Here’s what you’ll learn from Dell's strategy study:
- How to sustain your company’s growth beyond its initial success.
- How a sober bet for the future fuels your conviction to win.
- How to think long-term and not sacrifice your future for short-term benefits.
Dell Technologies is a multinational technology company that designs, develops, and sells a wide range of products and services, including personal computers (PCs), servers, data storage devices, network switches, software, and cloud solutions.
The general public owns 58% of Dell Technologies, while private equity firms and institutions own the rest. Michael Dell is the founder, chairman, and current CEO.
Dell's market share and key statistics:
- Brand value of $26,5 billion
- Net Worth of $28.7 billion as of Jan 13, 2023
- Annual revenue of $105.3 billion for 2022
- Total number of employees: 133.000
- Total assets worldwide: $93 billion in 2022
Humble beginnings: How did Dell start?
The story of every company starts with the story of its founder.
Usually, a great company has a great founder story behind it. And Dell Technologies certainly has one. Michael Dell’s story goes hand in hand with the story of the company he founded. By understanding the story of Michael, we can understand the company’s initial advantages and opportunities it pursued.
And like every great tech company story, Dell’s story starts in a college dorm room.
From stamps to startups: Michael Dell's early years and the birth of Dell
Michael Dell founded the company in college, but his entrepreneurial journey started much earlier.
He had an early interest in technology and business, and by the age of 12, he was already buying and selling stamps and coins to make extra money. As a teenager, he worked summer jobs where he learned by trial and error how demand and supply worked, how to be efficient, how to segment the market, and determine the most profitable persona to sell.
By the time he graduated from high school, he had saved up enough money to buy his own BMW and his first personal computer, an Apple and later an IBM.
But he was curious about the inner workings of these machines and, to his parents' horror, he took them apart, learning about the different components and how they worked together. He soon made a crucial discovery. IBM DIDN’T manufacture its own parts. Instead, it sourced them from other companies. This sparked an idea in Michael's mind - he could build his own PCs using the same components but at a lower cost and higher quality.
That idea didn’t come out of the blue.
Michael Dell was constantly educating himself on computers, how to build them, how they worked, and how to code. He followed all computer magazines at the time and attended every event in his neighborhood to network and learn the latest about the industry. In high school, he was already an expert, modifying his own PC and, once the word spread, customizing the PCs of professionals.
His first customers were friends and acquaintances who were impressed by his knowledge and expertise. Michael quickly realized that there was a demand for customized computers that were not available in the market. He began assembling machines with increased storage capacity and memory at a fraction of the cost of buying from big brands like IBM.
Doctors and lawyers were among his early customers, and word-of-mouth about Michael's high-quality and affordable PCs spread quickly.
He eliminated the middleman by buying components directly and assembling the machines himself, which allowed him to offer lower prices and better performance. By the end of his first year in college, Michael had a vendor's license, he was winning bids against established companies in the industry, and he incorporated his first company, “Dell Computer Corporation.”
Dell’s direct-to-consumer strategy & how its corporate culture was formed
The company was growing frightfully fast, forcing the team to constantly change and evolve its processes.
Before the company had its second birthday, they had moved to bigger offices three times to accommodate its increased inventory, growing telephone needs, and physical or electronic systems. However, the company was still a high-risk venture and had a small capacity for expensive mistakes.
In those early days, the challenges Dell faced formed its processes and the core traits of its culture that are present to this day:
- Practicality and reduced bureaucracy.
They did some things unconventionally, like having salespeople set up their own computers. That way, they gained first-hand knowledge of the technology and the customer’s pain problems (customers and salespeople were uneducated on the technology, so they shared the same problems).
- A “can-do” and “I’ll-pitch-in” attitude.
Employees took substantial liberties with their “responsibilities.” Engineers would help with the overloaded manufacturing line, everyone would answer phone calls, salespeople would fulfill orders while taking new ones, etc.
- A sense of making a difference.
Money was tight, so Dell employees wouldn’t mind solving secondary “needs” with cheap solutions like using cardboard boxes to throw their trash because they didn’t have trash cans.
- Direct relationships with the customers.
Maybe one of the most important aspects of Dell’s culture and strategy. The company was talking at the same time with prospects and current customers on the phone. That way, it got first-hand feedback on what the market was currently asking for and was enjoying or not enjoying. That gave birth to Dell’s “Direct Model.”
The company went to great lengths to build and maintain the direct model because it was one of its most important sources of competitive advantage. Where other companies had to guess what to build next, Dell was already on it because their customers were telling them.
There were clear advantages to the Direct model:
- Closed feedback loop.
