Dell grows up
The sprint over, the world's No. 1 PC maker digs in for the long haul
ROUND ROCK, TEXAS--Hung on a wall in a laboratory nestled in one of Dell Inc.'s sprawling buildings near here is a certificate that would probably surprise many people in the technology world. The fifth-most-powerful supercomputer, it proclaims, was created by Dell.
For a company best known for rock-bottom prices on desktop computers, that certificate is both a symbol of how far Dell has come and a sign of where its future lies. With moves into products like servers (which stitch together computer networks) and storage systems (which juggle huge volumes of information), Dell has long pushed past selling boxes for simple word processing and crunching spreadsheets. Today, the company aspires to climb still further up the computing food chain into more complex offerings, such as systems that span big companies and organizations.
As Dell continues this push, which is aimed at driving annual sales from $41 billion to $60 billion by 2007, it will now do so with a shuffle in the executive suite--sort of. This week, founder and chairman Michael Dell, 39, the stuff of entrepreneurial legend for launching the company from his University of Texas dorm room 20 years ago, will hand over the CEO reins to Kevin Rollins, a onetime consultant who has been Dell's chief operating officer. Both men portray the move as only a title swap, which will change little in their seven-year partnership of running the company. "I've gotten most of the credit for it, where he's done half the work," says Dell. "So this is recognition for his role."
But when pressed, the 51-year-old Rollins allows that he's now becoming something like the firebrand company's designated adult. "There's an 'institutionalization' [needed] as our company gets large," says Rollins. "You have to take great ideas and then turn them into something that an organization can have discipline around. I think I probably bring more of that."
Rollins's skill in handling this task will affect the industry far beyond the rolling hills of central Texas, for Dell and its 48,000 employees now create their own weather in the computing industry. Dell's fanatical devotion to efficiency, coupled with its practice of selling direct to customers, means its costs are lower, which it translates into attractive and declining prices. That, in turn, puts pressure on other companies caught in the price wars Dell triggers.
Profit pressure. Rollins's ascension comes at a pivotal time, because Dell's very success forces it to pedal ever faster simply to keep up. Sales are booming, costs are at record-low levels, and market share is growing. Yet profit margins have slipped, and the same price wars that have spurred sales are draining the average cash collected on each unit sold. Customer service has slipped. And despite efforts to create a kinder, gentler workplace, concerns linger about a pressure-cooker environment. As the investment banking firm CIBC World Markets Corp. asked recently in downgrading Dell stock: "Could the model to beat in hardware be getting its beating?"
Rollins, of course, is having nothing of this. "I'm a strong believer in economics," he says. "The low-cost model wins. We have the low-cost business model." His not-so-long journey to the CEO's spot began when, as a 40-year-old consultant at Bain & Co. in Boston 11 years ago, he took a troubleshooting assignment at Dell. He spent 2 1/2 years commuting between Austin and Boston before signing on with Dell in 1996 as a senior vice president. The next year, he bumped up to vice chairman, before becoming president and chief operating officer in 2001. His swift rise has certainly been lucrative: In Dell's 2004 fiscal year, he earned $2.5 million in salary and bonus and cashed in $35.9 million worth of stock options.
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