Leadership Practice Concepts: Dell and its Strategy

The essay investigates leadership practice concepts, Dell and its strategy. The paper tries to explore key moments of Dell’s history, a description of Dell’s leadership and management nowadays, Dell’s primary stakeholders, mission and vision statement, an excerpt or description of Dell’s code of ethics, the challenge and crisis of 2000, faced by the leadership of the organization, errors of the leadership of Dell and future perspectives that the leadership of the company strategically plan. The essay puts forward a thesis that the reason for the crisis of the company was the wrong leadership strategy, and only its reform enabled the organization to meet that challenge. The paper confirms the thesis.

Leadership as a system of relations between the leader and their followers is aimed at strategic management, which requires a concentration of actions of the head on the achievement of business goals and alignment of all parts of the system. However, the reason for defining an acute need of companies for strategic leadership is the weak efficiency of personnel management in the amplification of staff shortages. In most organizations, management is not able to create a productive system of governance. So often, companies are faced with crises and challenges. In fact, they occur only because of the wrong leadership strategy. Thus, the thesis of this essay is as follows: the reason for the crisis of Dell in 2000 was a wrong leadership strategy, and only its reform enabled the organization to meet that challenge.

Key Moments of Dell’s History

Company history contains many important points:

1984 year. Michael Dell at the age of 19 founded the company PCs Limited with a registered capital of 1000 dollars and a revolutionary vision for the technology industry.

1985 year. The company produced its first computer “Turbo PC.”

1992 year. Dell was firstly included in the Fortune 500, and Michael Dell became the youngest CEO of the company.

1996 year. Site “Dell.com” was created and after six months began to generate revenue of 1 million dollars a day.

2001 year. Dell ranked first place among the suppliers of computer systems in the world.

2005 year. Dell topped the list of America’s Most Admired Companies.

2011 was one of the most successful years for Dell in terms of achieving profit.

From the beginning of 2012, Dell was acknowledged as IT-company. Corporation Dell, continuing to focus on its strategic directions towards end-user computing, enterprise solutions, software, and services, expanded its product portfolio through the absorption of such companies as AppAssure, Clarity, SonicWALL, Wyse, Perot Systems, Quest, Secure Works, Gale Technologies, Force 10 Networks, and others.

September 13, 2013. Dell has announced that, according to the results of the voting, the shareholders approved the Dell proposal of purchase company in partnership with IT investments Silver Lake Partners. The total purchase price was approximately $ 24.9 billion dollars.

A Description of Dell’s Leadership and Management Nowadays

This company has a range of distinctive features.

1. Build according to order. Dell has destroyed the concept of “average customer.” The company constructs computers and sells them directly to consumers, thereby reducing costs and refusing intermediaries.
2. Inventory Management reduced them to a minimum. This is a direct consequence of the approach “Construction – Sale” to the production of PC.
3. Cooperation with suppliers. The high quality of the final product depends on the quality of components, as well as their rapid delivery to the site of assembly.
4. Co-operation as a principle of relations with employees. Hiring creative people to generate ideas and the creation of a working environment for the implementation of these ideas are important elements of the leadership strategy of Dell.
5. Innovative Marketing. Dell was the first company that started selling computers over the phone. Nowadays a firm earns 14 million a day with sales via the Internet.
6. Focus on buyers. Relationships with customers are part of the business process.
7. Innovation or extinction. Gradual and systematic improvement of each of the manufactured products reduces the risk of falling profits and allows having benefit from all the technological innovations that have come on the market.
8. Global action. Young Michael Dell started doing business abroad ten years before it was engaged by most of its larger competitors.
9. Good should not be changed. The company maintains its course. If the formula works, it does not look for a better option.