Dell was talking directly to prospects – no dealer costs – and had no need for inventory. Lower costs = lower prices = more customers. And with every new customer, Dell had another finger on the pulse of the market.
- A single salesforce.
Focused solely on the end customer. There was no need to have salespeople to sell to dealers and then additional salespeople to sell to the customer.
- Specialization in sales.
Dell sold to large corporations, and smaller customers, like SMBs, educational institutions, and individual consumers. But selling to these two different buyers, large corporations and SMBs, was incomparable. So, the company had different salespeople for different customer segments and thus offering the best customer support and experience.
But the model wasn’t without its disadvantages:
- The model wasn’t irreplicable.
Dell was making IBM-compatible PCs and selling them directly to customers. This model wasn’t hard to replicate, and the market’s conditions favored the birth of competitors with the same model.
- Lack of credibility.
It’s hard to make a $5,000 sale when the customer has never heard of you and you lack a physical store.
- Incompatibility.
Dell’s PC had to be compatible with IBM’s. But they had multiple suppliers for their components and sometimes those components were incompatible. Designing high-quality machines that were outperforming and compatible with IBM’s was a challenge.
But these disadvantages didn’t stop the team. The company doubled down on customer support and service and developed a strong reputation around them. It advertised a 30-day money-back guarantee and educated its suppliers to make components based on Dell designs. They even started their first R&D attempts that gave them a 12-MHz that was faster than IBM’s latest model, cheaper, and got them on the cover of the most prestigious magazine in the industry, the PC Week.
Dell’s strategy was so effective that phone calls started coming in, urging them to accept capital and go public.
Only three years after the company’s birth in a college dorm room, Dell went public, raising $30 million with a market valuation of $85 million.
Key Takeaway #1: Build a coherent strategy beyond your initial differentiator to sustain growth
Most companies enjoy initial success due to an untapped opportunity in the market, from addressing a niche market to exploiting the weaknesses of major players.
But no company succeeds at growing beyond the limits of the initial opportunity if it doesn’t evolve and expand its competitive advantage. So when evaluating your next move, ask yourself:
- What is our current competitive advantage?
- How easily can our competition replicate it?
- How can we make it harder (if we can)?
- How can we expand our capabilities to strengthen our current competitive advantage?
- How can we develop new competitive advantages?
- What are the market trends and how can we adapt/take advantage of them before others?
The occasional bold move doesn’t hurt, either.
Recommended reading: 6 Competitive Analysis Frameworks: How to Leave Your Competition In the Dust
How Dell’s privatization led to a strategic triumph
In the first decade of the new millennium, the PC business was growing rapidly.
Computing power followed Moore’s Law and innovation cycles in hardware were less than 12 months long. At the same time, a new generation of software was spreading and the World Wide Web was expanding globally. Being a part of a growing industry, like the PC business back then, was lucrative. So naturally, many companies did well.
Dell was one of them. In 2000, the company became the world’s largest seller of PCs, having enjoyed a decade of skyrocketing sales.
However, in 2011, things changed. The PC global sales reached their peak and the next year was the first of an 8-year streak of decline that lasted until the pandemic hit.
That decline impacted Dell severely.
Navigating decline: Dell's strategy for a shrinking market
Dell was in deep trouble at the start of the previous decade:
- It had lost its position as a top PC seller in the US to its main competitor, HP.
- It came third in the global PC market share, behind HP and ACER.
Many believed that it was a dying company that would perish like Kodak or Motorola.
The PC market was shrinking and some experts were saying it was the beginning of its end. Dell was expected to be among the first casualties. The truth was that the PC industry wasn’t dying, but it was evolving – it was losing some of its traits and gaining new ones. The difference is subtle but also key. In a competitive arena, every alert player is aware of the market changes: declining sales, emerging trends, and other important facts. But how each player interprets them determines whether they’ll formulate a winning strategy or not.
The more substantial the changes, the more important the interpretation.
In 2012, the fact was that the PC business was declining. Every major player could see it with a single glance at their balance sheet. In Dell's case, the decline was even direr since its PC sales were down by double digits. The company desperately needed to turn things around. And only a bold strategic move could do that.
The company tried to bounce back up with some obvious but desperate moves:
- The introduction of the Streak “phablet.”
An embarrassing attempt at creating a new product category between tablets and smartphones. Its design was bulky and its Android software unsuitable for the device, while its purpose was unclear to the consumer. - Making Windows 8 its default operating system.
