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Unknown face of Dell — Interview with Dell senior executives
Dell
is a riddle for many Chinese. Saying so is not at all groundless. It
seems that there are two Dells on the media. One Dell is glittering
with numerous honors: the largest PC company in the world, the Most
Admired Company in America in 2004 by Fortune, the richest young man in
America as its Chairman¡
Another Dell is deeply troubled by an avalanche of bad news in
China. The notorious Email story; the controversial Ice cream
Advertisement; the disenchantment from a Professor with ZHEJIANG University who regarded himself mistreated by Dell Employees
Driven by those bad news, some Chinese media claim that Dell is
not as good as it looks like. One newspaper predicted that Dell’s
direct model is likely to fail in China. A magazine branded Dell’s
corporate culture as a culture showing no respect and intimacy toward
its employees. Most media criticism is focused on Dell’s lack of
innovation. According to one story, 95% of Dell’s first stage
manufacturing of notebooks is completed in China. Dell doesn’t do any
of its notebook design and relies completely on O TAIWAN ODMs(Original Design Manufacturers).
Which Dell is true? How does Dell respond to the criticism? How
does Dell perceive innovation? In order to get the answers, our
People’s Daily Online Washington-based correspondent Yong Tang recently
conducted an exclusive interview with Mr. Dick Hunter, Vice President
of Americans Manufacture Operations and Supply Chain Management and Mr.
Jeffrey Clarke, Senior Vice President and General Manager of Product
Group.
Dell Will Never Give Up Direct Model
Yong Tang: Do you know Lenovo in China?
Yong Tang: After the merge with IBM PC business, Lenovo has become a real sense global competitor for Dell, hasn’t it?
and we respect it as a competitor. But we feel that we can compete with
Lenovo or HP or any other competitor in the world.
Yong Tang: Why are you so confident?
well because we have a very good team of people and we are very focused
on our customers. Over the time direct model will become a model of
choice for more and more companies.
Yong Tang: Do you think the direct model should be improved today?
Hunter: Direct Model is continuing to evolve.
Today we are Selling TVs, projectors and MP3 in the direct model. We
know our customers want to see the product before they buy it. So we
set up a Kiosk in hundreds of shopping malls around the country. You
still buy direct but you can go to our kiosks to see samples and order
your products there. It is another innovation for direct model.A few years ago we decided to go into printer business. Our
challenges are how to deliver ink cartridges within 12 hours to our
customers. We bought a place in Cicinati in Ohio, which is only 15
minutes drive from Wilmington where DHL has a main distribution
operation center. If you are ordering ink cartridges online by 11:00 at
night, we will deliver our products to the center by 2:00 in the next
morning. Then DHL will sort our products and get them on the right
airplane to deliver them anywhere in the country by 10:30 AM.
Yong Tang: In the near future, does Dell have a
plan to give up direct model and adopt a distribution model or just
combine your direct model with retail one?
model at the same time. Any companies who are trying to do that will
fail. Why? Because they are radically different approaches in how you
run your business. We much prefer a direct relationship with our
customers. we don’t want a third party between us and customers. I
don’t ever see Dell going toward a retail model.
Yong Tang: So Direct model is very effective. But
why do most of your major competitors like HP and Lenovo in China still
stay on retail today?Hunter: The way we make and deliver products is
on the front pages of local newspapers. So it is very likely they know
our models. Frankly speaking even I am surprised by the fact they
didn’t copy our direct model.
I think there are a couple of key reasons. First, in order to
go to direct, they should basically shut down all of their retails
channels. It would be a big burden for them to do that. Second,
building the infrastructure and capability of shipping directly to
their customers is a big challenge for them given the complexities of
answering the telephones or emails and being able to figure out an
unique system for the customer. That becomes a barrier for our
competitors. Other companies would really struggle to do direct model.Employees Are Secret Weapons of Success
Yong Tang: So Dell’s approach to run the business is quite unique and can not be copied?
supply chain for 31 years. Frankly anyone can copy our factories, our
equipment and even our patented processes. What other companies cannot
copy is our people and our culture.
