers, and do it in real time. It worked for everyone, no matter what software platform they used. Even better, there was an almost instantaneous alignment with our customer base; the Internet immediately attracted knowledgeable users, to whom Dell primarily sells. We knew that our customers—and potential customers—would be there first. Launching www.dell.com Dell already had a minor presence on the Internet, thanks to our technology support organization. Back in the late 1980s, some of our technical support guys had set up what's known as a File Transfer Protocol, or FTP, site. If you were affiliated with a university or a government organization that was connected to the Internet and you needed a file, you could download it from our FTP server. (We take this for granted nowadays, but back then it was a big deal.) The FTP site, however, while helping customers, did nothing to enhance the Dell brand. It didn't differentiate us from any of our competitors, many of whom offered the same sort of service. And it did nothing to explore the opportunity that existed for extending the strengths of the direct model. A site on the World Wide Web, however, promised to do all that—and more. Companies were, at this time, experimenting on the World Wide Web, but many didn't really know what to do with it. Few had web pages, and those that did generally posted their annual reports, press releases, and marketing information in a static form. Most of the talk about the Internet focused on its use as an information medium, offering a wealth of entertainment and value-added services available to anyone who had a PC and knew about the Internet's many advantages. However, the demand for commerce was growing as security enhancements were increasingly incorporated into browser and server technology, and a few revenue-generating sites emerged. Almost universally, industry observers predicted a surge in electronic commerce. According to one forecast at the time, business-to-business Internet commerce would be $67 billion annually by the year 2000.* We realized, at this early stage, that the Internet represented a world of untapped potential—especially for a business like ours. We also knew then that the Internet offered incredible branding opportunities. If we didn't establish an early position as the online source for systems and service, one of our competitors would. In June 1994, we launched www.dell.com. It contained technical support information and an e-mail link for support, and was aimed primarily at the savvy users who tended to be early adopters of new technologies. They soon told us that they wanted a way to calculate the cost of different PC configurations, so the following year, we introduced online configuration. Customers visiting the site could select a system, add or subtract various combinations of components, such as memory, disk drives, video adapters, modems, network adapters, sound cards, speakers, and the like, and have the final price of their system calculated in real time. Back then, they still had to talk to a sales representative to complete the sale, but customers got an electronic taste of the advantages of the direct model. I remember being surprised at how fast general knowledge of the Internet was spreading. We had a big meeting at 3M around that time, and the first thing their CIO said to me was, "I really like your website." That blew me away. It was that kind of early feedback that gave me the confidence to say, "The Internet is going to be mainstream and we need to be all over it." The Ultimate Extension of Direct It was the right time to expand the capabilities of www.dell.com to include online sales. I said so in a presentation to the Board of Directors, with the help of Scott Eckert, who was my executive assistant at the time and later went on to play a key role in developing our online business. The basic thesis: The Internet will fundamentally change the way that companies do business through its ability to enable people to conduct low-cost, one-to-one customer interactions with rich content. Specifically, I knew it could make a significant difference to Dell. As I saw it, the Internet offered a logical extension of the direct model, creating even stronger relationships with our customers. The Internet would augment conventional telephone, fax, and face-to-face encounters, and give our customers the information they wanted faster, cheaper, and more efficiently. In addition to researching, configuring, pricing, and ordering our products online, customers could use the Internet to check the status of their order as it moved down the manufacturing line. If they had questions about how it worked, they could go to our technical support page, where they would have access to all of the same information that our own technical support teams did. The Internet would make the direct model even more direct. The benefits to Dell were equally compelling. The Internet applied to all of Dell's customer base, so it would serve as a useful tool to further identify and target different market segments. It would work not just within the United States but all over the world. It met our requirements for scaleable infrastructure: The one-to-one nature of Internet transactions meant that we could increase our sales volume without drastically increasing our company head count, because our salespeople could devote more time to higher-value activities rather than to mundane tasks. By improving the speed and flow of information, the Internet would lower costs for us, and