Dell and Microsoft have been longtime partners, to the benefit of both companies. Unfortunately, their growing interdependence meant that when one failed, it dragged the other one down. Windows 8 failure dragged down Dell and further decreased its PC market share. - Attempts to enter the tablet and smartphone markets: the “Venue” debacle.
Dell was always viewed as a PC company, not a technology company, making it harder to expand to new categories. Its first smartphone, the Venue, ran on Windows Mobile and it never got any traction. As a result, the company abandoned the categories and, even today, it has less than negligible presence in these markets.
But where people saw a vulnerable company, Michael Dell saw an opportunity.
He had an assumption, a vision attached to it, and a plan to make it a reality. But he had no way to execute it with the company’s organizational structure at the time.
The obstacles to implementing Dell's competitive strategy
Dell’s strategy was to go on the offensive. He wanted the company to be highly aggressive by:
- Becoming competitive in the PC business again.
- Expanding its services and software solutions.
- Increasing its sales capacity.
Dell aimed to achieve these goals by investing heavily in R&D, gaining tighter control over its PC and server prices, and expanding its sales workforce. The idea was to fund new business capabilities in the software and services space from Dell's PC segment. That was a bold plan that involved a lot of changes and, thus, a lot of risks.
Dell’s strategy was essentially a business transformation proposal.
And although a lot of public companies have successfully gone through a transformation, none did it in such a short period of time without sacrificing the short-term faith of its shareholders. And that was exactly the problem.
The strategy was inherently risky – like every good strategy is – as it promised capital expenditure and an immediate decrease in profitability due to increased operating expenses. Things shareholders hate. And if shareholders aren’t happy with the company’s near-term returns, they start selling their shares, and the company loses its value and a good portion of its funding capabilities.
Short-term risk = lower share prices = less funding for the company
Thus, the strategy was impossible to execute without the support of the shareholders. So the company had only two options: gain the support of the shareholders or go private.
Dell chose to go private.
Dell's game-changing decision was based on a strategic bet
For a gigantic public company with a market cap of nearly $20 billion, going private is a tough decision and a complicated process.
But it was an unavoidable preliminary for the successful execution of Michael Dell’s plan. And the first step was to convince the board of the necessity of the transformation. After announcing his idea, the board started discussions with experts to evaluate the move, i.e. top consulting agencies and other independent third parties.
JP Morgan, Boston Consulting Group, Evercore, and Debevoise were some of the names involved. And they all shared the same view:
- The PC is dying.
- Funding a business transformation from a declining business is a bad idea (despite such successful attempts from IBM and BMW in the past).
The experts had a lot of facts and strong arguments to support their case. However, all of them were based on a single assumption: tablets and smartphones will replace the dying PC. The growth in those categories would entail a decline in the PC business. They believed the PC was about to be cannibalized.
Dell’s CEO disagreed. What was his assumption?
He believed that tablets and smartphones wouldn’t take away from PCs but rather add to it. He believed that the PC’s central role in productivity and business wasn’t going to be dethroned by the new shiny toys. People would buy and use tablets and smartphones, but PCs would remain their primary productivity tool.
And he would bet Dell’s future on it.
But he had to convince the board of directors first. At the start, conversations were happening in secret and things were moving slowly but steadily. But when the idea was leaked, two new problems presented themselves.
The first was Carl Icahn, who contested for the ownership of Dell. Carl Icahn is a self-proclaimed “activist investor” but others call him a “corporate raider.” The closer the go-private initiative was to happen, the more Carl Icahn fought for it. And he used every improper tool and method he could muster. The battle that followed between Carl and Michael delayed the deal and almost derailed it.
The second was Dell’s customers’ hesitation in doing business with the company. The rumors about the go-private initiative left the customers wondering about the future of Dell and doubted whether any kind of investment in it was worth it. They were suspending purchases and all Dell’s leadership could say was, “We don’t comment on rumors and speculations.”
The press had also concluded that the go-private initiative was a declaration of Michael Dell’s incompetence and a desperate attempt to keep Wall Street’s eyes away from its demise.
History would prove them wrong and crown Michael Dell victorious.
A new chapter: How Dell's go-private move set the stage for future success
The deal happened.
In February 2013, Michael Dell and the investment firm of Silver Lake took Dell private in a leveraged buyout of $24.4 billion, at $13.65 a share.
Despite all the time that passed until Dell could fully execute its strategy, the company didn’t remain idle. It had made several calculated moves to significantly reduce its dependence on the declining PC market before the deal conversations ever happened.
From 2007 to 2012, Dell spent north of $12.40 billion in key acquisitions to increase its enterprise software and hardware solutions, including cloud data storage and management. The acquisitions focused on areas like:
- Data storage
- Systems management
- Cloud
- Security
- Data management in healthcare
- Cutting edge software
The company had already started severing the connection between its financial health and its PC market share many years ahead of its privatization.
