Dell's Executive Search

Chairman Michael Dell has launched an effort to recruit high-ranking outsiders to re-energize the struggling PC maker

by Louise Lee and Peter Burrows

Michael Dell has begun an effort to reinvigorate the upper management ranks of Dell (DELL) as part of a larger effort to create a "Dell 2.0" that is once again an industry leader.

BusinessWeek.com has learned that the chairman and founder of Dell is personally overseeing efforts to find a new chief of its computer services arm. When that post is filled, Dell plans to recruit other high-ranking industry executives to address trouble spots at the company, which many analysts say has become hidebound to the business strategies that made it an industry icon until a year ago.

A key question raised by the executive searches is what this means for the tenure of Chief Executive Kevin Rollins. Wall Street analysts have speculated off and on for months that the company may need a change in the CEO spot if Rollins doesn't fix the company quickly. Dell has missed its financial target in four of the past five quarters.

Picking His Team

Already, Hewlett-Packard (HPQ) has taken Dell's market-share lead (see BusinessWeek.com, 8/24/06, "Dark Days at Dell"), and Rollins is under the gun to meet Wall Street's modest expectations when the company announces its third-quarter financials on Nov. 16. Analysts expect Dell to post a 3% increase in revenue and a 3.8% decline in net income.

By picking future leaders of the company, Dell—who still owns 10% of the company—would be creating the team of his choosing, regardless of whether Rollins survives. Many tech industry insiders believe that looks increasingly unlikely. Says one high-ranking executive from a Dell rival: "It has been clear for months that Rollins had lost external support, but my sense is that he has now lost internal support as well. Perhaps a CEO can lose one of the two temporarily, but never both."

A Dell spokesman says that the company is not seeking to replace Rollins. "Michael and Kevin have been involved in business decisions, in accessing talent, in interviewing talent, together," says spokesman Bob Pearson. "There's nothing new here. There's no change."

Running Out of Steam

Pearson declined to comment in any detail on attempts to fill other senior positions at Dell. "We're always looking to grow teams at all levels. We're always interested in looking at top talent," he says.

Sources say Dell's recruiting efforts represent more than just routine hiring efforts. Instead, Dell is contemplating major changes for the first time at a company where the famous "Direct from Dell" business model seems to have run out of steam after fueling 20 years of hypergrowth. Until now, the company has prospered by using its super-efficient manufacturing system and Net-based sales operation to sell garden-variety gear far more profitably than its rivals.

But with hardware sales slowing and rivals improving their games, Dell can't expect to grow much faster than the computer market or satisfy Wall Street's desire for top-line growth. According to several job candidates, Dell intends to expand its horizons beyond its bread-and-butter business, selling basic PCs and storage gear to corporations. Rather than remaining primarily a basic box maker, Dell needs to become more a "solutions" company that can mesh various technologies together to solve particular problems, like IBM.

String of High-Level Hires

That's part of the reason Dell is searching for a new services chief. The $4.9 billion-a-year unit has been one of the company's bright spots. It grew 21%, vs. 5% growth for the company overall, for the fiscal second quarter ended Aug. 4. But sources say Dell wants to hit the gas pedal in this area, accelerating efforts to move beyond doing mostly basic machine repair to compete in the larger, lucrative business of helping companies manage their computer operations.