consequently, for our customers. Ultimately, Dell is a company with lots of transactions: order status, configurations, price. Each of those transactions costs money. On the Internet, there is almost no cost whatsoever for those transactions. Right now we have more than 2 million people visiting our website every week. But it wouldn't matter whether that number was .2 million or 20 million—the cost difference would be trivial. With each additional transaction on www.dell.com, we would be saving our customers money by lowering our overhead. This would create even more value for our customers while enhancing our competitive advantage. In June 1996, we began selling desktops and notebooks over the Internet. We added servers later that year. Achieving Liftoff In doing our own market research, we quickly discovered that corporate accounts, our biggest market, were initially more hesitant than individual consumers about the idea of buying computers over the Internet. Consumer e-mail was telling us that after configuring their machines and generating a price quote, visitors were eager to click a mouse and make a purchase. So we decided to focus on consumers first and use this experience to build a better understanding of how we might best approach the corporate market, which is by far the largest portion of our business. But we didn't do any advance advertising. Before we announced to the world that we were selling online, we wanted to be sure we could execute, and execute well. So we quietly launched the site, and before we knew it, we were getting tens of thousands of visitors—especially tech-savvy customers. And when we decided to start mentioning our website in our regular advertising, we tapped into another huge pool of knowledgeable customers who hadn't yet realized that they could buy from us online. By December 1996, we were generating sales of approximately $1 million a day. That figure made everyone sit up and take notice. At the time, Amazon.com was doing $15 million worth of business a quarter selling books online and operating at a loss. When we came out and said that we were doing $1 million a day and making money, the industry spotlight turned on us. The attention achieved exactly what we wanted. It drove traffic to www.dell.com and helped us establish a leadership position. Assuming a leadership position in Internet commerce had been one of our objectives. We wanted to define the Internet business model so that it became an extension of our direct model rather than just an adjunct to some complex reseller relationship. For example, if you went to our competitors' sites to buy a computer, you'd be given one of two options: an 800 number to call for the location of the nearest dealer or, if you entered your address, directions to the nearest dealer. Meanwhile, our customers were logging onto www.dell.com, configuring the system that best suited their needs, entering their credit card number, and making a purchase right then and there. We already knew the direct model gave us a fundamental advantage; we realized how great that advantage could be through the Internet. www.dell.com was a lightning rod both for attention to the company and to the direct business model, equating the company with Internet commerce. And today, every time you see Dell mentioned in the context of e-commerce, you see www.dell.com. It's a self-perpetuating momentum generator. The more people see it, the more go to the site, and the more likely they are to buy something online. This is the value of being out in front with the best version of a good idea, instead of being the twenty-eighth guy to show up with a website—no matter how good it is. Waging a Campaign of Internal Evangelism One of the sayings around Dell is that if you want to get people to think big, you need to act big. We were certainly thinking big when we set about constructing a successful Internet model. We didn't want to just set up an online store as an appendage to our business. A lot of businesses who look at the Internet simply as a way to launch electronic sales are missing the point. The real potential of the Internet is its ability to speed information flow, and that affects all kinds of transactions. We wanted the Internet to become a key part of our entire business system. We wanted to make the Internet the first point of contact for every customer and prospect, and we planned for 50 percent of all customer transactions to be online within a few years. To execute these objectives, we had to act big. We provided enthusiastic executive sponsorship of the initiative to integrate the Internet into every part of our business model. Rather than just using the Internet in our sales and configuration systems, we decided to employ Internet technology throughout all of our information systems, in order to connect more quickly and efficiently with customers and suppliers. Our information technology perspective was—and still is—to reduce obstacles to the origin and flow of information, and to simplify the systems in an effort to really maximize our business processes. I had said, "Look, anything that we produce, whether it's a business card or a box or a piece of direct mail or a letter or a ROM-BIOS, anything that has our name on it should have www.dell.com on it." There was no part of the company that was exempt. I'd rather overkill a great idea than underexploit it. Thanks to an intense marketing campaign, www.dell.com was showing up everywhere: in advertisements, on company business cards, on every box coming out of the