You’ve had a spectacular run.
Twenty years and $40 billion. They seem like good round numbers.
The notion that your business model wasn’t scalable-that it could never expand beyond selling a few PCs-was one of the things that confronted you in the early days. What do you think about that now?
If you think about the first 14 years of our companythe math is pretty incredible. We grew 80 percent a year for eight years. Obviously, it was scalable. It sounds easier than it actually was. Then we grew 60 percent a year for six years after that. This is compounded year over year growth. It’s the only way to get to $40 billion in 20 years.
The fundamental business model had incredible legs, and still does. The question is how do you build a support structure around it to take advantage of the all the opportunity, things like talent and leadership and information technology. We need to plan enough ahead of time so that you don’t totally outgrow things but not too far ahead of time. It’s been a lot of fun.
After these 20 years, do you get tired? Do you have a sense of fatigue about having worked so hard for so long? Do you want to ease back?
No, not really, no. I’m having a great time. It’s a lot of fun. I love what I do and I see tremendous opportunity. We have the potential to grow and go into new markets.
You’re not bored by it.
No, not at all.
But as you’ve evolved, you’ve become more complex. Now you’ve got Kevin Rollins as president and COO after having him as a vice chairman. That title implies someone who’s useful and who makes a contribution, but not someone who’s central to running the business.
I would tell you that he was just as essential then. It’s just that we used the title as sort of a catch-all. We’ve used the president’s title in the past and for a variety of reasons it wasn’t appropriate. When you have a company this large and this complex, it’s truly important to have a very strong team. Kevin and I share the responsibilities of leading the company, developing the strategy and the execution. He does the hard stuff. I do the easy stuff.
We share everything. He’s been associated with the company in one form or another for many years, since arriving as a consultant in 1992. If you think about essentially every major decision that’s been made for the past 10 years, Kevin has been right at the center of it. He’s obviously key to the leadership of the company.
Some people say you’re more interested these days in technology and having a vision of the future than in driving the results in various business units. Is that right? What’s your passion these days?
What gets me excited is whatever causes the company to succeed. That means a variety of things, including all the things you mentioned. First of all, when you have so many disparate businesses and units, you can’t be in all places at all times. I’m going over to Europe for operations reviews and meetings with a bunch of our customers. Kevin is going to Asia. We both can’t go to Asia. We both can’t go to Europe. So we have to divide and conquer. Perhaps next time, Kevin will go to Europe and I’ll go to Asia. We share and divide the responsibilities to make sure we get it all done.
Back to the technology, what really gets your juices flowing?
The magic formula in our business is figuring out what stage of the evolution a given technology is at and when it’s right for Dell to use its business model and customer relationships to make a product that is much higher in volume and lower in cost. Some would call it commoditization or standardization, but we constantly look at our business and say, “Well, where are these new technologies on the continuum? And when is it the right time for us to start a new activity? When is the right time to go after a new type of customer, a new geography? Should we be focusing more on large businesses vs. small businesses vs. consumers? What about services? What about professional services or financial services? We have many more choices than we could ever execute on. We’re not constrained by capital. We’re constained by, “How many of these things can you actually achieve with a high degree of success and profit?” We’ve got that paradox.
You seem to be putting a particular emphasis on the corporate market these days.
The business market is growing very nicely for us. The consumer market is growing very nicely for us. We’re growing in Asia quite rapidly. We had 30 percent growth in Europe last quarter. If you look at our business, we’re growing across all product segments, all geographies, all customer segments. And we have a growth premium to the market. If the market is growing zero percent, Dell has been growing at 20 percent. We’ve had that premium for about two and a half years, which is pretty remarkable. We’ve increased our market share by about 180 percent in five years, a more than 50 percent increase just in the past two years, a period of pretty tumultuous industry consolidation. We grew more share than anyone, not through acquisition but the old-fashioned way.
Do you now consider Kevin to be a co-CEO with you?
Yeah, you could say that. We don’t use that title. But you could certainly say that.
Some CEOs would say, “I’m the CEO, and I’m not sharing that title with anyone. I’m the guy.”
