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  • Saving Dell

    Dell computers has reportedly gone private. It is an interesting turn of events at Dell, once the darling of Wall Street. In a larger sense, this move to go private could be a good thing for Dell’s prospects.

    Dell pioneered a business model innovation in the late 80s by selling computers over the phone and then the Internet thereby disrupting existing computer businesses. This focus on a different business model and going for value segments with customized configurations enabled Dell to spend very low amounts on R&D. Dell’s process innovations and great execution capabilities ensured that customers continue to get unprecedented value for price paid. While this strategy was terrific during the booming periods in the computer business, lack of investment in technological capabilities has hurt Dell from being a viable player in the mobile devices market. 

    Dell’s foray in the computer market suggests that investments in radical or disruptive innovations are mandatory for companies in mature industries. Structural decline in the existing industry (for example, consumers waiting longer to replace personal computers) and / or changing consumer tastes (for example, more emphasis on mobile devices) bring forth different value propositions to the forefront. Lack of innovation investments can make companies extremely vulnerable in these cases.

    So is Dell’s switch to being private a good thing? In public companies, short-term pressures force firms to be mindful of the bottom line numbers. When Dell becomes private, this pressure is reduced and Dell can take its time assessing various options including divesting the personal computer business or creating a coherent cloud strategy. They can experiment, iterate and learn to grow; all of these can be done away from the prying eyes of the stock market. In a sense, moving private may be liberating for Dell. If they don’t rely on investors for resources, then they can concentrate on their customer needs like they once did and build a great company once again.

    _____________________
    Raj Echambadi
    Professor of Business Administration and
    James F. Towey Faculty Fellow and
    Executive MBA Academic Director