factory, even on a sign pointing to the men's rest room at a European management team meeting in Germany. Inside the company, however, there were people who didn't understand how the Internet would change our business. To make sure everyone in the company was Internet-literate, we conducted a campaign of internal evangelism. We went into the cubes and high traffic points and plastered them with posters showing me in an Uncle Sam pose with the caption, "Michael wants YOU to know the Net!" I sent out a company-wide e-mail describing Dell's Internet strategy and how easy it is to place an order through www.dell.com, then asked all our managers to buy a book through Amazon.com so that they could familiarize themselves with Internet commerce. We sponsored a scavenger hunt for people to find information on the Web. We set up an online literacy quiz called "Know The Net" and challenged all our people to take it. We also gave every employee throughout the company globally access to the Internet and our own Intranet and encouraged their use. A surprising percentage of our people also weren't aware of how the Internet could help our business. Sales and service departments didn't understand its implications and were fearful, at first, that the Net would automate their jobs away. We invested a lot in educating our sales representatives, especially the field-based account executives who own customer relationships. We showed them how the Internet made them more effective while also providing a value-added service for the customer. The reps soon saw that www.dell.com was a source of highly qualified leads. They could close sales with fewer calls and have greater reach within existing accounts. With our growth rates, there was more than enough business for everybody. Some might argue that if you give employees access to the World Wide Web, they will spend all their time surfing the Net. But that's like saying, "We don't want to teach our people how to read because they might spend all their time reading." That's the wrong way to approach it. As a resource, the Internet enables and enhances so many business functions—if you're preoccupied with the ways in which your staff might abuse the technology, you're going to miss out on the benefits while your competitors run away with the future. I remember talking with one of our customers about this. They actually did a measurement to see how much nonbusiness time their employees spent on the Internet. It came out to six minutes a day. That's less time than most people spend on one personal phone call. My feeling is, if you're an employee at Dell and you occasionally go online to order a book, you're saving thirty minutes that you otherwise would have spent going to the bookstore! For us, the issue wasn't whether people would waste time on the Internet but whether they would use the Internet enough. Not to become completely familiar with a transformative business tool like the Internet is just foolish—especially when it's an integral part of your company's strategy and competitive advantage. We faced a similar crossroads years ago, around 1986, when we first started using e-mail. People would ask me, "How do you get your employees to use e-mail?" My response was, "That's easy. You just ask them if they got that note you sent them on e-mail." No one likes to be uninformed, right? One of the things that makes the Internet so exciting is that it brings the outside in. In today's marketplace, you can't afford to become insulated in your own activities. Our industry changes so quickly that if we don't constantly refresh our knowledge and stay in front of new technologies and concepts, we'll quickly become obsolete. The Internet allows us to bring in an outside point of view, whether it's a customer perspective or news about our competitors or developments in other areas of the world. Before I visit a customer, I always log on to their website to see how much I can learn about their company. I can get a real flavor of the company and its culture from its website. Certainly I'll be more fluent as a result of looking at their website than I would be from reading a static annual report with a bunch of pretty pictures. We want everyone in our company to be doing that, so that we better understand our customers, our competitors, our suppliers, our market, and the world around us. Converting Big Business As I've mentioned, our early Internet business was primarily consumer- and small business-oriented because for many of those customers, purchasing online was a natural next step after getting product information and price quotes online. Convincing corporate accounts to buy online, however, was much more difficult. They felt we were asking them to radically change the way they purchased. Many of our large customers have deeply ingrained purchasing systems, and they didn't know how they could exchange information between those systems and the Internet. Some were concerned about the security of their information online. And for still others, the act of deciding what to buy and the decision to actually buy it are two different events, often handled by at least two different people or departments. We solved that problem by creating a purchasing process that allowed the two events to be handled separately. Driving change in your own organization is hard enough; driving change in other organizations is nearly impossible. But I believed—and still believe—that the Internet would become as pervasive and invaluable as the telephone. We knew it was too important to