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Sunday , 26 March 2017

The Deal of Dell Explained: What Successful Turnaround does Look Like

You happen to be the CEO of some company that was once a great one, now beleaguered from all sides due to the competitors and industry which is rapidly changing. How does one get back to the top?

That is the question which Michael Dell continued to ask himself since the year 2007, at the time he retook top job with one computer company that he founded during 1984. The previous year, he did decide that answer was just to take this company private, and to escape hectoring of public market.

Short Dell History:

Success of Dell could be attributed largely to the “direct model.” As competitors like IBM and Compaq sold the PCs through resellers, retailers and distributors, Dell sold quite directly to the customers, offering the highly customized of PCs at one time when cost of the computers was quite high to still need significant tradeoffs. Bulk of the sales did come from government and business.

The simple strategy did prove wildly successful. By mid 2000s, a lot of the competition of Dell had faded. Till 2007, most merged (Compaq and HP) or even sold all or some of the businesses of PC to the foreign competitors (Gateway to Acer; IBM to Lenovo;).

During 2004, Michael Dell did leave the company and then was Kevin Rollins replaced him, who joined this company during 1996. Even though Rollins could hold this job for only 2.5 years, he did preside over one brisk decline. Dell returned in 2007as the CEO.

Do The Tech Buyouts Work Actually?

The fortunes of Dell haven’t reversed over past 6 years, due to recession partly, but fundamentally to decline of PC market. This was against the background regarding Michael Dell the previous year hatching one plan about taking this company private, along with help of private firm, Silver Lake Partners.

Would this work? For answering this, it is important considering whether the tech buyouts did at all work. Data suggests that they worked, and not only in sense of establishing returns for the PE firms. During one 2011 paper, the researchers of HBS, Columbia, as well as University of Chicago did look at success of the four-seventy-two tech buyouts that were based upon one novel measure: the patents. The aim was determining if companies that were in question did become innovative following this buyout. The conclusion was that the companies which are controlled or owned by the PE firms do happen to pursue promising innovations. These innovations happened to be within the areas which reflect historical strengths of the firm.

IBM’s Case

The fact that the tech buyouts worked in past isn’t guarantee enough that it would also work in the case of Dell. If Silver Lake and Michael Dell have to succeed, then they need to look at IBM’s case in 1990s. the transformation of IBM under the CEO Lou Gerstner tends to be subject of one case study of HBS by Robert Austin, Lynda Apple gate as well as Elizabeth Collins. 2 decades later, this offers the hints about what Dell needs to do for succeeding.

Though it is not  easy to summarize changes which Gerstner initiated when he took the reins during 1993, some decisions do stand out. When much cost cutting was going on, “One IBM” strategy of Gerstner included shifting of resources to services and consulting business of IBM, which did grow rapidly.

Yet improved position of finance did come at some cost. The investments of long-term were de-prioritized. So, beginning in the year 1999, Gerstner did begin reorganizing company for identifying the opportunities of emerging business which could become a business of billion-dollar business one day.

The Open Questions:

Even though, history regarding tech turnarounds does suggest some optimism on the subject of Dell’s future, specifics are still far from being certain. With PC market towards decline, Dell would have to look somewhere else to improve the finances of short-term as well as to invest at the time in future. Rivkin told,

“The markets that they have talked about publicly are all ones with established players that are pretty darned good. It’s not as if Dell is going to sneak up on IBM in services, for instance.”

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