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Rewriting the rules, Dell style

Tears up Compaq rulebook

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Analysis This column was first published on June 2, 1999 Came across a new word the other day - 'Delled'. Coined by some bright spark students at Harvard Business School, 'to Dell' illustrates the efficiency of the English language in turning nouns into verbs. The definition of 'to Dell' is all about efficiency and - that dreaded phrase which we detest - paradigm shift. It is an attempt to pinpoint the phenomenon where the market leader is outflanked by an upstart contender which refuses to play by the established rules. Compaq is the classic example of a company that has been out-Delled. Compaq wrote the rule book for the corporate PC market. It adopted a channel-only sales policy, made sure there was plenty of inventory in wholesaler warehouses - most of the time - to ensure supply, and established enough credit lines to ensure resellers could service their customers. Other vendors were forced to follow suit. IBM lost out big time because it tried to operate a hybrid channel/direct policy. By the time it abandoned direct PC sales, it was too late: Compaq already owned the market. Until Dell came along. It threw out the Compaq rulebook and established its own proposition - direct only, build-to-order and assemble parts from other companies. Dell simply ignored the resellers - which were in Compaq's pocket - and sold direct to corporates. Now it is the UK's second biggest reseller in this sector, behind Computacenter. By building to order, Dell ensured it was never left with surplus inventory which, as margins declined, has become a huge encumbrance on PC companies (wrong forecasting holed AST almost fatally, for example). The company is pressing home its advantage. Currently, inventory levels run at six or seven days and Dell aims to get this down to six or seven hours. Dell has never bothered about designing motherboards, unlike comparative tiddlers such as Apricot. Instead, it went out and bought the best components in the biggest numbers. The company's recent $16 billion components deal with IBM shows Dell reaching out to the lowest cost producer in its sector, even if that producer is a competitor. Dell's direct selling over the telephone has proved an extremely effective way of tapping in to the Soho market, which Compaq never really cracked. And its e-commerce strategy has proved an enormous success with corporate customers - 30 per cent of all Dell sales are now conducted through its Website. Dell is the fastest growing, most profitable and most efficient PC vendor. But it is not quite the biggest PC builder in the world. That accolade still belongs to Compaq. Compaq has enlarged its role as a PC vendor by bolting on significant storage and service capabilities, courtesy of Digital and Tandem. But it no longer dictates how the PC market should behave. ®

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