our business-and potentially, to our customers' businesses—to wait for them to figure it out for themselves. So we assumed the responsibility of educating our customers on the basic benefits of doing things electronically. Our account reps were our educating mechanism. They asked customers, "How are you doing business with Dell today?" The message we needed to get across was that ordering online simplifies things: There's less chance for error in making an order and a better means of tracking it. Ordering online is more efficient because it funnels the same information though one route rather than three. That one route is a customized page on our website called "Dell Premier Pages." When we started setting up Premier Pages, we initially thought, "Gee, this is a great way to provide e-commerce for our customers." But it would later turn out that although a lot of companies wanted the simplicity of doing business with us online, what they especially appreciated were the value-added services our Internet connection ultimately could provide. Each company's Premier Page gives its employees Internet access to password-protected, customer-specific information about Dell's products and services. Customers can configure, price, and buy systems at the agreed-on price. They can track orders and inventory through detailed account purchasing reports by group, geographic location, product, average unit price, and total dollar value, so that they can better manage their assets. They can access contact information for Dell account, service, and support team members. They can check an order and find out if their system is sitting on the FedEx dock in Memphis, and how soon they can expect delivery. If a customer wants to find out how many PCs the company ordered for its European operations, he can access our data warehouse, type in the parameters, and dynamically generate reports. We've also increased the scope of our online asset management, so that we can let customers know whether their systems are Year 2000 compliant, when their lease is due to run out, or when it's time to upgrade to a new computer. Premier Pages are not a substitute for a live sales representative. Instead, they augment the sales rep's functions. The relationship is similar to that between a customer and a bank. For major transactions, customers want to talk directly to a real person; other times, they're happy to use an ATM. Moving Information in Real-Time I was online one night when I received a note from one of the people in our server group. He had built an addition to our Intranet site, focused on servers. There was a section on our global alliances with Microsoft, Intel, Oracle, and other partners; a demonstration of all the advertisements we've run with them; a list of all our joint announcements; and a catalog of all our products and tools. The server site basically gave our sales teams a robust series of tools that they can access wherever they are, to help them conduct their business. It's very clearly organized, always updated, and because it's online, always available. To do the same thing in the physical world, you would need a loose-leaf binder so huge that most people couldn't even lift it. Trying to update a physical system like that would be a nightmare, involving tens of thousands of people. But online, it's one of those magical tasks that can be accomplished almost instantaneously. The end result is a richer, more efficient, more accessible information system. And it's global, too. The Internet—and the company's internal Intranet—let us shrink the amount of time it takes for the organization to get up to speed on a new topic or to share best practices across the company. It eliminates the physical forms of information that take more time and cost more money to deliver. We used to attach files to e-mail documents when we wanted people to review information. Then one day, I was in a meeting and said, "Gee, wouldn't it be great if we could review information over the Internet so that our network capacity wasn't strained by all of these charts and graphs flowing back and forth." Today, we put an Internet or Intranet address in the e-mail, so that people can click on the hyperlink to access the information. We used to get performance reports once a week. Now we can go to the Net and get the information in real time. It's impossible for any sales organization to understand the breadth and depth of all the products a company offers. But it's easy to describe and explain them on the Internet and to update them as frequently as necessary so that salespeople have a readily accessible reference guide. If we have a new product being introduced in the next few months, we can provide information to our sales and support teams immediately. We no longer have to sit around the proverbial campfire and tell one guy to pass it on to the next. We can put complex white papers online that explain new technology and provide diagrams of how machines are configured. This way, users can get a great feel for what our products do—much better than they would get from a static brochure or some other noninteractive method of information. They can get as much detail as they desire. And we know that they've read it. If we send out a physical piece of mail to our customers, not only do we not know whether they've received or read it, we can't possibly know which pages they read or which they found especially helpful. But we can measure clicks in the online world, so we know exactly what information our customers find valuable. The