Jim Citrin Leadership by Example

This January, Michael Dell, founder and chairman of the company that bears his name, reassumed the duties of CEO after having stepped down from that position in 2005.

After famously starting what would become Dell Inc. in his freshman dorm room at the University of Texas, Michael built the world's largest PC company on the strength of the direct-distribution sales model, selling computers by phone, catalog, and online.

But after training a generation of consumers and information technology (IT) managers to buy functional and fast (if uninspiring) computers at increasingly low prices straight from the company, the direct-business model lost its momentum. Dell gave up its market leadership position as major competitors -- notably Hewlett-Packard -- improved their products and operations, and consumers started going back to stores to change up.

Shaking Up the Industry

But Michael Dell, already an icon in the world of technology and entrepreneurship, wasn't going to come back into the company and take on the difficult challenge of putting the company back on track just to return to the status quo. Instead, he planned to attack the toughest problems in the industry in an attempt to recapture Dell Inc.'s dynamism.

Since taking over, he's rebuilt the senior management team; closed a deal with Wal-Mart to sell Dell computers in its stores; launched a new line of notebook computers, adding a rainbow of colors -- pink, green, red, and yellow -- to the company's signature gray machines; launched a new marketing and advertising campaign; and established an overarching theme for how to serve the corporate marketplace, which still comprises the lion's share of its business.

Investors have responded enthusiastically. Over the past six months, Dell shares are up 20 percent, double those of rival H-P, and dramatically outperforming the 8 percent rise in the S&P 500.

Dell on Dell

I recently spent time with Michael Dell, and talked to him about his most important priorities for the company. Here are some excerpts from our discussion:

Q: What's the greatest single problem with IT today?

A: Simplifying the way companies use information technology. Most of the cost of IT isn't in the hardware any longer -- it's in the maintaining and servicing of IT. Harsh as it sounds, the industry runs its business by making it complicated for customers.

The result of this complexity is that most companies spend 70 percent or more of their IT budgets maintaining their IT systems, leaving little money to invest in creating ways for IT to help grow and expand their businesses. Companies are caught up in this complexity trap that the industry has forced upon them.

Q: What's Dell doing about this?

A: In the last 23 years, Dell reinvented the way businesses and consumers bought hardware. We successfully lowered the cost for our customers each and every year.

The challenge we've taken on today -- and don't get me wrong, we have some ideas, but we know we don't have all the answers -- is how do we take all the [spending] that shows up in the form of IT services and help customers redeploy that in productive new ways by making things simpler.

For example, we're introducing some products that combine product and service and others that dramatically reduce the time required to set up and start producing results.

Customer-Directed Solutions

Q: Where did the key insight come from?

A: When we talk to customers and ask them, "What's your biggest challenge?" they invariably say that it's the complexity of IT -- getting all their stuff to work together.

The unfortunate reality is that there are a bunch of companies in the industry that have thrived on making products so complicated that you need an army of technicians and consultants to make them work. A lot of customers aren't very happy about this.

Q: Why is Dell positioned to attack this problem?

A: We're all about taking the supply chain and process expertise that's core to Dell's products and applying those insights into deploying, using, and benefiting from IT. Our fundamental approach is to ask, "How do we take costs out of the system for our customers?" versus "How do we maximize revenues through increasing our take in a billable-hours model?"

Q: Are customers buying in?

A: Yes. For example, Boeing has given Dell a $1 billion contract to take our insights in process simplification that have come from deploying tens of millions of computers all over the world and applying them to Boeing's business.

It makes sense if you think about it this way. If your business is making airplanes, or for that matter developing pharmaceuticals or running banks, you've probably not dedicated yourself to becoming the best in the world at IT. We have, and we can help you get there.

A Tolerance for Risk

Q: How are you guiding the organization to adapt?

A: Through a lot of communication and discussion about how the company needs to evolve. By how we're directing our investment. And most importantly through bringing back some of the tolerance for risk that was the hallmark of this company as it grew from $5 billion to $60 billion in annual revenues.

Internally, we've talked about risk-taking and determined that it needs to be an unambiguous attribute in our leadership development, and we need to build it into our plans explicitly. In the recent past, for example, if you had five goals in your plan, you were expected to go five out of five.

Today, we would prefer that you go for eight out of ten. We want you to put some things in your plan that you're not at all sure that you can achieve. We're making it clear that we want people to experiment and expand things. And this is very motivating for our people.

Q: How are you working differently today relative to five years ago?

A: The company is certainly larger than it was five years ago. And we now have a much stronger team of general managers. This changes the way I'm able to manage and operate, allowing me to be more strategic on the one hand, and drive performance more forcefully on the other.

Disclosure: Jim Citrin's firm, Spencer Stuart, has done executive recruiting work for Dell Inc. in the past year.