In Depth October 15, 2009, 5:00PM EST

Dell's Extreme Makeover

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Dell's marching orders were simple: Create a profitable consumer business with designs that rival Apple's or HP's.

Garriques took a step back before moving forward. He killed a line of less-than-flashy consumer PCs Dell planned to introduce, called Mantra, and halted plans to copy Apple by opening more than a dozen Dell-owned stores. "The first order of business was to slow Dell's go, go, go mindset and stop to think about what we were trying to do," he says.

Then Garriques went hunting for a heavy-hitter to go up against Apple and HP. In March 2007, he approached Ed Boyd, a 42-year-old designer at Nike (NKE). Boyd had worked on sunglasses and running shoes but didn't have experience in computers. Garriques told Boyd he would have the opportunity to make design matter at Dell; Boyd jumped at the chance. "Here was a great company founded on the notion of customizing products and shipping them to people, yet it was missing the fact that people want to convey a sense of personal style with their products, too," Boyd says.

The changes sent a clear signal to Dell employees. The consumer business, long considered a professional dead end, was going to be a priority. What's more, Boyd launched experiments that showed it could be an exciting place to work. At one point, Boyd hatched a plan for customers to pay an extra $75 to get certain designs on laptops, which so unsettled Dell's manufacturing team that they balked. Boyd appealed directly to Dell, who green-lighted the move.

Later that year, Dell broke for good with its tradition of selling only direct to customers. It announced plans to sell its machines at Wal-Mart (WMT), in what the CEO called a "first step" in using retail stores to reach customers.

COMPLETE RESTRUCTURING

Even more far-reaching changes were in store for 2008. Dell knew he wanted to change the company's management culture, to get executives to jump on new business opportunities and take more risks, but he wasn't sure how to go about it. He turned to Brian Gladden, a 20-year veteran of GE, the bastion of modern management. In March that year, he asked Gladden to fly to Texas to talk about a job as chief financial officer overseeing day-to-day operations. Dell was in such a rush he didn't even tell Gladden he had the job before slapping an inch-thick sheaf of confidential documents on the table. "I said to myself, there's a lot of inside information here that I really shouldn't see," Gladden says. "But he was like this mad scientist saying, 'Brian, you can help with this, and you can help with this.' "

Gladden quickly slipped into an easy rapport with Dell. But the lack of structure at the massive company surprised him. "The processes, the tools, the culture here didn't support a $60 billion business," Gladden says.

He dove into figuring out how to change that, in consultation with Dell. After months of study, they became convinced the company had to be restructured around customers. It was a radical move: Most tech companies organize around the products they sell, such as computers or software. But Gladden and Dell thought that by focusing outward they could give top managers more responsibility and more flexibility to respond to clients. On Dec. 31, Dell said it would restructure into four customer groupings: consumers, corporations, small and midsize businesses, and governments and educational buyers.

With the global economy in crisis, almost no one took notice. Dell's stock, which had topped $25 the previous August, closed the year at $10.24. It kept falling with the market, and dropped below $8 in February, off 70% in five months.

Still, in those dark days, Dell began to gain confidence his company finally had a solid foundation for the future. He saw his executive team quickly take to the new management approach, which was modeled after GE's. Leaders of each division are responsible for meeting financial targets and have broad authority to figure out how to reach them.