Dell's Manifest Destiny

The low-cost PC maker expects to become a major business-technology provider. With business forces in its favor, and a compelling technology strategy, don't bet against it.

Darrell Dunn, Contributor

February 4, 2005

5 Min Read

Unlike other vendors, Dell doesn't need to "cross-subsidize" its hardware business with high-margin service contracts, Felice says. "The services are all around helping the customer get to a more standards-based environment and usually support some sort of consolidation," he says. "That's very different than saying we want to come in and take over everything."

Wimberly, Allison, Tong & Goo is the kind of account Dell needs to nurture for its strategy to bear fruit. The architectural firm relies on Dell for its 350 PCs and laptops but not other parts of its IT infrastructure. "In my experience, the support ratings from Dell haven't been where they need to be in order for me to take that chance," says VP and CIO Larry Rocha. But the firm has realized savings where it has used Dell equipment, so Rocha is open minded about using Dell services, too. "I do see the potential."

Dell will work with software vendors and other third parties to expand its services offerings, but the company has no plans to offer IT-outsourcing services, like those provided by EDS or IBM Global Services, CEO Rollins says. "If you look at the [outsourcing] industry, it's not a very healthy industry," he says. "The sexy megacontracts in outsourcing aren't very profitable--to not profitable at all. We're going to stay very close to hardware-enabled service and expand step by step by step."

For Dell to become a true enterprise player, it will need to improve the manageability of its products, IDC's Humphreys says. "There's a pretty tight correlation between large data centers and the need to drive more automation into the processes," he says. "IT managers and administrators are looking for tools that will allow them to work with fewer managers and more equipment."

CEO Rollins is keenly aware of the need. Dell is pushing for the development of a software standard for systems management, he says, through partnerships with leading software vendors such as Microsoft, Oracle, SAP, and EMC's VMware subsidiary, which develops server-virtualization software. "As Dell becomes a larger player, our influence increases," Rollins says.

Golf-club manufacturer Ping Inc. has standardized on Dell PCs and midrange servers, but it uses Sun servers and IBM mainframes for its most demanding data-center work. Still, Dell's unrelenting focus on build- to-order efficiency has made a convert of David Chacon, technical services manager, who believes Dell's best practices are reflected in the company's offerings. "The fact that Dell puts so much focus on things like process development, not just product development, to make sure they can duplicate what they do reliably, over and over, that's what is so impressive to me," Chacon says.

By cutting costs, companies can afford to increase innovation, CIO Randy Mott says.Photo by Matthew Mahon

One way Dell is nurturing its corporate expertise is by looking inside. "We tend to look more like our customer than any of the other technology providers," CIO Randy Mott says.

Dell's 3,700-member IT department operates with a budget of 1.4% of total revenue. Dell's standard software stack includes Oracle, SQL Server, Linux, and Windows, with the choice boiling down to the best product for a particular problem, Mott says. A recently deployed order-management system in Europe runs Oracle and Red Hat Linux on six four-CPU Dell servers.

Dell's low-cost model might seem like the last thing that would lead to business innovation, yet that's what Rollins and Mott argue is a big part of the company's value proposition. The thinking goes like this: Money that isn't spent on IT infrastructure can be directed to other priorities that differentiate a business from its competitors. And money that's spent on IT infrastructure goes into systems that require less maintenance, freeing up IT staff to develop new software capabilities instead. "You have an opportunity to reduce costs and increase innovation," Mott says. "They're linked."

And Dell may be its own best example of how that works in practice. Over the past five years, the company has gradually decreased the number of IT staffers who maintain and support its computer systems and shifted those people to software-development projects. The result: Approximately two-thirds of Dell's IT personnel now work on development, compared with one-third five years ago. Over that same period, the number of business-technology projects under way at Dell has quadrupled, from 200 to 800. "When we add a new capability, we build that capability on new technology," Mott says. "There's an efficiency to that."

Not only is there an opportunity for Dell's customers to mimic that strategy, but they're at a disadvantage if they don't, says Mott, who was CIO of Wal-Mart Stores Inc. before joining Dell in 1996. "If IT is not delivering at a pace that's meeting the needs of the business, it's stifling the needs of the business," he says.

Tribune's Dejanovic buys into the Dell philosophy that cost savings and efficiencies squeezed from IT infrastructure can be shifted to other priorities. "I was skeptical at the beginning, but I would say that's happening over the last couple of years," Dejanovic says. "I would like over time for my IT staff to focus more on providing business solutions than maintenance."

If Dell can convince more companies that its low-cost, high-quality, efficiencies-of-scale model can be an agent for business innovation, it may well win the hearts and minds of business-technology managers everywhere.

--with John Foley

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