Dell and the end of religion

Dell 1.0 was a religious company. I suppose you could refer to it instead as merely an intense focus on low costs in all matters of its operations, but it really went deeper than that. Low cost was an article of faith that was the deep guiding principle underlying essentially everything that the company did. Dell didn't merely tilt toward a streamlined supply chain and lean R&D, they were a fundamental part of what it was as a company.

This is not a pedantic distinction. Focus can be adjusted and tweaked; it's that much harder to change your core. Yet that's what Dell had to do. It had to respond to a world where "cheap boxes" was no longer the guiding mantra for server buyers, which made Michael Dell's public pronouncements suggesting that "Dell 2.0" was mostly about better execution so wrongheaded. I wrote about this back in February 2007 in a piece that also includes some choice commentary from Peter Capelli in Knowledge@Wharton:

So in this case, for example, Dell was the darling of many people in the business world because they had this model that seemed to work just incredibly well, and lots of people were copying it, and then the environment changed. It's not that they got bad at executing their model. At least I don't think that's the complaint. It is that the environment changed. They got different competitors who came in with different ideas and the playing field changed.

This makes a continuing set of moves that Dell has been making very significant. It's one thing to "be open" to new strategies, partnerships and approaches. It's another to actually act on them.

Perhaps the first major sign that real change was abrewin' was Dell's belated decision to introduce AMD server processors into its lineup alongside Intel. Although Intel has since gotten (seriously) back into the fight, at the time AMD had the clear technological lead and Dell's long refusal to offer AMD-based products seemed a willful decision to cede a pile of business to competitors without a fight. Backroom politics (however significant) aside, part of Dell's rationale was almost certainly a desire to avoid the incremental costs associated with designing, manufacturing and supporting servers based on processors from two different suppliers.

Second was the signs of genuine technical innovation in a company whose intellectual property was far more about business processes and supply chain optimization than the product itself. Dell won't be the only vendor offering servers with an embedded hypervisor that lets customers configure virtual machines out of the box without installing additional software. But it was involved early on with this technology approach under the name "Project Hybrid." Although Dell isn't, and won't be, an R&D powerhouse, it's clearly not content with always sitting on the sidelines while others roll out the initial iteration of some new technology or approach.

Finally, we have Dell's retail push. It started with a rather limited offering through Wal-Mart and Sam's Club. Now it's added Staples. Thus, in yet another aspect of its business, Dell has apparently decided that a pure approach that takes minimal cost as its sole guiding principle--in this case Web-direct distribution--may have to be modified a bit if revenue is at stake.

None of this is to suggest that Dell has abandoned the Church of Frugality. Don't expect to see a Dell Labs that focuses on fundamental research or a major move into highly bespoke "Big Iron" servers. But we are seeing a Dell that is showing some flexibility on what were once all-or-nothing principles.