“From the start, our entire business—from design to manufacturing to sales—was oriented around listening to the customer, responding to the customer, and delivering what the customer wanted. Our direct relationship—first through telephone calls, then through face-to-face interactions, and now through the Internet—has enabled us to benefit from real-time input from real customers regarding product and service requirements, products on the market, and future products they would like to see developed.”1
MICHAEL DELL (BORN IN 1965),
THE FOUNDER AND CEO OF THE DELL COMPUTER CORPORATION.
Michael Dell questioned existing models of business organization more than almost anyone before him. By realizing his idea of combining direct sales with highly customer-oriented production, he revolutionized the computer sector. The changes he made, whenever necessary, to his company’s interaction with customers and suppliers were just as radical as those made to the company’s internal organization. And all the time his eyes were firmly set on one, clear objective: generating customer value.
At the tender age of 12, Michael Dell set up his own stamp-dealing business, producing his first product catalog titled Dell’s stamps. Even today, he describes the $2,000 he netted over a four-year period as the sweetest profits he ever earned. The importance of direct contact with his customers was something he learned to appreciate very early on. At the age of 16, he began running direct marketing campaigns to sell subscriptions to newspapers to people who had just moved to a new area. It proved to be a highly lucrative business, earning him $18,000. When he was 19, however, he ended what could otherwise be described as a “normal” career, because that was when he set up the Dell Computer Corporation, which proceeded to grow at an astounding rate. Just four years later the company was already listed on the stock exchange, and a few years after that, at the age of 27, Michael Dell was the youngest chairman of the board of a company listed in the Fortune 500.
There is one particular aspect of Michael Dell’s success that merits close attention. Clearly, there are no “golden rules” for building a company of your own that ranks thirty-third in the Fortune 500 and owns one of the most valuable brands in the world, but we can draw some valuable conclusions from Michael Dell’s achievements about structuring an organization effectively—conclusions that you may well be able to apply to your own activities.
The basic purpose of any organization is to make strengths productive and weaknesses irrelevant. Doing this should enable normal individuals to achieve excellence. Even the best of structures cannot guarantee results or performance, but a badly structured organization will be doomed to failure because bad structures intensify the tensions that inevitably arise wherever people work together. A bad structure diverts attention to the wrong things, accentuating people’s weaknesses instead of making the most of their strengths. So structuring an organization the right way is essential for its success.
The development of the right kind of organizational structure requires extensive reflection: the business needs to be thoroughly thought through. It also requires accurate analysis and the adoption of a systematic approach. A company’s strategy will determine how its business is organized, because the structure of the organization is what enables it to deploy its strategy effectively in the first place. The well-known adage that, “Structure follows strategy” may be correct, but it is far too weak. A far more accurate statement is that, “Structure enables strategy,” as this reflects the equal value of both elements: strategy and structure. The starting point must be the purpose of the business, its strategy, and the goals associated with it. That said, unless similarly generous attention is lavished on an organization’s structure, even the best strategy will not fulfill its optimal potential. Many organizations let major opportunities in the structural domain pass them by. If a company is to be successful, its organization must be optimally fit for the task it sets out to fulfill. Consequently, the company’s management needs to constantly keep on learning, adapting, and trying out new things.
Put more concretely, any company must answer the three fundamental questions about organization, regardless of its size2:
1. How must we organize our business to focus—and remain focused—on whatever customers pay for?
2. How must we organize our business so that our employees can actually do what we pay them for?
3. How must we organize our business so that our top executives can actually do what we pay them for?
Michael Dell developed his company while maintaining a very close dialogue with his customers. The original reason for this was not so much that he had spotted a future trend toward having small series of products come as close as possible to meeting customers’ needs, but that he purely and simply lacked the capital to engage in mass production, as he has freely admitted. The success of his approach quickly made him realize, however, that the path he had chosen enabled his company to find out what customers genuinely wanted and what they were prepared to pay for. It is anything but easy to find out what customers really pay for. And it may be a good idea to take a fresh look at how your organization habitually answers this question.
Even if the answer it provides is right, there is still no guarantee that the organization will not lose sight of whatever it is that its customers are actually paying for. Indeed even the mighty Dell itself provides several examples of how easily a company can lose its focus. In 1989, the new Olympic product range Dell introduced at great expense turned out to be one of the biggest flops in the company’s history. For despite the product’s impressive technology, there was a problem: Customers did not need or want such a complex product. Michael Dell commented as follows: “We had gone ahead and created a product that was, for all intents and purposes, technology for technology’s sake, rather than technology for the customer’s sake. If we had consulted our customers first about what they needed—as we had been accustomed to doing—we could have saved ourselves a lot of time and aggravation.”3
In the 1990s, Dell then proceeded to miss out on the trend toward laptops and cheaper chips from AMD, and then, after 2000, also failed to spot the trend toward cheap netbooks. These errors were subsequently corrected, but they cost the company a great deal of time and money. So even when you know what customers are willing to pay for, it takes some effort to organize your business in such a way that customers remain the focus of its attention.
A company must be organized in such a way that its employees can effectively and efficiently contribute to its success. The way things are organized must make it easy for them to achieve positive results. Returning to Dell, after the Olympic fiasco, Michael Dell started talking about “relevant technology,” meaning technology that generated benefits to the customer. The conclusion he reached was that the technical people were not to blame. Rather, there were organizational reasons why sales faltered. The technicians simply did not know what customers deemed useful. They endeavored to deliver the latest technical developments instead of satisfying customers’ needs. As a result, Dell stepped up cooperation between its various departments in a bid to foster a deeper understanding of what customers perceived as value. For example, the company’s technicians were actively encouraged to work more closely together with the company’s sales and product development departments. In short, you would be well advised to regularly ensure that your employees really know what is expected of them, instead of assuming that this is always clear.
In addition to enabling employees to do their job by enhancing their know-how and understanding, companies should also quite pragmatically check whether the way in which their procedures are organized actually enables employees to do their job. For instance, if nurses or external sales representatives find themselves having to spend most of their time fulfilling administrative requirements instead of attending to their patients or customers, they will not be doing what they are actually paid for.
The company management must have the time to deal with those issues that can be spotted and resolved only by people with an overview of the business4:
1. Defining the business purpose and business mission; developing the corporate strategy.
2. Setting values, standards, benchmarks, and examples.
3. Building up and developing the company’s structure.
4. Building up and retaining human resources.
5. Building up and cultivating key business relationships.
6. Representing the company.
7. Being prepared to act very swiftly to exploit opportunities or overcome crises.
Check whether the setup of your organization is really geared toward handling these issues appropriately, and if you are in a position of influence, make great efforts to ensure that your company’s top executives have the time to deal with them properly. These are some of the most important tasks for any organization, and if its top managers fail to get a grip on them, it is highly likely that they will not discharge their duties in this connection at all, or not do so in a manner that serves the organization’s best interests in the long run.
Whenever Michael Dell steers his company in a completely new direction, it provides us with living proof that he still takes organizational development extremely seriously, just as he did back in the company’s good old days. For some time now, like Hewlett-Packard, Dell has favored a dense dealer network. Dell is also considering the production of mass-produced goods in a manner similar to Acer, and is making intense efforts to reach small customers all over the world, just as Lenovo, for example, is trying to do.
Discuss the three fundamental questions about organization.
If you hold responsibility in the upper echelon of your organization, discuss with your colleagues where specific measures could improve how the top management discharges its seven key duties and how you intend to implement those measures.