Column: Behind The Door That Says Dell

Letter From Silicon Valley

Michael Dell's name is on a lot of doors in Round Rock, Texas. There's the company, for starters, and there's a very fine minor-league baseball field, which he helped build, for another.

Putting your name on the door is a sure sign of commitment. On Wednesday, Michael Dell lived up to that commitment by resuming his role as chief executive of the beleaguered computer maker he founded. You could practically hear the fans cheering all the way in California.

About a year ago, I spent some time trying to make sense of what was going on at Dell . The signs were decidedly mixed. Growth began slowing in 2005. Late that year, Dell missed its forecasted earnings. Management promised to fix mistakes in pricing--and the next quarter's results duly bobbed back up (for the period ending January 2006). But it was merely the eye of the hurricane.

I visited Dell last January with what I thought was a simple question: How are you going to grow the company?

I spoke with Michael Dell. I spoke with Kevin Rollins, whom Dell had named the company's chief executive in July 2004. I spoke with a number of managers. They assured me that all the problems were momentary glitches.

But the conversations left me perplexed. I had hoped to hear some plans for new products or advertising campaigns or fresh initiatives in the works--along with recognition that the issues that had dogged the company for months were grave and warranted high-priority attention. Instead, I heard the equivalent of, "Trust us." I decided I needed to know more before writing an article.

At the time, I knew that some of Dell's problems were not of its own making: competitors Hewlett-Packard, Lenovo Group and others were improving their games. But Dell's leaders had made some choices that clearly hurt their business. In pursuit of high profit margins, Dell had skimped on customer service, once a banner of pride for the company. Dell managers were also punching the "lower price" button frequently--too frequently, in fact, to sustain real growth. And suppliers were muttering that the company wasn't keeping as close an eye on its parts inventories as it once had.

Employees, too, felt distant from Rollins, even though he had been with the company since leaving Bain Consulting in 1996. Within Dell, Michael Dell was clearly a hero--a warm guy with good instincts for making people feel like part of a team. Rollins left people feeling like part of a machine. One former employee grumbled to me that Rollins always seemed to be the smartest guy in the room--or, at least, he acted that way.

Those feelings boiled out in November 2005 during the company's biannual "Tell Dell" survey, where employees could anonymously convey how they felt about their jobs and the company. They weren't happy. Employees felt "we might not have been listening enough, and they didn't think we were positioning the company for success," Rollins later told me. "Those scores had traditionally been extremely high. And those were the ones that hit."

Rollins said that in May 2006, when I had returned for more interviews. It was a tough time. The day before my visit, Rollins had to announce Dell's most disappointing revenue growth in four years. My questions were largely the same: What are you going to do about it? How serious are these problems?

This time, Rollins acknowledged that there had been problems--but he insisted that the slip-ups were now behind Dell. He told me: "We realized [in February] that industry was more competitive, that our competitors had improved, their capabilities are faster and at a higher level than we had knowledge of. And so [that] required a more aggressive and active approach than we would have taken prior to that."

"How do you feel?" I asked.

"Terrible. We thought we could do better," Rollins conceded. Even so, he remained bullish. He added: "You have to put this in context: We're still, as a company, gaining share. We're still growing faster than our competitors. We still are more profitable by a long shot."

I wondered if he was trying to convince me or trying to convince himself.

We talked about pricing strategies. Rollins' first language was not the geek-speak of technology but the waxing and waning of the data that mirrored the business: the elasticity of prices, the metrics of the supply chain and the return on investment of countless efforts within the company, notably customer service.

I asked Rollins if he thought there were parallels to other tumultuous times during Dell's history--say, in 1993, when Dell was losing money, or 2001, when its meteoric growth stalled.

"No," he insisted. Dell was still very profitable, he said. These turns are merely bumps along the way to continuing to grow the business.

In June, Forbes published a tough article on Dell that disappointed Rollins. And it turned out there were even bigger problems ahead: The Securities and Exchange Commission began scrutinizing the company's books. By the end of the year, Dell's chief financial officer--who told me he hoped the company could cut its component costs by 5% across the board--would be out. An audit committee began scrutinizing Dell's financial records. As a result, Dell has yet to issue final financial reports for the quarters ending in August 2006 and November 2006. There are few expectations that it will report anything other than a preliminary assessment of its year-end results in March.

Rollins worked hard during his more than 10 years with Dell, and he helped build the company into an industry powerhouse. But a thousand little things finally caught up with him: his emotional distance from employees, his relentless pressure to drive by the financial numbers and keep up profit margins, his stony conviction that problems were merely temporary.

So on Wednesday, Michael Dell decided that his name on the door meant that he needed to be in charge. Analysts are applauding the move. John Spooner, with Technology Business Research, wrote: "We believe that Dell is stepping back into his former role in an effort to regain the trust of the Dell customers, whether corporate or consumer, while also offering reassurance to Wall Street."

In a note sent to employees on Wednesday, Michael Dell wrote that he felt like it was start-up time again. Dell isn't quite the league's underdog--but it does have some serious training ahead before it can look like a winner again. If Michael remembers what made the company great in the first place--genuinely wonderful products and great customer service--Dell will once again become a company to root for.

http://www.forbes.com/home/technology/2007/02/01/michael-dell-rollins-tech-cz_ec_0201dell.html

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