Quite frankly, I’m not really concerned about that. I’m concerned about, “What do we have to get done to be successful?” There’s way too much to get done to have a proprietary interest in who’s going to do it, or even worse, who’s going to get credit for it. There’s no reason not to tell it like it is. Kevin is doing this right alongside me.
Is it possible that running a $40 billion-a-year company is just too complex for one person?
It depends on whether you’re trying to do everything yourself. I don’t think it’s possible. Kevin and I don’t necessarily run the whole company. We have a series of businesses with general managers in them and those folks are CEOs unto themselves, running $5 billion, $8 billion, $10 billion businesses. They have the final accountability and responsibility and strategies. Yeah, the overall strategy of the company is pretty tightly held, for good reason. Kevin, I and our global executive management team spend a lot of time on that. But the guy who’s running Asia doesn’t call us back and ask, “Now what do I do?” He knows what to do. He’s got a strategy and he’s executing to it. Same for our folks who run our businesses in the United States and Europe.
By having Rollins as a co-CEO, are you going down the same path that Bill Gates has gone down with Steve Ballmer? Is their experience relevant or not relevant to you?
Well, I don’t think that it’s particularly relevant. There are similarities and there are differences. But I wouldn’t say that it’s exactly the same.
Aside from Microsoft, we’ve seen other cases where the founder of a technology company decides to become a chief technology officer and concentrate on doing what they enjoy doing most. They let someone else come in and really run the mechanics of the company. Is that how you’re thinking?
Well, I’m pretty fast to step out of something if I’m not really good at it. But I also think that if you want to be involved with a company like this, you have to stay operationally in tune with what’s going on or else you quickly become not very useful. Our business is about technology, yes. But it’s also about operations and customer relationships. There are a lot of things that go into creating success. I don’t like to do just the things I like to do. I like to do things that cause the company to succeed. I don’t spend a lot of time doing my favorite activities.
We sit around and say, “Well who is the best person to get this done?” If it’s Kevin, he’ll go do it. If it’s me, I’ll go do it. If neither of us, how about Jim Schneider our CFO?
Did the bursting of the technology bubble change the way you wanted to lead the company? Is that what convinced you that you needed to bring in other capabilities and enhance Kevin’s role?
This is a 19-year-old company, so we’ve gone through some pretty dynamic changes in a pretty short period of time. In that sense, it wasn’t all that different from other periods of change. Except here, while we might not have made our financial goals, we were still pretty nicely profitable and our business was pretty healthy. Whenever you adjust your strategy for the times, say for industry consolidation, a kind of logical follow-on to that is, “What is the right structure?” We consolidated some things.
We kind of started off with “Where are you growing, where are you expanding?” The right creative tension in the business is to examine those on a constant basis. So that you say, “Okay, we’re trying to expand into these nine areas, but the market is contracting, so maybe we should scale that back and only do three of those and save the other six for later because that’s what the times dictate.”
Is that one reason why you needed to expand Kevin’s role that during the 1990s when your employees were becoming “Dellionaires,” they saw the company as a place where they could get rich. But then the bubble popped and you needed different tools to build a culture? Which is where Kevin’s strengths come in?
I wouldn’t say those are his only strengths. He’s got a lot of other strengths, too.
I think we had some pillars of our success that were the groundings of any solid execution-oriented business, like operational discipline and those kinds of things. It became pretty clear to us that we needed more than that, to go from $30 billion in sales to $60 billion.
So we did something we almost never do, which is say, “Okay, instead of the big three priorities (product leadership, customer experience and globalization), we’re going to add a fourth one. That was a winning culture, which in some ways responded to the issues you’re talking about. It also served as a way of signaling the importance of developing the organization and developing the leadership to prepare for these challenges.
We also know that when you have a unique company like this, a unique culture and a unique business model, you don’t just hire guys from other companies and throw them in and say, “Yeah, just do whatever you were doing before and everything’s fine.” We’re not like other companies. It puts a real premium on developing talent internally. We see the benefits of that. If you look at our leadership team, the turnover in our senior ranks is very, very low. It’s way low for our industry and it’s also on the low side for most other industries.
