How Dell sunk and HP righted the ship

I am a former employee of an HP Gold Certified Reseller, and I saw the changeover when Fiorina left and Hurd came in. I can’t comment as much on the restructuring, since we were a virtual outsider, but I can comment firsthand on the differences in the sales approach.

Fiorina saw Dell as HP’s biggest competitor, and her response was to attempt to commoditize both the PC and PC-server market in order to compete head-to-head with Dell on price. This is from an industry-perspective a good strategy, but with one fatal flaw: HP was going head to head with Dell’s greatest strength and HP’s greatest weakness: the supply chain and supply chain management. Fiorina also had no vision or understanding of the enterprise server and storage market; which are HP’s greatest strengths. She focused on selling cameras and ink, mainly.

When Hurd came in, he realized that it was foolish to compete against Dell’s biggest strength, and instead focused on its biggest weakness: its value proposition. Most people in the server industry (and PC to an extent) that HP sells a higher quality product with more redundancy, higher life expectancy, and better overall value. However, Hurd pushed the sales and marketing teams to FOCUS on this as a strategic selling point. Dell’s servers were known to set off fire alarms in datacenters; HP does not. HP is a leader in R&D, including server virtualization and storage virtualization and management software technology. This strategic focus put extreme pressure on Dell’s greatest weakness; its lack of R&D expertise and position as an also-ran in pushing the technology envelope. While leveraging HP’s greatest strength, it also relieved pressure on the competitive price points that HP realistically could not compete with, given Dell’s propensity to lose money on the front end to invest strategically in a long-term account– a strategy HP has never been comfortable with.

In summary, Mark Hurd, coming from a technology sales background, understands HP’s technology and its strengths and is able to produce winning market strategy to capitalize on them. Fiorina, on the other hand, had no conception of what HP’s strengths were, and as a result, attempted to treat HP’s core value propositions as mere commodities– creating no separation from Dell in the market. To say that Fiorina had anything to do with HP’s turnaround from a marketing, strategic vision, or sales perspective is an outsider’s view who has absolutely no understanding of what was really going on under her watch.

What do you expect from manufacturing in China?

Many folks have commented about the failure of the Compaq/HP merger. Actually, HP did an excellent job of killing that part of their competition. With the Compaq competition gone, they can’t help but do better.

HP and Compaq were both struggling in the hardware space. What Mark was able to do is get costs under control. I think Carly was trying but Mark was more experienced.

Also, the AMD boom certainly helped HP and it can’t be ignored. It was so big in fact, Dell HAD to start selling them, breaking their longtime pact with Intel. Consider this, AMD at the height, had something like 26% market share…DELL had none of that.

Both companies outsource their support so that’s a non-issue.

- Detiorating quality
- Resistance to using AMD
- Poor customer support
- No innovation in design
What do you expect is going to happen?

Hi, Lisa: Lashinsky’s editor here. We did discuss sank vs. sunk. I may be reading the dictionary wrong, but as best I can tell sank and sunk are both legitimate past tense versions of the verb “to sink”.

Lashinsky’s grammar–or some copyeditor’s–sank in that headline.

After Dell struggled through a liquidity crisis in the early 90s, it established a mantra of “liquidity, profitability, and growth”, meaning that the company would never emphasize one at the expense of the others. Mr. Lashinsky’s excellent characterization of Dell’s $60b and $80b revenue goals as “arbitrary” underscores the fact that in rabidly pursuing growth, Dell undermined its own financial model by sacrificing profitability and reducing liquidity. That pressure to grow revenue was caused by the arrogance of Michael Dell and Kevin Rollins, both of whom refused to acknowledge that Dell’s hypergrowth was unsustainable and that the company should be evaluated as a value stock rather than a growth stock.

I will agree with both of the above statements which allude to the fact that part of the reason for Dell’s earning’s slump was directly resulted from poor customer service. I have experienced first-hand, both personally and for my business account, Dell’s lack of seeming to care and help the consumer after the purchase. Many business colleagues of mine have directly switched computer hardware from Dell because of their customer service experience alone.

