What ails Dell?

Back in 2004, a group of us from CNET News.com visited the Round Rock, Texas, headquarters of the PC giant. At the time, a few customers were grumbling about Dell's customer service, but otherwise the company looked unstoppable.

The company was also bulking up its executive ranks, and a weird number came from consulting firms: Bain & Co., McKinsey & Co., etc.

I asked one person about it (a McKinsey alum) who agreed: There were a lot of them. Dell prided itself on measurable results, after all, and where better to recruit than the firms that pioneered management by numbers?

Since then, it's been downhill. Customer complaints have increased, Hewlett-Packard has mounted a comeback, and Dell actually grew slower than the market in one quarter, an extremely rare occurrence.

Dell also bought Alienware, breaking with its 22-year policy of eschewing acquisitions. Will a guerrilla outfit hawking antiauthoritarianism still woo kids now that's it's a subsidiary of a Fortune 100 company? Time will tell. This week, Dell announced that it will open two new retail stores, following the lead of Samsung, Sony, Gateway and Apple Computer.

Personally, I see at least a slight connection. Management consultants are often brilliant and energetic individuals. They have degrees from universities that most of us only have ding letters from. But when they flock together, they tend to weigh a company down.

Why? Too much management expertise tends to make companies insular. It's what happens when everyone you know graduated from Wharton too. Those people checking out your products at Target--the harried mom, the Shoe Pavilion clerk on break, the middle-aged man being seduced by the smell of churros wafting from the snack bar--just start to seem grubby after awhile.

Unfortunately, to succeed in the tech market, you really need to suck up to your customers. (Oh, hey, let's just call it customer-facing engagement activities so we're all on the same page). Sony got creamed when it came out with an invasive DRM scheme.

This explains why the successful community sites are not the juggernauts started, funded and staffed by Silicon Valley celebrities, but the ones like MySpace created by individuals winging it on gut feeling.

We live in a world where some of the brightest minds out of Harvard are trying to discern the tastes and needs of 15-year-old metal-heads from Salt City, Mo. Something doesn't add up here.

History has also shown that trying to drive a company by emphasizing management science doesn't work that well. Often, you can recognize companies that have fallen sway to business school theory. They tend to follow five rules, in order:

1. Establish a brand so that customers pick you without thinking.

2. If that fails, cut costs.

3. If that doesn't work, buy someone.

4. Hire your friends (aka "some of the most accomplished people in the field") for the turnaround.

5. When giving a speech at a conference, your introduction should show a video of people from around the world playing with cell phones while thumping disco music from a bathhouse sound track blares in the background.

The last one is more of a personal option, but you get the general idea. A company could be selling nuclear fuel rods or buckets of whey, but the techniques and ideas would be the same.

Unfortunately, the success stories in the tech industry in the last several years have completely disregarded these rules. Google didn't spend at all on ads during its rise to search engine dominance. eDonkey--no hint of brand consultants there.

HP's a great example. Carly Fiorina emphasized brand when she first got to the company with an ad campaign featuring her. Then the Compaq Computer acquisition followed, with job cuts. She was also known to hold "rock star" events at HP locations with thumping music to generate enthusiasm.

Contrast that to new CEO Mark Hurd. He could be a descendant of the aliens that crashed in Area 51 for all most of the world knows. Few have shaken his lifelike hand or seen him in public. Yet, by working with component suppliers to devise new computer models, HP has raised its profits.

Interestingly, Dell has, for most of its history, been one of the companies most obsessed with customer service. Michael Dell occasionally dons a headset and fields customer service calls, according to sources. It buoys the spirits of the help desk jockeys and gives Dell, the man, a sense of what customers think.

The company has always consistently had one of the strongest brands with consumers. Apple may attract buyers in New York or San Francisco. But Dell gets everyone living between Rochester and Oakland. Check out full page ads in Parade magazine.

Yet in the past few years, it seems, Dell has moved away from these roots. Its consumer computers sell for more on average than HP's. It was great while it lasted but unsustainable in the long run without better quality or service. Instead, Dell has run on name recognition and doing what others do. As one exec integrated in the Dell empire told me recently, there's a lot of thinking, but not a lot of doing in Round Rock these days.

Dell is still the largest PC company in the world, but to regain its momentum, the company is going to have to hang out more at the mall.