But after the buyout, it went all in. Speed and agility became its prominent advantages. Dell became, nearly overnight, a hungry, quick, and ready-to-attack-its-prey jackal. Whenever a new opportunity arose and people asked for resources to pursue it, leadership committed double the resources and said, "Go faster!"
For example, SMBs (small and medium businesses) presented a gigantic opportunity. So the company increased its sales workforce, retrained its existing salespeople, and hit endless SMB doors. They would enter a business selling their low-margin PCs and simultaneously become their trusted advisor on all things tech. Then they sold their whole portfolio of solutions.
And the morale of employees was off the charts. Leadership kept their promises on the changes and provided all the support their people needed to execute the plan.
In addition, people started viewing PC and smartphones as complementary, just as Dell expected.
Was Michael Dell’s bet a good one? Well…
45% of Dell’s revenue was generated from PC sales, but 80% or more of its profits were generated by its new solutions. Eight years after the privatization, the value of their equity had increased more than 625% and their enterprise value reached $100 billion.
We’re pretty confident that’s a yes.
Key Takeaway #2: Successful strategic bets require a sober conviction
Markets change and evolve all the time. The difference between players that emerge prosperous and those that struggle to fit in the new order of things isn’t the unique access to data.
No. Every alert player in your competitive zone has more or less the same access to market trends and changes. The difference lies in what you envision the future to be. That’s your bet.
That’s what a winning corporate strategy needs. And because bets are inherently risky, you require two things to place a successful bet:
- Sobriety to envision what the future of your industry will look like.
- Conviction to pursue that vision relentlessly.
Steering towards success: Dell's current strategy and the EMC merger
Michael Dell had foreseen the evolution of the technology industry since the 2000s.
Not the specifics, but the trend of PCs and hardware becoming less relevant – or at least less profitable – and software, the cloud, and back-end taking the front seat. He realized (from very early on) that servers and storage management would become a huge concern for large enterprises building (or upgrading) their IT infrastructure.
Dell anticipated the market’s needs by making a simple observation: the quantity of data in the world expanded exponentially and the traditional way of data management would require server performance that wasn’t physically possible to achieve. But he knew there was a solution underway: virtualization – software that mimics the computer, creating virtual mainframes within the physical mainframe.
That’s why the company had started investing in these technologies since 2001.
Achieving synergy: Dell's competitive strategy and the merger with EMC and VMware
Dell, EMC, and VMware are three major players in the technology industry with distinct but complementary offerings.
EMC had a successful product in networked information storage systems, i.e. a database management system for enterprises.
VMware was pioneering in virtualization, allowing users to run multiple operating systems on the same device.
Dell had an established distribution network and a series of back-end solutions that could expand and fit well with the former technologies.
The relationship between these three companies started in 2001. Dell and EMC entered a strategic alliance to rule a market of $100 billion worth by 2005.
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For EMC, the alliance was a one-stone-three-birds initiative. First, it offered a lucrative distribution channel to customers their competitors were already targeting. Second, it ensured Dell wouldn’t partner with a competitor. And third, it reduced its supply costs for components.
For Dell, it also had a threefold benefit. First, It added high-performing products to a rapidly growing business. Second, it gave it an important customer – EMC was using Dell’s servers. And third, it allowed Dell to infiltrate deeper into enterprise data centers.
A strategic alliance that gave both Dell and EMC a competitive edge.
Then EMC bought VMware. That gave the company massive capabilities around cloud infrastructure services ending up being a very lucrative move. Dell, which had invested in VMware back in 2002, saw a massive opportunity to acquire the new EMC.
So Dell and EMC first began discussions of a potential partnership back in 2008, but the idea was ultimately shelved due to the financial crisis. However, in 2014, Dell revisited the idea as both companies had grown and become leaders in their respective industries.
Dell saw the potential for a merger as the two companies' services would bring significant value to their customers when combined. EMC's CEO, Joe Tucci, agreed with this assessment, but they still had to convince EMC's board. EMC was publicly held while Dell was private, and as soon as the idea was on the table, Dell found itself competing with two other interested parties, Cisco Systems and HP. In fact, HP nearly succeeded in acquiring EMC.
It failed due to a financial disagreement. So Dell jumped on the opportunity.
By then, EMC had grown tremendously and had eliminated any short- to mid-term potential start-up disruptors by acquiring them. EMC’s three businesses were uniquely complementary to Dell’s solutions:
- EMC Information structure, a leader in the data storage system market.
