Dell layoffs herald delivery model change?

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With its decision to lay off more than 8,000 workers Dell Inc. appears to be set on adopting key changes to its product and service delivery practices according to industry analysts.

The Round Rock, Texas-based company announced late last week that it would let go of at least 10 per cent of its 88,100 workforce over the next 12 months.

The job cuts are part of a corporate cost review covering product development, procurement as well as service and support delivery, according to Dell.

Scaling down to a smaller workforce, according to one Canadian analyst, may mean that Dell intends to hand over a greater role in product and service delivery to its partners and resellers.

The layoffs announcement came about a week before the company –that made a fortune from its unique direct sales model – announced it would start selling PCs at Wal-Mart stores in Canada.

A Canadian analyst believes this step marks the start of Dell’s use of retail and other distribution options.

“Dell will probably do more creative outsourcing of products and services,” noted Michelle Warren, analyst at Info-Tech Research Group Inc. in London, Ont.

Warren also said it’s possible the small number of Dell partners providing services to customers will be expanded in the near future.

Realigning the company’s sales model could also be on the table she said.

“There has always been talk that Dell is set to move beyond direct sales . This could be the time,” Warren said.

Michael Dell himself indicated his intention to change the sales model responsible for transforming a Texas startup in 1984 to the world’s biggest PC vendor in 2006.

Asked how the reduction will affect Dell workers in Canada, the company sent an e-mail message stating: “At this time, we are not in a position to comment on the specific details”.

The lay off is part of a global move to “align operating expenses with the current business environment and strategic growth opportunities,” the statement from Janet Fabri, spokesperson for Dell Canada, said.

“The reductions will vary by geographic region, customer segment and division,” according to the statement.

Info-Tech’s Warren doesn’t believe Dell’s forays into retail, doesn’t at all mean the company is unhappy with direct sales approach, or is planning to abandon that model.

Rather, she says technological advances and a changing market environment are making it imperative for Dell to turn to retailers and resellers “to open up greater opportunity.” The move to sell at least one computer model through Wal-Mart stores, Warren said, could be an attempt to test the waters in the retail market.

“There are two types of computer buyers – those who want some degree of customization and those who look for the cheapest PC available.” By selling units at Wal-Mart and keeping its direct sales model, Dell could maintain a channel to both types of buyers, Warren said.

Customers stand to benefit from the changes because more delivery channels available to them, she added.

Warren, however, doesn’t believe Dell’s cost-cutting initiatives will cause it to engage in a price war with rival Hewlett-Packard.

“Dell and HP units are already aggressively priced. There won’t be any dramatic reductions.”

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