A Case Study of Change Management from External Forces: Dell Computers

Two things characterize the business environment today; they are competition and change. Therefore, today’s environment puts a premium on effective leadership. In fast- changing, team- oriented environment, managers need effective leadership skills so they can motivate knowledge workers, build self-managing teams, and lead transformation.

In 1994, Dell was a struggling, the company ordered its components in advance and manufactured to inventory. Change was needed and was triggered by factors outside the company. The new business model that Dell implemented converted its operations to a build-to-order process, eliminated its inventories through a just-in-time system, and sold its products directly to consumers putting these new supply chain capabilities at the core of its strategy. Dell developed a supply chain mastery that went far beyond the simple pursuit of efficiency and asset productivity. However, the company had to make a series of very difficult strategic tradeoffs to bring its functional activities into alignment with its new business model. (Copacino, 1999).

James Burns who wrote a book about called “Leadership” says changes like these require the guidance of transformational leaders who bring out “change, innovation, and entrepreneurship.” They are responsible for leading a corporate transformation that recognizes the need for revitalization, creates a new vision, and institutionalizes change”. Transformational leaders inspire their followers to want to make the change and attempt to raise the needs of followers by promoting dramatic change in individuals, groups and organizations. Such leaders also encourage and obtain performance beyond expectation by formulating visions and then inspiring subordinates to pursue them. They focus on accomplishing the task at hand and maintaining good working relationship. It is common for the transformational leader to passionately communicate a future idealistic organization that can be shared. He or she uses visionary explanations to illustrate what the employee work group can accomplish in order to motivate the employees to achieve these organizational aims. Therefore, a transformational leader could make the company more successful by valuing its associates. One such example is Dell CEO Michael Dell who did it installing one of the world’s most sophisticated direct- sales operations; eliminating resellers’ markups and the need for large inventories, and keeping a viselike grip on cost.

Dell’s mission statement is “be the most successful computer company in the world at delivering the customer service experience in markets we serve.” With their markets changing so fast Chairman Michael Dell had to constantly focus his company’s and employees’ attention on the company’s mission. He has been quoted saying that looking for value shifts in the company’s mission company’s customer base is the most important leadership responsibility. In other words, Michael Dell had to constantly monitor what Dell’s customers want in terms of value. He had to stay in close contact with customers, and make sure that everything Dell does, Dell is addressing the customer needs.

How do you build such a company? For Dell computers, the answer meant using technology and information to blur the traditional boundaries in the value chain among suppliers, manufacturers, and the end users; it basically meant that there are no intermediaries like wholesalers or retailers to come between Dell and its customers and suppliers; thus, Dell can be much faster-moving company that it might otherwise be. For most computer companies, the manufacturing process is like a relay race; components come in from suppliers, these components are assembled into computers, and the computers are then handed off to be distributed through wholesalers and retailers to the ultimate customers. Dell’s system changed all that. Dell interacts with and sells to customers directly, so it eliminates the activities of the wholesalers and retailers in the traditional distribution chain.

The current economical crises are having a tremendous impact on how companies do business. Even one of the world’s “biggest” computer companies, like Dell has experienced this recession and had to make critical and dangerous decisions of lowering down the cost of expenses and tightening their belts. Today, Dell Inc. is cutting costs to weather a soft PC sales market, and even founder and CEO Michael Dell is feeling the pinch. The company disclosed proxy information that showed his total compensation declined by more than $200,000 in the latest fiscal year, to $2.1 million. The decline came mainly in the value of option awards, which were higher the previous year. Michael Dell received $931,731 in salary, stock options the company valued at $16,766 and personal security services valued at $1.1 million. Because Dell Inc.’s bonuses for senior executives are tied to company performance, Michael Dell did not receive a bonus in the latest year, just as he has not the past three years. (Ladendorf, 2009).