Perhaps, Dell is not doing that bad and credit should be given to HP as well. I do agree that Carly deserves credit, but conservative HP needed Mark. No second thoughts. Instead of worrying about competition, when a company focus on addressing the customer needs, growth is automatic. HP’s turnaround shows that there is enough opportunity to grab. Well, not just Dell, I am sure there are couple of others who are getting bit worried of HP’s ammazing turnaround.

The reason Dell has fallen so badly is the out sourcing their cust tech support, I was a phone tech support rep and lost my job to out sourcing. Before I lost my job I was told time and time again by the customer they kept calling back till they got someone on the line they could understand. Michael Dell should have thought about the massive fall out of this type of maneuver..

somemore reasons
1. HP Laptop designs(smooth finish, new trend design, brightview screens) have been better since 3 yrs
2.new features like paying cd without starting computer gave good publicity
3.being first one to deliver laptops with AMD 64 bit processor

All Credit goes to Mark

HP also has offshore support, support has nothing to do with HP gaining market share. If Dell had been in retail, it would have always maintained its lead.

The rise and fall of Dell is a textbook case in economics. Competiton from HP drove Dell to fluster. Dell in its efforts to keep up made a series of decisons that will haunt them forever. Decision #1 was for MD to step aside and give the reigns to someone who did not understand his self-established model. #2 outsourcing Customer Service to India was not a great idea as many have pointed out already. #3 Allowing HP to gain as much marketshare as they did thru their innovation and design without assessing equalizing changes to Dells product offering has probably been a thorn in the side for MD and his engineering staff. #4 the purchase of Alien Computers has not really panned out for Dell as anticipated. You’d think they would have learned from HP on that one.

Dell’s problems have nothing to do with outsourcing. Their refusal to sell with AMD chips, their designs were not sleek - they just did not keep track of market trends. Customers are willing to pay premium for sleek designs like ipods and Dell did not keep up. Their laptops were bulky too. Once HP caught up on quality, HP capitalized on the advantage of selling via retail stores

Off Shore support — Dell did it so does HP. The results are the same - more customers find it extremely frustrating and people find the idea does not make a lot of “customer-sense” but it does make a lot of dollars and sense.. The support is cheap and the people that do the support work hard, but most of the time by the arrival of someone on the other end the phone that can really help you — you are so frustated you would kill to hear a voice without an Indian/Philippians/or Pakistani accent.

Dell loses market share for one reason- their product has dropped in quality. I bought a Dell 5 years ago at a good price and it ran great. Bought a new one three months ago and it’s been problematic and despite supposedly higher support levels, not one issue taken to Dell has been resolved. Overly ambitious financial targets and CEO arrogance are all well and good but the simple truth is - sell a quality product at a fair price and you will gain market share; don’t and you will lost it.

Let this be a case-study and a lesson learned for all other high-tech companies who are heavily relying offshore to reduce cost. Pay now (employees’ wages in the US) or pay later (lost of business and revenue).
Learn from DELL’s mistake and avoid it.

Just look at a Dell computer and then look at HP. Dell looks cheap, and HP looks professional.

Cutting cost is ok, but not to sacrifice cutting edge.

Lately, HP has started to cut corners as well. The new design I personally do not like.

He blew it? He’s worth 10 billion? or is it 15 billion? I lose track of those billions of dollars. I wish I could blow it that bad.

One of the chief reasons HP now looks so good is it was doing so poorly after the Compaq merger. The merger cost $24 billion in 2002 and earnings are just now getting back to where they were 5 years ago, so the merger was an obvious financial failure. The 60,000 people laid off since the merger (out of 150,000 employees) is a really big reason why the earnings are almost back to where they were 5 years ago. But HP is still not earning what it was earning before the “Carly years” (1999-2005). So don’t write Dell’s epitaph or throw bouquets at HP. HP only looks well cuz it was so sick for so long from the merger indigestion!

