Sunday, July 8, 2012

Business Evolution for continual growth; how is Dell changing its business model?

Dell has recently announced that it will be paying dividends to its shareholders from its cash positive business, Dell is one of the few businesses around that continues to maintain a positive cash flow despite the downturns in just about every market.

Dell is a highly successful model for any business; it started very small and has grown to become a $60+ billion turnover company off the back of its computer sales. The business however is now moving into other areas such as business servers due to increased competition from very cheap Chinese products as they refuse to sell products without profit. But it is not just competition that is creating change within the company; they have seen their customers’ demands changing and have sought to change their company in line with what the market demands, moving away from their traditional PC and laptop sales.

But how did they get where they are today? A recent tweet from Michael Dell should provide inspiration for many budding entrepreneurs; 10 Jun 2012 ”I started Dell 28 yrs ago with $1000. Revenues in 1984 were $6 million. Last year $62.1 billion. Impossible is nothing.” How did a company that started with such modest funding become one of the biggest players in the market?

They did it by ignoring how the rest of the industry provided products and instead followed ideas that were tried and tested within the automotive industry. They implemented Just in Time principles for their assembly operations and assembled PCs and Laptops to order. Unlike their competitors who had finished products boxed waiting on shelves to become obsolete to be later sold at a discount; Dell provided a build to order service which was more efficient than their competitors’ production models.

Without the need for storage of large quantities of finished stocks, just in time deliveries of components, reduced obsolescence costs, and many other benefits, Dell has been able to ensure a profitable operation even in troubled economic times.

But times change; Dell can see that its position as the dominant supplier of PCs and Laptops is under threat from underpriced imports and does not want to get involved in an unprofitable price war which could damage its long term future. Instead they have been looking at what the market wants and how technology has been changing to define and build a new future for themselves. For some years they have been purchasing companies that they view are key to their continued growth and success within their industry and are transforming the company.

So Dell are still keeping very much to lean principles by identifying what their customers really want, not just continuing to throw PCs at us, after all it is the provision of the service that we require and the mode of delivery is rapidly changing. We have all moved from using cumbersome desktops to laptops and are now using tablets for many of our computing needs. If they continue to efficiently build PCs and Laptops they will just be the best player in a dwindling market. They have realized unlike some of their competitors that the consumers to use an analogy want “holes” and not “drills”.

They are focusing very much on providing services to the business market rather than the individual consumer; they have already stated that they will not be going into competition with other manufacturers to produce smartphones and other gadgets preferring to aim very much at the higher end of the market. They will be trying to capitalize on the launch of windows 8 with compatible devices that will integrate with existing business networks.

Dell is not going to completely abandon its manufacturing roots in the face of tough competition, it still sees an open market for high end tablets in the business market where many businesses fear trying to integrate the apple products into their almost exclusively windows environments.

So Dell is very much trying to evolve their business continually within the needs of its marketplace, if they continued to just get better and better at building desktop PCs and Laptops they would just end up being the best player in a dwindling market. After all, how many cart manufacturers were left after the automobile was invented, or how many manufacturers of video tape and vinyl records are there since the advent of the DVD? The world changes and if you cannot anticipate that change then your business will eventually die or be relegated to a small niche.

If you are trying to grow your business then you have to keep looking at the market and ensuring that you are not focusing on the product that you provide; instead you must be looking at the problem or need that your service provides a solution for. You need to continually evolve and change that solution with respect to technology and consumer expectations, if you don’t then your company will be eventually doomed to failure.
Dell continues to grow and continues to be a cash rich company unlike many of its competitors despite the current problems with the economy. You should look at your business model today and ask yourself what happens if the world changes tomorrow because it will.