Dell’s Primary Stakeholders, Mission and Vision Statement

In 2013 Michael Dell and private equity firm Silver Lake Partners bought assets of Dell from its public shareholders to accelerate the implementation of the strategy for the development of solutions and focus on innovation and long-term investments with the maximum return from customers. The idea of repurchase shares from Dell’s market has arisen in connection with the reduction of the global PC market, which adversely affected the company’s financial position and led to a drop in its stock price. The deal was unanimously approved by the Board of Directors at the beginning of the year. The buyback was held with 13.65 dollars per share, and the deal’s value was 24.4 billion dollars. Approximately 15 billion dollars for its financing was allocated by four of the lending banks: Bank of America Merrill Lynch, Barclays, Credit Suisse, and RBC Capital.

Also, it is necessary to describe the mission and the Dell vision statements.

According to Farfan (n.d.), the mission statement is: “To become the most successful company in the world of computers supplying the best computers and providing the best service in those markets where we operate.”

A vision statement is as follows:

“It’s the way we do business. It’s the way we interact with the community. It’s the way we interpret the world around us – our customers’ needs, the future of technology, and the global business climate. Whatever changes the future may bring, our vision will be our guiding force”.

Dell’s Code of Ethics

Anticipating possible harm to their reputation, trying to resist the pressure of various social groups that had relation to the business, many corporations declared their responsibility to society. However, the corporate social responsibility of Dell has been developed for several decades. Dell always proclaimed that the obligations of the corporation regarding the society should not be limited by the economic and legal framework. Analysts, estimating the company’s activities also in terms of the ethics of their attitude towards employees, customers, investors, and suppliers, named Dell the most ethical company in the world in 2014. The company supports and encourages the efforts of employees, partners or franchisees to assist ethical help for community organizations and residents of the regions in which they operate. Dell, for example, created “a group of eco-efficiency.” Its mission is to turn the ideas of employees who want to do something to improve the environmental situation. Volunteers are engaged in the recycling of old computer equipment in a number of cities.

The Challenge and Crisis of 2000, Faced by the Leadership of the Organization

First of all, the external characteristics of the crisis should be described. Through direct contact with customers James Schneider, Senior Vice President and Chief Financial Officer of Dell, the first among top managers, computer manufacturers have noticed the warning signs in 2000. Profit in the first half of the year remained fairly high, but the revenue and daily sales began to slowly slide down. It would certainly be wrong to say that the collapse of the hi-tech stock market did not affect Dell: it’s stock price fell by half in comparison with the highest rates in 2000. However, it is also clear that as a result of skillful actions of the leading management the price war brought more good than bad for Dell rather than for its competitors. Since April 2000, shares of Dell have depreciated less than shares of the three main competitors. In 2001, shares fall of Dell was replaced by growth, and by the end of the year, the course had started smoothly varying between 27-30 dollars, while the market continued to fluctuate. In 2001 Dell sales decreased by 2.3%, while its competitors’ sales have fallen by 7.3%.

Errors of the Leadership of Dell

It is necessary to describe how the challenge has been handled.

This challenge was significant because it showed the problem of the leadership of the organization at that time. There are errors in the leadership of Dell, which have led to that challenge.

1. Too rapid expansion has reduced the ability of key executives to focus on the most important problems, which led to a slowdown in the dynamics of income to 5%
2. Communication with clients and partners from a position of strength (leaders believed that they had the latest information, and they did not want to become informed), weakened the position of Dell in nearly all negotiations
3. Congestion of people and the lack of a clear delegation of responsibilities. Top leaders, which tried to realize the strategy of leadership, had made attempts to get into all the details of the projects. Ultimately, motivation and responsibility of the employees began to fall
4. The pessimistic scenario of sales early in the year and a very optimistic scenario towards the middle of the year led to the fact that firstly the company recruited people actively, and then had to hire professionals

The too rapid development of the company has led to an increase in costs. The leadership strategy urgently needed cost optimization.

After the crisis, Dell started to be considered the best company in the technological field in terms of management. The company has gained this status because of the highly unusual behavior of professional senior management. Before the crisis, in 2000 38-year-old Michael Dell was considered “the world’s biggest introvert” by his employees, and it was extremely difficult to find a common language with him. This person was considered alienated to 100% of his staff.

