Leaked memo exposes Dell's plans

Michael Dell may invest in an indirect sales operation, while redundancies are likely to be on the way, according to an internal company document

Dell is to consider selling PCs through a reseller channel, breaking the direct sales model which has seen it become one of the world's top two computer vendors.

Details were leaked in an internal staff memo, which also contained details of an organisational restructure at Dell.

Dell's success has been built on direct sales, which eliminated the costs associated with channel sales. However, with a changing global sales climate and an explosion in PC retail growth, especially in developing markets, Dell is reconsidering an indirect strategy.

The leaked memo, which was jointly authored by Michael Dell, the company's chief executive, and his executive team, read: "The direct model has been a revolution, but is not a religion... Dell plans to make information technology affordable for millions of customers around the world. We will do this by simplifying IT where others perpetuate complexity, and innovating beyond hardware into solutions."

The company also said it is planning a round of job cuts. Having refined its executive team, the company now plans to make further reductions to its workforce. "We need to streamline our management structure to speed decisions and remove bureaucracy," said the memo. "We plan to eliminate overlaps in our organisation and activities... We also need to improve sales productivity. These won't be merely exercises in cost-cutting."

All has not gone perfectly for Dell over the last year. The company lost market share in 2006, according to statistics produced by Gartner, falling into second place behind HP.

Dell's accounting procedures are also currently under investigation by the US Securities and Exchange Commission. The company has failed to file recent earnings reports with regulators due to the investigation.

The memo is reproduced in full on the next page...

Michael Dell's memorandum to Dell staff

To: Dell Employees Worldwide

From: Michael & the Executive Leadership Team

Dell Confidential — For Internal Use Only

One Dell, One Focus — Simplifying IT for Our Customers

We met as a complete Executive Leadership Team for most of last week to discuss Dell's future. We left the week with a great deal of confidence about our plans for the next generation of Dell customers. Throughout our history we have worked as a team — as One Dell — and we have made quality PCs affordable. Now Dell plans to make information technology affordable for millions of customers around the world. We will do this by simplifying IT where others perpetuate complexity and innovating beyond hardware into solutions. This is one of the most exciting periods in our history but it requires all of us to stand together as One Dell to make profound changes and take well thought-out risks.

Here are some of the steps we will take to get there:

• Fix our Core Business to be competitive. The Direct Model has been a revolution, but is not a religion. We will continue to improve our business model, and go beyond it, to give our customers what they need. We will simplify our organization to make it easier to hear customers and respond to them. We've already streamlined our executive leadership structure. We need to streamline our management structure to speed decisions and remove bureaucracy. We're making improvements in pricing, product development and fulfillment, and customer experience. We reorganized the product group to more effectively listen to our customers and develop end-to-end customer solutions. We are now revisiting our entire design process to improve our speed-to-market and focus on what customers truly value. Our new Global Operations organization, led by Mike Cannon, is working to take our supply chain and manufacturing to the next level of efficiency and quality. This group is also partnering with the regions and the product group to pursue new manufacturing and distribution models to address the unique needs of our customers in all markets. More broadly, we plan to eliminate overlaps in our organization and activities to enable us to deliver even more value to our customers. We also need to improve sales productivity. These won't be merely exercises in cost-cutting. We will re-invest those resources in the customer solutions that will build Dell for the future.

• Re-ignite Growth in our Core Business to reach more customers. We are taking some concrete steps to get growth back into our core business. We released the EC280 in March for first-time computer users in China. We will open a new factory in Brazil in May and a new factory in India in July to be closer to those huge customer bases. In June, we'll launch our new Inspiron models with personalized color options and improved mobile broadband. We will launch products and services for small and medium business customers later this summer. And our new Dell Data Center Solutions Division is addressing the unique needs of hyper-scale data centers for customers whose business relies on enterprise computing solutions. We plan to take our improved cost structure to acquire new customers and sell existing customers more products and services. We are accelerating down the path to be a truly global company giving customers around the world the best products, the easiest solutions and most choices. 

• Build For the Long term to provide more customer solutions. Ron Garriques' Global Consumer team is re-inventing how we address the evolving needs of our consumers around the world and the unique needs of the next billion consumers in the large and emerging markets of Brazil, Russia, India and China (BRIC). With strong share position in markets such as Japan, the U.K. and Canada, now we are going to make a mark in the rest of the world. Ron and team are also tackling how Dell's consumer business should evolve in the long term in mature markets. Stay tuned for more here.

We are also embarking on a bold, long term initiative to radically simplify IT for our commercial customers. Simply put, the philosophy comes down to a set of core beliefs:

• Information Technology shouldn't be as complex as it is. 

• You should spend less on maintaining IT and more on innovation. 

• Every IT project should not require an army of consultants. 

• Computing should have minimal environmental impact. 

• Superior information drives efficiency in your IT environment.

We are already taking steps to fulfill this vision, but we have a long way to go. For those of us who have worked for a while in this industry, we know our competitors drive complexity and needless cost into customers' environments. These so-called "service divisions" create a never-ending cycle of activity with unclear return on investment. We intend to break this cycle. We will build different kinds of services and offer key technologies that will help customers escape this complexity trap and unlock the true potential of technology. And, as we re-invent Dell to deliver on this promise for our customers, we will rely on Mark Jarvis, our new chief marketing officer, to ensure we properly position our new systems and solutions capabilities in the global marketplace.

We won't hesitate to use our company's assets to build or buy the capabilities and technologies we need to deliver on our initiatives. Our transformation will take time to accomplish. We need your help to identify how we can become more efficient and effective for our customers across all areas of our business. We want you to take action with your team and bring your ideas forward. On June 20, we'll launch the internal version of IdeaStorm called "Inside IdeaStorm" for employees so that you can tell us where you think we have opportunities to improve as a company and how we can streamline our work to eliminate low value activities. We will listen and we will respond.

This is a defining moment in our history and in our relationships with our customers. Just as we re-invented the way consumers and organizations buy hardware, we are going to re-invent the way the world gets access to IT. We are excited about what we will achieve for our customers as we make information technology more affordable for them and what that will enable them to do.

The future looks great for Dell and we are up to the challenges that we'll face on our journey — challenges that will test, teach and ultimately strengthen us as a company and as a team — as One Dell.

Thank you for transforming Dell with the customer in mind every day. Be sure to let us know your thoughts on this on One Dell Way.

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