Dell Suspends Bonuses, Streamlines Management
Dell said bureaucracy had become the new enemy of his company and called on employees to eliminate redundancies throughout the business.
Michael Dell, who recently resumed the role of chief executive at the company he founded, has suspended bonuses for the most senior executives and plans to trim the number of top managers reporting directly to the CEO in an attempt to streamline the computer maker's operations.
In a memo sent to employees, Dell said bureaucracy had become the "new enemy" of his namesake company and called on employees to eliminate redundancies throughout the business. He also announced management changes.
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The memo sought to build a sense of urgency among employees, as Dell tries to reverse the company's disappointing performance. Since turning over Dell Inc. to Kevin Rollins, who resigned as CEO last week, the build-to-order company has suffered a gradual decline, losing the No. 1 PC maker spot to Hewlett-Packard. The company in late January warned that fourth-quarter results would come in below analysts' revenue and earnings estimates.
Dell's memo was sent Friday, two days after Dell took over from Rollins, and reprinted in The Austin American-Statesman. In the message, the CEO said the company's performance was disappointing and unacceptable, and there would be no bonuses this year for the most senior people. Limited "discretionary awards," however, would be handed out to less senior people who performed exceptionally. In addition, Dell planned to hand out "above market raises" this year.
Dell said he would reduce the number of senior executives reporting directly to the CEO to 12 from 20. The change, however, did not mean that executives were being fired, or demoted, but was a reflection of organizational changes, a spokesman said Monday. The spokesman also confirmed the authenticity of the memo.
Dell does not plan on hiring a chief operating officer, a move that had been suggested by some analysts. He also said he was not taking on the job of CEO on a interim basis. "I plan to be CEO for the next several years," he said.
Long term, the company plans to grow its business serving small and medium-sized companies, and to expand in services. In its enterprise server and storage business, the company plans to "build, partner and buy." The latter would be unusual for the computer maker, which has yet to make any major acquisitions.
In its consumer business, Dell said he believed the "dramatic de-scaling" was a mistake. "We will have a new product cycle, we'll fix CE [consumer experience], and we will not run away from a cost fight." Among Dell's problems have been declining customer-service ratings, and prices higher than competitors.
On the management front, Paul Bell, who has led the company's operations in Europe, the Middle East, and Africa, was returning to head the company's new Americas organization, Dell said. In addition, the company was creating a new Global Operations unit, which would be responsible for manufacturing and procurement worldwide. The company was searching for a person to lead the new unit, as well as a consumer group.
Dell, in urging employees to work quickly to turnaround the company, said, "There is no luxury of time. The competitors are fierce."
Nevertheless, the CEO ended the message on a confident note, saying, "We will fix this business and take it to new heights!"
But despite Dell's bravado, Jonathan Eunice, analyst for market researcher Illuminata, said the CEO's goals were conflicting -- lowering costs, while improving customer service; innovation without spending more time and money; and taking on price battles, but also improving margins.
"None of the goals are individually wrong -- indeed, they're all laudable," Eunice said in an e-mail. "The problem is that there are so many problems, and ones that conflict not only with Dell's fundamental business precepts, but also with each other."
The upside, however, is that Dell was diving back in to try to get the company he founded back on the right track, Eunice said.