Dell serves up a new strategy

Dell Computer Corp. has made it official: it’s in the enterprise computing market and it means business.

A long time leader in the laptop and desktop space, Dell is shifting its focus, according to Subo Guha, the director of product marketing for Dell’s enterprise systems group in Austin, Tex.

“Strategically, our growth areas are going to be servers, storage and globalization,” Guha explained. “Definitely, when we think about focus and where we’ll (be) putting emphasis and our sales structure, it will be more on servers and storage. But that doesn’t mean we’re putting less emphasis on PCs. I think we’ve established our leadership in that position, so we’re going to continue that model, but as far as future investments in terms of where we want to grow, our next step is going to be the enterprise side of the house.”

According to IDC Canada’s research manager for servers and storage research, this is the most natural direction for Dell to move into.

“The reason they’re moving in there is to protect the profit margins for the company on a whole,” explained Toronto-based Alan Freedman. “There are still margins to be made on the server side. They’ve been saying for about two years now that they are an infrastructure company. It was a little far fetched at the beginning, but they have become more of an infrastructure player.”

Although Dell has been a server supplier for five years, the company is finally ready to make some noise in the marketplace, although according to Freedman, Dell’s success relies on them capitalizing on a commodity market.

“If Dell tried to be on the leading edge of technology, their whole model would fall apart because you can’t be on the leading edge and have a hyper-efficient channel at the same time,” Freedman suggested.

Gene Austin, Dell’s Austin, Tex.-based vice-president of its enterprise systems group acknowledged this perception of the company.

“We’re quite often characterized as a fast follower,” Austin said, “but we have become very robust in the ability to deliver complete solutions to our customers.”

Brooks Gray, an analyst at Technology Business Research in Hampton, N.H., agrees that Dell has certain advantages to expanding into this space.

“Dell will continue to be able to scale into the enterprise market and sell products successfully, because their cost structure is still a fraction of their competitors,” explained Brooks Gray, an analyst at Technology Business Research in Hampton, N.H. “This will translate to a huge cost advantage and a price advantage, if they choose not to take a boost in margin. This is the strategy that Dell’s gone with for each new segment that they’ve entered.”

Although Dell has established a number of customer service strategies, Gray considers this to be an area that the company may struggle with when dealing with enterprise customers.

“When you increase the complexity of your product lines, you need the support to back it, and this is one of the major concerns, I believe, for Dell,” Gray stated. “They need to continue to enhance their service capabilities. TBR does a customer satisfaction study for Intel based servers and over the last two quarters we’ve seen a slight decline in Dell’s customer satisfaction levels, so what we’re seeing is that customers aren’t as pleased anymore with the responses they’re getting from customer support.

“So, over the next year or two, especially as Dell grows its installed base of customers, which it’s doing very quickly, we think that it’s extremely important for them to build out their tech support organization,” Gray continued. “Right now with a head count reduction being implemented throughout the company they’re very limited in their ability to build out that organization. The implication is that Dell could see more of a decline in its customer satisfaction levels. They are taking action to improve their tech support organization, but when it comes right down to it, each individual will have more coverage and more responsibility. What that could translate to is an increase in hold time and a decrease in the reps’ understanding of each company that they’re handling.”

“It’s a little bit tougher in the sever space than it is in the PC space,” Freedman agreed. “There are different issues and different consequences if your server’s down as opposed to your laptop. [Dell’s] had to ensure that they have some good relationships with partners to provide services.”

According to Dell, that’s exactly what they’re doing, and their direct model approach to sales contributes to their endeavours to achieve premium customer service.

“I think we’ve proven that we’ve successfully broken the channel model in the PC space and have replicated that in the server space,” Guha explained. “It actually makes more sense in the server space, because customers want direct access to the technology, and they want to have direct access for the customer relationship management. The direct model is actually more of an advantage on the enterprise side. And, like the pricing advantages that we see in the PC market, there is a price elasticity on the server side.”