Students at my daughter’s college steered clear of Dell because of shoddy initial quality (loose keys, dead battery, and such). They thought IBM was expensive, and HP was a good value.

I think Dell’s quality might have suffered, as well as their support, which is deplorable unless you’re fortunate enough to get a higher-lever IT person to take on your problem. Also, Dell’s documentation is very poor.

I’ve owned Dells for years, but when a laptop I purchased in August 2005 needed a new motherboard and memory (both!) a year and a half later, I have to wonder how these things are thrown together.

Mr. Dell never left the company. They were two in a box even after Kevin was promoted. The fact is that Dell lost it’s poise. You would walk around the floor and people couldn’t care less about selling. The reason was also because quota setting, or COMP Control, was in full effect. In other words, you couldn’t make the same amount of money you made the year before. And for a company that prides itself because of it’s salesforce, to mess with people’s COMP is asking for trouble. So much so that they started loosing the talent, starting at the top, to other companies. These people are now working at HP and helping them drive the incredible growth you currently see. I know all that because I was there for five years and experienced it myself.

You can look at how MD carries himself and see a correlation between separating himself from his people and the failure of the company. Through 2000, employees literally passed (or were passed) by MD in his car that he was driving on the way to the Round Rock campus. Now there is one covered parking spot in Round Rock campus that houses his armored suburban with driver. Talk to people at the Georgetown airport and this treatment goes up another level when it comes to his air travel. Bill Gates doesn’t have near the entourage when he flies in.

Most of HP support is offshore too.

One of the major reasons why I feel that Dell has lost it’s edge is because of their support. Their support was top notch when the client felt that the support person cared for the customer.

Unfortunatly, that “Dell has great service” has went the way of the floppy disk.

Having a good product is crusial. Good service makes a good product- Great.

I think Dells downfall was their “We are better than anyone else and our way is the only way” approach to things. Everyone can do better and adapting to the business conditions is a must. HP has looked at their issues and tacked them. Not always doing it the best way the first time but they have been willing to try again when the solution wasn’t quite right. We will see if Dell can be as humble as the HP and others have been!

Times changed, the computer industry changed, and Dell didn’t change.

When Dell was at it’s peak in the late 90’s, it was the leader at making what was then a premium product – the desktop computer – more affordable. People and companies bought Dell machines in droves.

Ironically, what made Dell so succesful earlier now makes Dell weak. Now that computers are a commodity, the value is added at the point of sale. Although computers are a commodity, they are a COMPLEX commodity. The advice, support and ability to touch a computer are offered in retail stores – where Dells are no where to be seen.

I do agree with the author that for buying a laptop the retail experience, and the ability to see live, touch and feel a laptop is more important than a desktop. With a desktop your “touch points” are mainly display, keyboard and mouse - many of which you may reuse.

With a laptop you have many more touch-points, and the weight and the display etc..

So the massive shift to laptop buying has favored the company with a presence in retail.

Andrew

I agree. The support sucks. The amount of hoops one needs to jump through just to get a battery replaced, or a hard drive fixed is unbelievable. That’s assuming the support technician even cares and doesn’t blow you off to someone else.

About the battery, saw a friend who had to resort to “text chatting” support because of clogged voice lines and they had to do system stuff I as a programmer wouldn’t want to check.

Dell, fix your support. Make it easier for the customer. Trust them.

The main reason for Dell’s problem lie in the departure of Michael Dell and the shift to out sourcing their services and technical support. Customer service sufferd and customers deserted the company.

Dells problem was the cockiness of Michael Dell. He started pooh poohing HP a few yrs back — extremely arrogant in his attitude. I sold my Dell shortly thereafter and never looked back. If MD can truly lose that arrogance he stands a good chance of turning Dell around — but not to top dog. He had his shot and blew it!

In my opinion, Dell’s slowdown was driven by their offshore support, which is horrible.