Dark Days at Dell

(page 3 of 3)

So why hasn't Michael Dell—clearly a brilliant guy—changed tactics? For starters, say rivals and Dell alums, shifting gears would upset investors who expect hyper-profitability from Dell's hyper-efficiency. And having stuck to his guns in the past, he can't risk letting customers think that "Direct from Dell" is no longer the cheapest, smartest way to go. That message isn't just a slogan, either: Inside Dell, ideas that break from the model are discouraged, say former Dell managers. Notes one: "You had to be very confident and thick-skinned to stay on an issue that wasn't popular. A lot of red flags got waved—but only once."

RELUCTANT RECRUITERS.

Now the cost focus may be making it harder to bring in fresh blood. Three respected headhunters contacted by BusinessWeek said they would rather recruit from Dell than for it because working with the company is so difficult and unprofitable. About two years ago, says one, Dell began an online bidding process to determine which firms would get its recruitment work. "They're trying to extend the process they use for buying memory chips and LCD screens to professional services," says the headhunter.

Dell insiders point to one small example of the pressure to maintain performance. In its efforts to diversify, Dell jumped into televisions back in 2003. TVs, like all electronic products, have to meet regulatory standards limiting how much electromagnetic interference (EMI) they produce. Dell, wanting to do better than meet the government standard, set an EMI level well below the legal limit, say two former Dell employees. Those first models made a splash, and management wanted to keep momentum for the fall 2004 launch of LCD and plasma models. But in testing they didn't meet those higher goals, according to internal memos, copies of which were obtained by BusinessWeek.

Redesigning the TVs to lower emissions would have taken weeks or months, and forced Dell to miss the launch dates. After ordering suppliers to work around the clock and hiring contract engineers to try to fix the problem, Dell lowered its standards, according to the former employees. The memos indicate that some TVs would ship without meeting the company's EMI goal, though they still would meet legal standards.

NEW PRODUCT DUDS.

Other attempts to expand beyond PCs have come up dry. Dell dropped its DJ music player in January after tepid sales. Its stolid brand image doesn't help it in fast-growing consumer markets, and a tightfisted approach to research and development stunts new-product innovation. While Dell sells straight-up TVs, for example, HP just introduced a big-screen TV that can wirelessly grab whatever music, movies, and photos you have on your PC.

As hard as things look, Dell is nowhere near as bad off as it was in 2001, when the tech bubble burst and companies stopped buying. Today, Dell is still adding new employees. Maybe they'll bring some bright ideas with them.

With Gregory Hafkin in New York

Business Exchange

Track and share business topics across the Web.