How did you decide in the dark days a couple of years ago to set a $60 billion annual sales target? That’s pretty gutsy.
We have this history of setting outrageous targets internally and occasionally will talk about those externally. You have to be careful about doing them externally because they become a forecast and have a very different implication.
But we find that our people are very motivated by big goals, whether it’s providing customers with absolutely the best value or entering a new market with great success or achieving a particular milestone. I think of them as milestones. You have plenty along the way. It does focus the attention of the organization on what we’re trying to achieve.
You’ll hit $60 billion by calendar 2006?
I don’t think we’ve given it a specific date. But we’ll be a little over $40 billion this year, and we started this (set the goal) when we were $30 billion.
So how will you keep evolving your structure? Will you have to become more like, say, an IBM? More corporate and bureaucratic?
We don’t want to do that. We don’t want to act like a big company as we get bigger in terms of our structure. Our structure is still very fast, very flexible. It doesn’t have a huge number of layers in it. Communication happens quickly. Our goal is to retain that as much as we possibly can.
But with size, you need more training programs, more mechanisms, more checks and balances, right?
Sure, but if you did an audit of that today, at $40 billion I’d think you’d come away with the sense that it doesn’t feel like a $40 billion company. We make decisions very quickly. We communicate rapidly.
Give me some hint about the technologies that might be at the right stage for Dell to come in and make them more widely available at a lower price.
I think you can see some of the things we’re already doing. First of all step back and ask, “What is our market share today?” Well, in the whole IT services sector, it’s about 5 percent of an $800 billion business. One strategy to grow is you just go from 5 percent to 10 percent or even 15 percent. That’s tremendous growth, if you can achieve that.
If you look inside the individual businesses, in PCs we have 17 percent share, in all servers it’s less than 17 percent, but if you look at Intel-based servers, it’s in the 20s. Storage is in the single digits. Software and peripherals are pretty small-share today. We have lots of opportunity to grow.
If you take a geographic cut, in about 45 percent of the market, we have roughly 25 percent share, but in the other 55 percent of the market, we have less than 10 percent share. So there’s a lot of opportunity to grow in new markets and new product areas.
As homes become more digital, with wireless networking and broadband, that’s a huge opportunity for Dell as the leader in the consumer market in the United States, as microprocessors continue to scale up into clusters and grids that can replace minicomputers and mainframes, that’s an enormous opportunity for us.
That’s new ground for Dell. That’s interesting.
We’re actually No.1 today in the high-performance clustered server market in the U.S.
Most of them use Linux. I recently visited CGG, a French company, in Houston. They’ve installed 3,000 Dell servers doing seismic analysis and for exploration data in the Gulf of Mexico. They just added another 1,100 servers, some in France, some in the United Kingdom, Canada, Kuala Lumpur, more in Houston. The range of opportunities we have is pretty diverse, from supercomputing all the way down to your buying a second PC for your home or your child.
Are you a big believer in open source and open standard software?
I don’t think the whole world is going to go there. But if you’ve been to one of our factories, you know the computer doesn’t really know what software it has on it and doesn’t really care. In some senses, we don’t really care either as long as it’s the one the customer wants.
There’s an often overlooked aspect of our business model that being connected with the customer provides it, which is that we don’t have to make long-term fundamental bets on technology ingredients five years from now. People are out there talking about semiconductor nanotubes and fuel cells and OLEDs. We know what all those things are. We have scientists studying them. But we’re not making a fundamental bet on any ingredient. What we’re doing is working with all the companies that provide those ingredients because we’re how they get those products to market. One out of three computers sold in the U.S. is a Dell. Hopefully soon, that will be one out of two.
So when these technology-ingredient companies have all those whiz-bang things I just mentioned and they want to sell them, well, they come to us.
We have 3,200 engineers and we have 1,000 patents and 500 more we’ve filed for. But we don’t have to necessarily know with exact precision, and no one does, which technologies will actually bear fruit and which won’t.