Meanwhile, to cut operational costs and to save funds, the company has shut down factories and outsourced hardware manufacturing. Also, the company has laid off 1,900 employees and shifted its European PC manufacturing operation from Ireland to Poland. Like many companies, Dell has also been looking down the road and plans on spending $70 billion on computer parts from China between 2007-2009. That’s a lot of cash, but this could also save the company in a recession when people do not have much money and want much cheaper computers. Dell also cut 10% in global jobs last year, and announced further job cuts at its Ireland sites earlier this year. But what I found most interesting is the acquisition of David Johnson the former top IBM Corp. in early June. Although IBM still is pursuing a lawsuit against Johnson, saying his move to Dell Inc. violated a noncompet agreement; recent court rulings have freed him to take an active role guiding Dell’s acquisition strategies. Johnson’s hiring could be a signal that Dell intends to buy other companies, a growth strategy it has used less often than many of its industry peers. CEO Michael Dell also is expected to talk about the company’s growth prospects, both from existing operations and from any companies that it might buy.

Analysts are split on whether Dell will try to do big, “transformational” deals that would change the makeup of the company, or smaller, less risky acquisitions. A.M. “Toni” Sacconaghi with Bernstein Research said he expects Dell to make smaller deals as it tries to bolster its corporate-oriented service and product offerings. He quoted Brian Gladden, Dell’s chief financial officer, as saying the company is unlikely to do big deals and that it viewed its $1.4 billion acquisition of EqualLogic last year as “the sweet spot.” EqualLogic, which sells data storage systems, is Dell’s largest acquisition to date. Sacconaghi concluded that for Dell, smaller deals make sense because no obvious “transformational targets” exist, the odds of successful integration of the acquired company are better with smaller deals, and large acquisitions could distract top executives from the their two-year campaign to turn the company around integration of the acquired company are better with smaller deals, and large acquisitions could distract top executives from the their two-year campaign to turn the company around. (Ladendorf, 2009).

One Wall Street analysts who follows Dell Inc. say they’ve been impressed by the company’s ability to cut costs and generate cash flow in the face of a steep industry downturn. “Forward-looking businesses are using IT to target unnecessary cost and complexity,” Dell said. Dell Inc. will continue to tap into IT for innovation and efficiency, and doing so now Dell Inc. will set itself apart as the global economy inevitably improves Dell identified three keys to smart IT:

Increased standardization and virtualization;

Better resource management that reduces IT maintenance;

Greener computing that not only reduces carbon emissions but saves on energy costs.

Dell itself has reaped the benefits of such IT improvements: facility improvements and a global power-management initiative that switches off computers when not in use is saving the company about $3 million a year and reducing its carbon footprint by some 20,000 tones. (Greenbang, 2009).

Today the Dell machine is firing on all cylinders. In addition to being a PC juggernaut, Dell is moving fast into the $10 billion network server business. In notebook PCs, Dell has become the sixth-largest seller in the $40 billion market. Now, Dell is working on ways to combine its PC knowhow with better networking service. Through a partnership with network equipment maker 3Com Corp., Dell is trying to slash the 60 to 90 days required to test computer and networking configurations to just two weeks. Instead of each running independent tests of the same gear, Dell will deliver to 3Com each new computer so that 3Com can test compatibility with its networking devices (Business week).

Leading and organizational change can be treacherous; there are no “silver bullets’ or single- shot method of changing organizations successfully. (Ashford University). Single shot rarely hit a challenging target. Usually, many issues need simultaneous attention and any single, small change will be absorbed by the prevailing culture and disappear the change may require the cooperation of dozens of managers and resistance may be considerable. However, whether the required change is simple or complex, technological or structural or the basic organizational change process remains basically the same…executives must ask themselves three basic questions. What are the forces acting upon them? What should we change? And how should we change it?

According to Hesselbein and Cohen (1999), organizations that take the time to teach leadership are far ahead of the competition. By becoming familiar with the transformational leadership approach and combining the four I’s, (idealized influence, inspirational motivation, intellectual stimulation, and individual consideration), managers should be able to handle the unforeseen change more effectively. Transformational leadership strategy must also make sense in terms of the business overall competitive strategy. Today, leaders have to be able to transform their company fast.