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Michael Dell Returns to CEO Role at Dell

2007-06-06 10:52:40

Posted by samzenpus on Thursday February 01, @04:13AM

from the hey-dude-you're-back-at-dell dept.

Businesses IT

head_dunce writes "It looks like Michael Dell is jumping back into the big

chair at Dell because his company is slipping under the direction of Kevin

Rollins. I wonder if they should be looking outside the company for new ideas,

or if going back to basics is what needs to be done?"

----|>

"Joking aside, how things have turned around hey? Although to be fair to

Dell..."

Want to be fair? Let's take another look at the Dell business model, shall we?

The industry works according to many 'rules', one of which is the 80/20

citation, saying between two parties, for every dollar transacted at the end,

one party will get 80% and the other 20%.

As an example, let's say HP sells a monitor, that is actually manufactured by

Samsung. HP knows it will garner approx. 80% of every dollar transacted on the

final sale. One monitor sold, at a retail price of USD100.00, which Samsung

charged HP $50 for, means a profit of USD$50.00. HP knows that after all

expenses are paid, they will net 80%, or USD $40.00 out of that USD$50.00.

Samsung knows that after all expenses are paid on their end, they will net

USD$10.00 (20% out of that USD$50.00 profit on the back).

As an investor, you typically assume that if you buy HP stock, they will work

to maintain that 80% - same with Samsung being expected to negotiate their 20%.

If you learned that HP was settling for 70% and letting Samsung get away with

30%, you might be less inclined to invest in HP and start throwing money into

Samsung instead, right? And if that kept up, it would just be a matter of time

before HP went out of business, as it rightly should, under such circumstances.

Dell, on the other hand, ignores the gentleman's agreed 80/20 and pushes for as

much more as they can get...90/10, anyone? 95/5? 100/0...? Been there, seen

that.

Substitute Dell for HP in the above, and then consider...what happens? Dell is

a GREAT company and investors love the ROI. Samsung, on the other hand, needs

to tread lightly - perhaps it can afford to participate at 90/10 for a short

time, hoping that Dell will eventually back off and both sides can move towards

a profit balance, but if Samsung continues and doesn't pay attention, it soon

starts to collapse. Can't pay bills or negotiate decent contracts with

suppliers...investors start walking away. Samsung dies because Dell hollowed

them out.

This is the Dell model. Hollow out your suppliers and when one dies, move to

another. Scorched earth 21st century style. Nice for Dell, right? Not in the

long run, because the day will come when there are either no more suppliers to

kill, or no supplier will do business with them. Both of those have happened,

and that is where we are today.

Dell is dead, period, as we know it. Maybe Micheal should consider selling

sugared water :) I'd rather he stayed away from business altogether.