Reshaping Dell

Kevin Rollins, Dell's president, is one of the most powerful yet least-known personalities in the PC business.

The former Bain partner signed on with Dell in 1996, became its president in 2001 and has played a key role in turning the company into the world's No. 1 computer manufacturer.

But Rollins, who runs the company's day-to-day operations, knows that his job will get harder as Dell grows. Analysts predict that Dell will pass $35 billion in revenue during its current fiscal year, as it moves toward its goal of $60 billion. That, in turn, has created myriad new problems and challenges in a hardscrabble PC market that's only getting tougher. Rollins recently spoke with CNET News.com.

Q: What kind of relationship do you have with Michael Dell?
A: Michael and I, to a great extent, share the office. While we both have areas we work on--and we try to define those quite closely--we share a lot of responsibilities, and whoever is available does those things. We collaborate on our ideas of what we want the company to do. But I think that in terms of the day-to-day business, I run the company. He runs technology. We share the strategy stuff.

Dell has gained a tremendous amount of market share over the past three years. How has that changed the company, and was there a pivotal moment in which you decided that Dell's culture needed a boost?
It was really coming out of the dot-com boom--the company had done very well financially, but that had gone flat. The stock price hadn't done anything for a year or two. Many of our employees who had done quite well on the stock could have retired. We concluded that we had to do something to sustain the employee base and keep people interested--realizing that every company has ups and downs. We made a number of decisions at that point about cranking out a vision for the company of the future that would be inspirational; a vision of changing the corporate culture to be a bit more nurturing and developmental rather than survival-of-the-fittest.

It also meant that Michael and I had to change our own management style, so that while we wanted to remain very demanding and keep high standards, we had to be a bit more helpful to our employees in achieving those goals rather than being demanding and setting the bar. And if you didn't jump it, we did away with you. That was a big transformation in maturity on our part and led to a series of initiatives I really think are helping Dell mature into the company it can be in the future.

How did that change your management style?
We did (360-degree) surveys and found out from our direct reports what they liked and didn't like about us. Some of the things we found were that we were pretty harsh. We didn't say "thanks" enough. We didn't give good feedback. So people didn't feel that we were a team--it felt autocratic. So we started to change our style. I changed mine to be much more involved with folks, to ask for feedback, to listen better, and then when I'm wrong, to admit it--which they can never quite get enough of.

But how do you position Dell as more than a balance sheet?
That was part of this realization that our culture needed to be articulated. We know our business model down to the fine nuances, but we didn't know our culture that well. So we did surveys, we tested, we asked people, and we got feedback to conclude what was at the soul of Dell.

The "Soul of Dell" concept is a statement of our beliefs on how we will work together and manage the company. It has now become, after a couple of years, a true basis for how people make decisions. As they make decisions, they always consult the statement, asking, "Is this consistent with the soul of Dell?" Michael and I do the same thing. That has had a pretty dramatic change on how we lead the company, the esprit de corps in the company. They now feel proud to belong to a company that has these standards and these beliefs and is financially performing.

Can you give an example of how this applies to decisions such as coming out with a new product?

We didn't say "thanks" enough. We didn't give good feedback. So people didn't feel that we were a team.

There used to be fairly autocratic decisions that said, "We will do X." Now, with new products, we gather a group of teams together and say, "We're thinking that this would be the right way to go. What do you think? How can we do it? Do we have the bandwidth to do all these things?" So we work with the team, now, more collaboratively to figure out where we go and how soon we'll go and when it's appropriate to launch.

We've launched into the consumer electronics industry. There's a whole range of products we could have launched immediately, but our team was telling us that that's too much--that we'll kind of break if we do too much too fast. So we scaled it back and have been very disciplined on what we launch and how fast we launch. We're making sure that we have people to run things before we launch them. That's been a change. Before, it was: "Get it done."

So, what worries you the most these days?
We still have a business model highly dependant upon the execution of our company every day. It's not a model in which we develop a proprietary widget and sell it without worrying, because no one can catch us on the technology.

We have to do it every single day. So all customers have to have their needs met, products need to be shipped every day, the quality standards need to be met--just a whole series of to-dos. Therefore, it takes a lot of discipline to pull that off. We have to train a lot of people--because we grew this year between 15 percent and 20 percent in revenue, and we've got 41,000 employees worldwide. We're adding new people every day, and none have ever worked at Dell. So they need to come in and understand how to execute every day. That's really hard. It's hard to keep that execution intensity at the level where you don't ever make a mistake; you don't ever upset a customer. And we do. We fail, but not very much--that's the biggest challenge. It's a very intense execution model.

So the important thing is sweating the little details?
Sam Walton (the founder of retailer Wal-Mart Stores) told a story. When asked, "What's the secret to the success of Wal-Mart?" Every time reporters would ask him, he'd tell them something different.

The answers boiled down to the concept of successfully doing 100 things right every day. We're a little bit like that. Wal-Mart just does a lot of things right. While we're not completely similar--because we develop our own products and manufacture our own products as well as sell them--the execution discipline there is very similar. We're not willing to accept defeat or failure. We don't have that in our psyche.

People always compare Dell with Sun, Hewlett-Packard, IBM, Cisco Systems and even Sony. How do you see those competitors, particularly HP?
We worry about them all, whether it's in the enterprise with an IBM or HP or Sun. Whether it's in the mainstream, which would be more HP or even Gateway. Then, if you go around the globe, Legend Group (now Lenovo) in China, Fujitsu Siemens in Germany, Samsung in Korea. Every place you go, we have a competitor in some area of our business we worry a lot about. Now, in the consumer products arena, it's Sony, Samsung, Panasonic--just a whole series of companies, most of which are in Asia. So we're paranoid about everybody.

