Jun 10

Dell’s relentless pursuit of profit

There are two ways to make money in the technology business. You can obsess about making great things, and let profit flow as a result — or simply make profit your #1 priority and act accordingly.

My favorite examples of these two extremes, of course, are Apple and Dell. Apple lives or dies by its ability to innovate, while Dell lives or dies by its ability to generate more clicks every quarter. The companies were born for entirely different reasons — and Dell’s DNA is coming back to haunt them.

Yesterday, the New York Times ran an article about a lawsuit against Dell, and the documents that have come to light as a result. I’m not a fan of Dell, but even I felt icky reading this stuff.

Basically, Dell shipped 11.8 million computers between 2003 and 2005 with faulty electrical components that were leaking chemicals. Rather than own up to it, they stooped to the occasion by concealing the problem and putting customers’ businesses at risk. Astonishingly, Dell even tried to sell them more expensive computers to resolve the problem.

As the article states, “The documents chronicling the failure of the PCs also help explain the decline of one of America’s most celebrated and admired companies.” It will leave your head shaking. A few good quotes:

For the last seven years, the company has been plagued by serious problems, including misreading the desires of its customers, poor customer service, suspect product quality and improper accounting. [I continue to be stunned there hasn’t been a shareholder revolt.]

A study by Dell found that OptiPlex computers affected by the bad capacitors were expected to cause problems up to 97 percent of the time over a three-year period … Dell hired a contractor to investigate the situation … the contractor found that 10 times more computers were at risk of failing than Dell had estimated. Making problems worse, Dell replaced faulty motherboards with other faulty motherboards… [It’s a whole new kind of Ponzi scheme!]

Dell employees went out of their way to conceal these problems. In one e-mail exchange … a Dell worker states, “We need to avoid all language indicating the boards were bad or had ‘issues’ per our discussion this morning.” [Maybe “the boards were electronically challenged”?]

Dell salespeople were told, “Don’t bring this to customer’s attention proactively” and “Emphasize uncertainty.” [Hell yeah, that’ll work. People love uncertainty.]

… hundreds of Dell internal documents produced in the lawsuit show a company whose supply chain had collapsed as it failed to find working motherboards for its customers, including the firm representing Dell in the lawsuit, Alston & Bird. [Hey, what are friends for?]

Every company has a culture, and that culture is what guides employees’ thinking. This isn’t the behavior of an isolated few. It’s a group behavior born of an environment where nothing is more important than the numbers. Unfortunately for Dell, the only known cure for such a failure is leadership.

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  • Marian

    It’s time for Michael Dell to shut the company down and give the money back to the shareholders.

  • Cory

    Lol…. Marian! Now where have I heard that before.

    The real problem for the computer industry as a whole (excluding Apple) is micro profit margins…they reduced their brand image(s) to discount status and it is going to be next to impossible to change it in the short term. If they try and raise prices and those prices get too close to the premium Apple brand… people will just buy the Mercedes of computers and they’ll lose sales… if they don’t raise prices, it’s impossible to make money.

    So yes… it’s would be easier to shut the company down and give the money back… or hire Steve Job.

  • qka


    The whole Windows box environment is one of commoditization. When there is no significant difference between Dell, HP, and every other brand, what means of differentiation is there other than low price? Hence your microprofits and corner cutting measures like those discussed in this article.

    BTW, did you see the news Thursday, the day the iPhone 4 went on sale, AAPL was worth more than MSFT and DELL combined? We truly do live in miraculous times.

  • Cory

    I agree qka.

    I was thinking about that earlier about Android. Will Android makers have the same problems…there is nothing to differentiate themselves from each other. C

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