- VMware, the undisputed leader in virtualization.
- Pivotal, a start-up with a platform to develop cloud software.
However, the acquisition was a tough process. EMC had grown to a market cap of over $60 billion. It was impossible for Dell to fund an acquisition. Instead, the two companies merged.
The merger happened through a complex but effective financial plan, and the synergies created by the combined company increased revenue significantly. A year after the merger was initiated, the added revenue was well above expectations. This allowed Dell to pay down a significant portion of its debt and improve its financial standing and investment rating. The success of the merger led the company to simplify its structure and align the interests of the stakeholders of the three companies.
In 2018, Dell went public again as a very different entity than its first IPO, uniquely equipped to lead the 5-S sectors: services, software, storage, servers, and security.
What is Dell’s business strategy’s primary focus today?
Dell aspires to become a leading player in the data era by providing a wide range of solutions, products, and services.
Excluding VMware, Dell is divided into two main business segments supported by its financial subsidiary:
- The Infrastructure Solutions Group
ISG helps customers with their digital transformation by providing multi-cloud and big data solutions that are built on modern data center infrastructure. These solutions are designed to work in multi-cloud environments and can handle workloads in public and private clouds as well as on-premise. - The Client Solutions Group
CSG focuses on providing solutions for clients such as laptops, desktops, and other end-user devices. - Dell Financial Services
DFS supports Dell businesses by providing financial options and services to customers according to the company’s flexible consumption models. Through DFS, the company tries to tailor its financial options to each customer’s way of consuming Dell’s solutions.
Dell's core offerings include servers, storage solutions, virtualization software, and networking solutions. The company is constantly investing in research and development, sales and other key areas to improve its products and solutions and to drive long-term growth.
Its primary strategic priorities are:
- Improving and modernizing its current offerings in the markets it operates in.
- Expanding into new growth areas such as Edge computing, telecommunications, data management, and as-a-service consumption models.
And its plan involves several key initiatives:
- Developing its flexible consumption models and as-a-Service options to customers to meet their financial needs and expectations.
- Building momentum in recurring revenue streams through multi-year agreements.
- Investing in R&D to develop scalable technology solutions and incorporating AI and machine-learning technology. Since its Fiscal year 2020, the R&D budget is consistently at least $2.5 billion. Most of it goes towards developing the software that powers its solutions.
- Collaborating with a global network of technology companies for product development and integration of new technologies.
- Investing in early-stage, privately-held companies through Dell Technologies Capital.
Although Dell has a coherent strategy to achieve its objectives, competition isn’t idle nor trivial in the core competitive arenas. The company faces a significant risk that includes:
- Failure to achieve intended benefits regarding the VMware spin-off.
- Competition providing products and services that are cheaper and perform better.
- Delays in products, components, or software deliveries from single-source or limited-source suppliers.
- Inability to effectively execute its business strategy (transitioning sales capabilities, expanding solutions capabilities through acquisitions, etc.) and implement its cost efficiency measures.
The technological advances are rapid, and players are in a constant race to innovate not only on the technologies they provide but on their business models and all of their services and solutions. Emerging players and strategic relationships between competitors could easily shift the competitive landscape before the company finds a way to react.
Key Takeaway #3: When making transformational decisions, prioritize thinking long-term
A major acquisition, or a merger, between industry leaders is a bet on the industry’s future.
If you believe in the bet long-term, don’t sacrifice a good move for short-term returns, as HP did with EMC. Instead, do your due diligence in the consideration phase:
- Consider real alternatives.
- Understand deeply how the capabilities of both companies will be improved.
- Validate your assumptions with current market needs and trends.
- Move faster than the competition.
Why is Dell so successful?
One of the key reasons Dell has been so successful is Michael Dell’s intuition and strategic instinct.
He demonstrated a consistent ability to take an accurate pulse of the market, make a winning bet and chase it relentlessly by performing a business transformation. Additionally, Dell never lost one of its core strategic strengths: building strong relationships with its customers by providing excellent customer support and tailored solutions to meet their unique needs. The company has also been successful in streamlining its operations and supply chain, which has allowed it to offer competitive prices and high-quality products.
Dell puts the customer first and makes strategic pivots with perfect timing.
How Dell’s vision guides its steps
According to Dell’s annual report, its vision is:
“To become the most essential technology company for the data era. We seek to address our customers’ evolving needs and their broader digital
transformation objectives as they embrace today’s hybrid multi-cloud environment.”
And their two strategic priorities, growing core offerings and pursuing new opportunities, are their roadmap to achieving it.
Growth by numbers