But I think that the one thing we do that's a little different than others is that we have a very strict financial discipline. We're not going to grow into businesses in which we're not going to make money. We're not going to grow for the sake of growth. As we look at many of our competitors, their financial discipline doesn't appear to be there. They will lose money again and again and again but continue to remain in a business in which they're not proven to be successful--or they'll make money and lose money. It just tells us that they do not quite have the management disciplines--or that they shouldn't be in those businesses--to be successful in the long haul.

It's different for every one of them, but HP in particular has been up and down, up and down, up and down. So in any particular quarter, volume might be fine, but what we've learned is to wait a couple quarters and make sure that we're in a sustainable and profitable market. It's very easy to grow. The trick is to make money while you grow. Many of these companies have not demonstrated that latter trick.

What do you think about on-demand computing?
We're not big advocates of on-demand computing. We think that that's really a return to the past: "Trust us, give us all the keys to the car, and we'll get you there. Just trust us." Generally, we find that for companies that are very inefficient, it might look like a good deal initially. But in the longer term, that's a very costly effort. What we would rather do is make the product simple enough and easy enough so that customers can use it themselves at a low cost. We believe in standards, simplification, ease-of-use. Those models suggest, "You're just too stupid. You can't run it on your own. Give it to us, because we can run it. You can't. And trust us, we'll charge you a fair price."

At the end of the day, you don't know what price they're going to charge you, because you've just given the keys to the car to someone. We think that also flies in the face of the issue of moving to industry standards, where now, today, you can cluster together Intel/Dell servers and create supercomputers, instead of buying a massive IBM mainframe that is going to cost you a fortune for all the software and the service upgrades. We believe that is a little bit of smoke and mirrors, and we're starting to see a lot of customers believe that as well.

We're not going to grow into businesses that we're not going to make money in.

The whole notion of on-demand computing is fundamentally saying, "Give it to us and we'll sell you just what you need." But with this simplification of technology, you can just buy what you need. Just add another server to your rack or another storage array. You don't need to go have someone else outsource that for you. If it gets simple enough, you can do it yourself.

Is consumer electronics the next big thing for Dell? Dell appears to still consider servers, storage and services its primary products.
You got it right. We really have two areas. The No. 1 area is still the enterprise--storage, services and the notion of scale-out architectures, meaning buy just what you need, add incrementally and know you can scale out with your business. Scaling out means instead of buying a great big box and filling it up, you buy one box, add another one and add another one. You can buy $1,000 or $2,000 servers and put them together in a cluster and then just add capacity as you need it.

We have got a secondary, which is now in the consumer electronics world. Because we've become No. 1 in PCs in the United States in the consumer arena, we're finding there's a whole new world of consumer electronics that have been digitized, meaning they're based on the same components that go into computers?and they work with a computer predominantly (and offer) movies, music.

So you've seen us come out with a systematic set of consumer electronics products and you'll see more that will round out that product category and have Dell be a great brand name for the home, with the PC being the heartbeat, or the center, of that digital home.

With all of this going on, do you worry that Dell might miss the next next big thing?
The enterprise is still the big thing, but the digital home on the consumer side is the next big thing. That's a big industry, but then you've got all of the corporate stuff, too. Notebooks and wireless for corporations is a next big thing, so I would say this wireless digitization is the big thing, and it has applications in every business or home.

We don't sit down and cogitate a lot about what could hit us out of the blue. What we do worry about is where are we weakest? Generally, you find if you are weak somewhere, that's where you could be vulnerable to an attack of some sort. Those are the areas where we are putting more capabilities in to build up. We didn't have a printer business, so someone like an HP could make money there and subsidize a weak PC business, which they are doing by the way. So we said, "Well, we better go after the printer business. Have a printer product line so we keep an even playing field."

We don't look so much at what's the bogeyman as we do as where's the profit made. We have a fundamental belief that the businesses will follow the profits. We haven't been too worried about someone that's going to start a new business and catch us with our pants down, because in the digitization era, it's pretty easy to replicate copy and accelerate quickly. Profit pools are a much riskier concern--and who owns the profit pools--than gosh is something going to come out of the blue that we haven't seen so far. That hasn't happened much.

Dell recently redesigned its Web site. Has Dell looked at making it even easier to use?
We're looking at that all the time by talking to customers and by comparing it to the easiest (shopping) Web sites on the Net. The shopping ability (of the site) is really critical to us, so you're going to see every six months or nine months another revolution of that as we learn more. You'll see a constant evolution and flow of that. Our goal is to have the best shopping experience on the Web.

Can Dell do anything to make it easier to view prices on PCs configured with the options most people want on the site, such as a low-, mid- and high-end configuration?
We generally try to put on those--and some of this is for us. We want to control not only what we put on there, but also what makes money. Obviously, there are some configurations that you can put on there--really low-end stuff--the customer might want to buy it, but we don't make any money on it, so we don't want to sell it.

This is where we are migrating to, maybe more of an Amazon type model--what are the best sellers, what do people really want. Customers usually want to know, "What is everybody else buying?" That we're going to move to as well.

What else can you do to improve the online experience with Dell and eliminate things like pricing errors that frustrate customers?
There's safeguards we can put in place before things launch. A couple of those gaffes we've had were flat-out boo-boos of entry that someone didn't check before they started. You say, "Those things shouldn't happen." And you're right, they should not happen. We're redoubling our efforts just to purify those things before they get on to the Web. They were very bad. We hated it and the customers who wanted it were angry, although it looked like a deal that was too good to be true. That tells you usually it is.