ability to measure customer response in a scientific way is just remarkable. We can do some of this in the physical world with dedicated toll-free numbers for specific advertisements that tell us which ads generate how many calls and how many of those calls translate into sales. But on the Internet you can do real-time experiments. You can present an offer to customers and within two hours you know whether that offer is successful. You can even change the offer slightly and compare the results of the different offers in real-time, then switch to whichever one seems to be the most effective—literally within minutes. There's a tremendously rich feedback loop with the Internet. The adjustments and refinements that go into traditional marketing are based on the course corrections that might occur every month or every couple of months. On the Internet, course corrections happen much, much faster. Consequently, the cost of conducting an experiment has gone down considerably, and it costs almost nothing to make a correction. Hyperlink to the Future When we first began using the Internet to expand our business, we had three basic objectives: to make it easier to do business with Dell, to reduce the cost of doing business with Dell, and to enhance our customer relationships. Many said we couldn't make it on the Internet. Many of these were the same people who said that the direct business model would never work and that we could never sell servers direct. As I write this, Dell is selling more than $12 million per day over the Internet. And the Internet has become part of the business mainstream. In 1996, there were 175 Fortune 500 companies with their own website. By the end of 1997, the number had more than doubled. But for Dell, online commerce was only the beginning. Because we viewed the Internet as a central part of our IT strategy, we started to view the ownership of information differently, too. Rather than closely guarding our information databases, which took us years to develop, we used Internet browsers to essentially give that same information to our customers and suppliers—bringing them literally inside our business. This became the key to what I call a virtually integrated organization—an organization linked not by physical assets, but by information. By using the Internet to speed information flow between companies, essentially eliminating inter-company boundaries, it would be possible to achieve precision and speed-to-market for products and services in ways not dreamed possible before. It would be the ultimate business system for a digital economy. I can't say I knew how my early experimentation with electronic bulletin boards would come full circle, to selling billions of dollars' worth of systems over the Internet. Nor did I fully realize how far my adventures in selling computers out of my dorm room would take us. We certainly had our share of rough times, especially when the company was still young. But by following the courage of our convictions and keeping our eyes on what mattered most—our customers, our shareholders, and our people—Dell thrived. Out of these experiences, our strategies for success were born: speed to market; superior customer service; and a fierce commitment to producing consistently high quality, custom-made computer systems that provide the highest performance and the latest relevant technology to our customers. And, as we as a company evolved, our strategies became more robust. I may have been fascinated with eliminating unnecessary steps, but once I bypassed the middleman and sold directly to customers, I set my sights on tightening the relationships we had with suppliers, reducing the number of steps involved in managing inventory, and improving the cost and time-to-market advantages we provided to our customers. Telephone sales worked just fine for a long time—and still do, for some customers—until we exploited the limitless potential of the Internet. Part Two of this book is devoted to how we capitalized on the lessons learned in the first fifteen years of our company's history to become the second-largest manufacturer and marketer of personal computers in the world. In the next chapters, you will see how we forge powerful partnerships with our people, customers, and suppliers to achieve maximum results. Among other things, you'll learn how we maintain the high-energy culture of a start-up even though we're twenty-five thousand strong; who and how we hire; and why we actually reduce our managers' responsibilities as a reward for their success. You'll see why we design all of our products with our customers in mind—even when the competition doesn't; the various ways we get data from our customers, and how we've utilized that close relationship to gain a huge advantage over our competitors. You'll understand why, when dealing with any kind of supplier, certain precepts—like fewer is better, complacency kills, and proximity pays—are doctrine. And you'll see these precepts help us turn our inventory—and deliver our products to the end-user-faster than anyone else in our industry. We'll even detail how Dell handles the competition, as well as what we expect for the future of the Internet in a truly connected economy. No one company does everything right, always. That much we know. But we learned our lessons the hard way: through experience. Perhaps, from our example, you will learn something about developing and honing your competitive edge in business, too. |
|
|
|
|
| BUY THE BOOK | |||
|
|||
|
|||
Links off Dell.com site
