Dissecting Dell

MBA lecturers - and their students - love to pull big companies apart, especially so when there's joy to behold in someone's success - or failure. So we see classic case studies such as Kodak vs Polaroid or IBM vs Microsoft. Now I have to say it's fun to do this - it's like an archaeological dig where you stumble over some vital clue to why Carthage fell or Rome triumphed. But it's always post-hoc and it's almost never black and white. We think we learn something in these forensic examinations but how usefully can we employ what we supposedly learn?

If I'm ever in the instant photo business I'll make a point of reading up on the Kodak/Polaroid battle for example, but it's salient to remember that in the longer run another technology - the electronic optical sensor - developed alongside film and quietly got better, smaller, faster and cheaper until one day it overwhelmed the old film-based market and offered the sort of instant image capture we really wanted. A classic case of Porters' forces at work, where no-one was seriously looking sideways at threats from outside. As in outside the film and camera business. Hmm, maybe that's worth knowing.

Another threat comes from inside. As in inside the personal computer assembly business, for example. It's a classic product life cycle, isn't it? Early years lots of ideas, proliferation and innovation. Lots of home built stuff and tiny brands. Then 2 or 3 of those tiny companies shine and look to get an advantage (say Apple and Atari, but there were several more, including Visual) before a big player wakes up and claims turf using massive resources (say IBM). Suddenly the market is certified as real and the dominator creates a standard (which is later leveraged by Microsoft to great effect).

We then see profits made and competitors start up to leverage IBM's design (read Compaq and its ilk). Of course technology improves, production techniques improve and the PC assemblers keep leveraging lower and lower component prices so that the only ways to make money are volume (read Dell and similar) or niche (read Apple and the specialist gaming guys). So the big guy leaves the room (IBM) as it is writ large in MBA strategy courses - if you can't be 1 or 2 in the market or if you aren't growing you should get out.

So (in this highly simplified analysis) you end up mid-cycle with a myriad of niche players and the ever-collapsing and consolidating volume guys (Compaq gobbles Digital, HP eats them both). And what happens when the highly touted cost-reduced assembler stops growing? They look to diversify. So is that a good idea, to leverage your core competency (in Dell's case efficient assembly and distribution) across other products? Could be. But what if your competitors nibble at the sides of your core business as you look sideways? What if you lose focus? What if the big guy actually has new technology up their sleeves and is planning to come back and eat your market in a new way (for example IBM with pervasive, self-healing, autonomic grid computing)?

This could go is so many different directions. For example the Gillette scenario - keep reinventing your product so you extend the product life. The horse-drawn carriage maker scenario - your product becomes nearly extinct, replaced by a similar but better product. The super-customised-niche-in-volume scenario (which is where Toyota sees the car industry going).

So where next for Dell? Read this networkworld report on how Dell diversified into a related field, got the product and the pricing right but still floundered - the suggestion being that the product was great but it wasn't the solution the market wanted. Ah, the total package - product and solution. So how does a single-play volume guy survive the solution war? Is this another lesson for all of us?