Outside Shot October 17, 2007, 7:46PM EST

Dell Learns to Listen

The computer maker takes to the blogosphere to repair its tarnished image

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In the age of customers empowered by blogs and social media, Dell has leapt from worst to first.

Start with the worst. In June, 2005, I unwittingly unleashed a blog storm around the computer company. Terminally frustrated with a lemony laptop and torturous service, I vented steam on my blog under the headline: "Dell sucks." That's not quite as juvenile as it sounds, for a Google (GOOG) search on any brand followed by "sucks" reveals the true Consumer Reports for that company's customers. Thousands of frustrated consumers eventually commented on and linked to my blog, saying, "I agree." They were a leading indicator of Dell's problems, which the company—and analysts and reporters covering it—should have heeded. My story ended, I thought, that August when, after returning the Dell and buying a Mac, I blogged an open letter to Michael Dell suggesting his company read blogs, write blogs, ask customers for guidance, and "join the conversation your customers are having without you."

The following April, Dell (DELL) did join that conversation. It dispatched technicians to reach out to complaining bloggers and solve their problems, earning pleasantly surprised buzz in return. That July, Dell started its Direct2Dell blog, where it quickly had to deal with a burning-battery issue and where chief blogger Lionel Menchaca gave the company a frank and credible human voice. Last February, Michael Dell launched IdeaStorm.com, asking customers to tell the company what to do. Dell is following their advice, selling Linux computers and reducing the promotional "bloatware" that clogs machines. Today, Dell even enables customers to rate its products on its site.

Has Dell really gotten the blog religion? I recently visited the company's Round Rock (Tex.) headquarters to find out. Founder Dell, who took back the CEO reins in January, acknowledges its problems—"We screwed up, right?" But then he starts to sound like a blogger himself: "These conversations are going to occur whether you like it or not, O.K.? Well, do you want to be part of that or not? My argument is you absolutely do. You can learn from that. You can improve your reaction time. And you can be a better company by listening and being involved in that conversation."

New Metrics for Success

Dell's worst problem had been that customers were having too many of the wrong conversations with too many service technicians in too many countries. "It was a real mess," confesses Dick Hunter, former head of manufacturing and now head of customer service. Dell's DNA of cost-cutting "got in the way," Hunter says. "In order to become very efficient, I think we became ineffective."

Hunter has increased service spending 35%, cut outsourcing partners from 14 to 6 (and is headed to 3), and retrained staff to take on more problems and responsibility (higher-end techs can scrap their phone scripts; techs in other countries learn empathy). Crucially, Hunter also stopped counting the "handle time" per call that rushed representatives and motivated them to transfer customers so they would be someone else's problem. At Dell's worst, more than 7,000 of the 400,000 customers calling each week suffered transfers more than seven times. Today, the transfer rate has fallen from 45% to 18%. Now Hunter tracks the minutes per resolution of a problem, which runs in the 40s. His favorite acronym mantra (among many) is RI1: resolve in one call. (Apple (AAPL) claims it resolves 90% of problems in one call.) He is also experimenting with outreach e-mails and chatty phone calls to 5,000 selected New Yorkers before problems strike, trying to replace the brother-in-law as their trusted adviser.