Michael Dell

When Michael Dell became the 69th executive inducted into the 2003 CRN Industry Hall of Fame, the entrepreneur who has done more to make computer products affordable than anyone else on the planet set down his view of the channel.

"When you think about it, Dell is actually a channel, too," the founder, chairman and CEO of Dell Computer said in his acceptance speech before several thousand solution providers. "So we are one of you. . . . We sell to customers. We serve customers. And in fact, even though we are a bit different, we work with a number of you. And we value those partnerships and want to continue those relationships."

For Dell, building those relationships with customers, suppliers and the channel began 19 years ago, when the painfully shy biology major filled his University of Texas dorm room with stacks of computer parts. Dell recalls that those computer parts were "trying to tell me something." Well, he listened and has since built a $40 billion company, which forever changed the way computer products worldwide are made,it takes Dell only five hours to build a system to order,as well as distributed, priced and sold. The company has refined build-to-order manufacturing into a science, reshaping the competitive landscape for solution providers and makers of all kinds of computing products and services.

Ralph Szygenda, CIO of General Motors, who also was inducted into the Hall of Fame this year, said Dell revolutionized the supply chain by slashing costs and passing the savings on to customers. "As a customer, I love it," said Szygenda, who over the years has purchased hundreds of millions of dollars of Dell products. "It reduces my price. He has just done a phenomenal job."

Szygenda describes Dell, a onetime triathlete, as a "violent competitor who doesn't like to lose." That competitive fire, along with an unwavering commitment to drive down the cost of industry-standard technology, has rivals in markets ranging from PCs and printers to network switches, SANs and IT services pulling their hair out trying to match Dell's supply chain metrics. And it's not only the computer world that Dell has changed. The supply chain improvements he has driven at his own company also have helped spark revolution in American business that has companies in all industries re-examining how they operate.

Dell, who was featured alongside General Electric CEO Jeffrey Immelt at an MIT Emerging Technology forum earlier this year, has gone from entrepreneur to business legend for his innovative business model at the tender age of 38. And he shows no signs of letting up. As the youngest CEO to crack the Fortune 500, he's constantly making improvements to the company's business model. While other PC entrepreneurs have failed to make the grade to seasoned CEO or have passed the baton, Dell aims to make his dorm-room venture a $60 billion company with a bigger footprint in services and consumer electronics.

Brian Alexander, vice president of investment firm Raymond James & Associates, said he sees Dell becoming a $100 billion company over the next 10 years. "Dell is just a rare, phenomenal company, and they have been perfecting the direct [sales] model for 20 years," he said. "I don't see any end in sight."

Dell's stellar track record has paid off handsomely for investors. In the past 10 years, the company's share price has climbed 9,355 percent, compared with 4,846 percent for CDW, 1,413 percent for Cisco Systems, 788 percent for Microsoft and 175 percent for Hewlett-Packard, Alexander said. That performance has made Dell a billionaire.

Dell has brought the same passion he shows in business to philanthropy. He has changed the face of Texas with countless philanthropic ventures, including the $1 billion Michael and Susan Dell Foundation, aimed at helping kids. Last month, the Dell Foundation teamed with the Bill and Melinda Gates Foundation on a project to improve student performance at low-rated public schools in Texas.

Andy Pastor, principal and co-founder of Endeavor Real Estate Group, Austin, Texas, said the Dells have been leaders in education, community groups and the arts through several dozen charitable organizations. "I am not sure I have been to a fund-raising gala where I have not seen Michael or Susan as a major sponsor," Pastor said.

Pastor, who has known Dell for the past 14 years, said the entrepreneur has never deviated from his early business vision. "He knew it was right and almost enjoyed being doubted by others," Pastor said. "With Michael, the word 'no' means you don't have enough information. It is not an acceptable answer because he knows you can get there a different way."

That approach is precisely how Dell has sliced billions of dollars in costs from the computer supply chain. In the early days, PCs cost more than $3,000, with profit margins as high as 40 percent. Such inefficiency and high prices are what inspired Dell. "The [direct-sales] idea came from my own experience as a customer," Dell said. "It used to take about a year for new computing technologies to get to market, and the markups were very high. There was a great opportunity to improve that system."

And Dell, indeed, has improved the system. A few years ago, the company had about 21 days of inventory in its production system. Today, that inventory level has shrunk to a mere four days. "The good thing about our model and our culture at Dell is that both are optimized for change. In fact, both thrive on change," Dell said.

Dell has repeatedly recreated the company by listening closely to customers. "The beauty of Michael Dell is that he is an excellent listener," said Mark Tebbe, formerly CEO of systems integrator Lante and now a board member at integrator SBI Group. "He listens to his customers and always believes the customer is right. He is a phenomenal, realtime learner. He will make mistakes, but he will only make them once."

Solution providers say that, ultimately, Round Rock, Texas-based Dell has given them improved access to cutting-edge technology at better prices, forcing them to move higher up the value chain. Todd Barrett, networking sales manager at CPU Sales & Service, Waltham, Mass., said he saw Dell in the mid-1990s as a threat to his business. But now that view of Dell is gone.

"As I look back, if anything, Dell has been a catalyst to push us toward more of a value solution-oriented model and away from pushing boxes," Barrett said. "Although we still sell PCs and equipment as a convenience to our customers, the majority of our business focus has turned into solving business problems with technology instead of just fulfilling orders."

As the channel has changed, so has Dell. The company now sells a white-box computer line aimed at solution providers. And The ASCII Group, a buying consortium of small-business VARs, has inked a deal to offer Dell white boxes to its 2,000 members. So far, more than 300 ASCII members are selling the Dell white boxes.

"Dell is tiptoeing into the channel," said Alan Weinberger, chairman and CEO of ASCII. "Dell is one of the best things that has happened to the industry, including the channel. This is a competitive industry. That's business in America, and the best will survive."

When Dell returned earlier this year to the University of Texas at Austin campus to give the commencement speech, his address left students deeply inspired to blaze their own unconventional path in life, said Katie King, student body president of the university's class of 2003. "He was kind of a beacon of hope that you can use your own creativity and find your own way to be successful," King said.

Dell urged the graduating class to listen to their hearts and pursue their dreams. "Most who finally leave this great university never imagine that they're going to change the world. Yet every one of you will," he told students. "How you change the world is all up to you to decide." Dell himself never did graduate, but he certainly has changed the world.

 Published for the Week Of December 15, 2003