Dell responded dramatically during the earliest symptoms of the crisis. He gathered a meeting of directors and admitted its extreme shyness, which explained his estrangement. All present top managers were shocked. They were struck with such self-criticism and recognition of the leader’s own mistakes in relationships with colleagues. Moreover, Dell changed the strategy of the leadership of the company in such ways:

1. He overviewed business strategy with the aim to determine the requirements for the actions of people in leadership positions.
2. He started to take into account the views and ideas of others, reformed the structure of corporate decision-making, greatly improved the working environment and increased the economic performance of Dell.
3. He made straightness: workers’ objections and controversial opinions were expected.
4. Two-in-a-box leadership. Two or more supervisors shared responsibility for product sales, regions or other areas of the company. This made them work in a team, preventing the weakness of each other by incorporating the strengths of each other. Teamwork was developed during that crisis.

The company began to seek out ways to reduce costs and prices. In 2000, thousands of workers were sent into unpaid vacations. Firstly, the reduction should not have an impact on the customers. Second, a certain “reserve” was left for the recruitment of new people during the further rise.

Implicated in the pre-crisis period, the system cost reduction allowed Dell to pursue an aggressive pricing policy, which has become one of the key success factors. Since September of 2000, the company has started cutting prices on almost all products, and the prices have reached an impressive size. In addition, discounts were continuously provided to customers in an implicit form (gifts and additional services). The company focused on the consumer market. As a result, sales of Dell grew by 38% to American customers in the fourth quarter of last year compared to the same period of 2001.

Dell focused on their efforts of performance optimizing. For example, the company has ensured that many customers start using prepayment options. Much attention was paid to the rationalization of products and packaging, and the rapid introduction of inventions, which allowed to reduce the time and cost of assembly products. Better service also continued to play a key role, especially in emerging markets, where the positions of the competitors were stronger.

Future Leadership Strategic Plan

Thus, this change of anti-crisis strategy and the style of leadership and management have brought significant changes to the economic indicators. It was done very effectively. However, it has been done a little more effectively. The future leadership strategic plan below shows how Dell could reinforce positive changes. In the following paragraphs Dell leadership strategies should be indicated:

1. The responsibility of leaders is paramount. During the crisis, many workers were dismissed. However, it is needed to introduce the principle of personal responsibility. Managers had to quickly determine their mistakes, assess the problem and take it under control.
2. Setting goals that are difficult to achieve. This principle of leadership strategies was used by the company later. However, the emphasis should have been made during the crisis. It is not sufficient for a company to increase profits and grow rapidly. The leaders had to do both simultaneously. Low income means excessive consumption, and ultra-high gain may mean that development expenditures are insufficient. All managers must use “all balls in the gun.”
3. Abrupt termination of unsuccessful projects in the early stages of failure to avoid big losses. For example, despite the whole year of work on the design and distribution of advertising media, Michael Dell “stopped” the plan of kiosk construction for e-commerce online stores “Sears” when 4 of them were already installed. These kiosks were replaced in other places by large concentrations of people. Such measures would have been made during the crisis.
4. Clear requirements for top managers. A team of experts consisting of people who are well acquainted with the business, as well as other specialists who know the processes of acquisition, retention, and development of leadership talent is the key to the effectiveness of the strategic plan during the crisis as well as the future leadership strategic plan.

Conclusion

In 2000 Dell met a difficult challenge, which was characterized with such problems of leadership strategy as: limited focus on the most important problems due to the rapid expansion, lack of understanding of the need of urgent awareness and informing, continuous learning, lack of a clear delegation of responsibilities, incorrect forecasts and a wrong hiring policy. The company met that challenge by implementing changes and reforms in strategic leadership, which gave an opportunity to meet the crisis. However, a stronger emphasis on a clear definition of requirements for managers, difficult goals, the responsibility of managers and stopping failures in the early stages could contribute to a more effective way out of the crisis. These four points are the elements of a future leadership strategy aimed at preventing any crisis. Thus, a wrong strategy of leadership led Dell to the crisis, and its reform revived the company.