It is an autonomous and empowering culture. We have an
excellent team of people who have been empowered to take on their own.
We do this through BPI process(Business Process Improvement). Dell
saved more than $1.9 billion in BPI projects last year. Many of these
were led by our manufacturing employees around the world. So the secret
weapon of Dell is its people.
Dell Chairman Michael Dell and CEO Rollins and I walk through
the factories at least once a quarter, just to thanking people for
doing a good job. We have done this for a long time. I don’t see many
Chairmans or CEOs or board members willing to walk around the
factories. So we have a very high-touch and very visible leadership
here.
Yong Tang: What you do shows a strong degree of intimacy toward employees.
Michael and I all the time. Every time when we visit the factories,
employees will leave their workstations and gather around us in a
semi-circle. Michael and I will talk to them and thank them and answer
their questions. It is quite a sight to watch the production employees
get so excited about improving the productivity, the quality of
products and being able to tell Chairman of a Fortune 28 company what
they are doing.Yong Tang: But recently I read a story from a
Chinese magazine criticizing the corporate culture at Dell. The story
said employees at Dell are considered merely as a part of assembly
lines. The intimacy and personal respect toward employees are
insufficient. The journal also claimed that employees tend to move
somewhere else quickly after a short stay at Dell. How do you think the
criticism?
rate we have is quite low. We have done an anonymous survey twice a
year to measure the employees’ satisfaction with the company. Over 90%
of our employees around the world participate in the survey. In the
surveys there are some questions like: Does your manager treats you
with dignity and respect? Do you think your career at Dell is
developing? If offered another position outside Dell, would you stay at
Dell? Overall employee satisfaction is 77 percent favorable, according
to recent company surveys.
We Don’t Rely On ODM Completely
Yong Tang: In fact, the criticism by Chinese
media focused on innovation. Some newspapers claim Dell is a marketing
miracle but lacks strong innovation spirit. One piece of evidence they
often cite is 95% of Dell’s first stage manufacturing of notebooks is
completed in China. They even said Dell doesn’t do any of its notebook
design and relies completely on Taiwan Original Design Manufacturers
(ODM). Is the report accurate? If yes, why does Dell rely on China so
heavily for notebook manufacturing and rely on ODM so heavily for
design?Hunter: Dell partners with ODMs for basic
design elements of some systems. However, Dell is highly influential
and very much involved in the design process because of the customer
feedback we receive directly from customers about the features and
specifications they want. We will tell ODMs the feedback of our
customers and also test the reliability of the systems designed by ODM.
More than 70 percent of the value of notebook systems is added in
Dell’s design centers, contrary to what many reports falsely indicate.
Some of our competitors ship systems directly from ODMs to customers.
Dell never does this.
There are certain things that Dell is extremely good at. There
are many things that other people are very good at. We do not try to do
things that other people are very good at and we are not good at. So
our value comes from the knowledge about what our customers want and
our design teams that are very good at integrating. We are not
inventing things for the sake of invention.
Yong Tang: How can you make sure those products made by your suppliers are high quality?
the cities where our supplier factories are located. Our engineers will
visit those plants virtually every day. So we very much understand how
the production is going in those factories. We have tremendous
knowledge about those products even before they are shipped to us. In
addition, Dell will do very strict testing on those sample parts in
order to make sure those products meet the customers’ needs.
Use R&D Dollars Very Efficiently
Yong Tang: R&D funding is an important indicator of innovation. How does Dell think of R&D?
Clarke: Dell spends nearly half a billion
dollars each year on research and development. It is about 1% of our
revenue. The percentage is not high. But we use our R&D dollars
very efficiently. Dell generated more than $9 in operating income for
every dollar invested in research and development in 2004.
Dell also recognized early that it is costly and inefficient to
recreate work others have done very well. We foster an open environment
of partnerships that brings together the best talent from across the
industry. The result is we are able to deliver a collective
research-and-development investment of more than $20 billion annually
to meet real customer needs.Yong Tang: How do you use your R&D money?
globally. They have produced more than 1100 patents so far. Additional
700 patents are pending. We will continue to hire more engineers around
the world.
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