Dell's new kids on the block

Michael Dell is moving quickly to overhaul his company, and turning to some new places to find answers.

Dell has wasted little time cleaning house over the last few months as he searches for a way to get the PC maker back on track. Former CEO Kevin Rollins and former Chief Financial Officer Jim Schneider have been the highest-profile departures, and a raft of prominent executives from outside the PC industry--such as Friday's hire of Motorola's Ron Garriques--are coming in to shake up the old way of doing business at Dell.

Analysts believe that Dell needs new strategies, better products and closer relationships with its customers to return to form. The company isn't falling apart by any means, but it is growing much slower than Dell or Rollins had predicted two years ago. It's also dealing with a market that has migrated away from Dell's strengths.

Consumers are looking for technical support and more style in their PCs, and enterprise customers are gravitating toward system-management features for their servers. For a growing portion of customers, cheap boxes manufactured efficiently don't cut it anymore.

Michael Dell acknowledged as much in a memo sent to employees on February 2 that talks about getting rid of an internal bureaucracy that crept up on the company as it grew. The new Dell wants to be more nimble and more aware of how its customers are changing: two problems made painfully clear by its late embrace of Advanced Micro Devices' processors and the slide in its customer support and product design.

But Dell is also a relatively young outfit, until recently stocked with managers that essentially grew up with the company as it went from industry outsider to the largest PC company in the world. Dell needs to change, and it can be hard to get people to alter what's worked so well for them in the past.

Michael Dell

"The first step toward a turnaround is bringing on industry veterans who can bring new insights," said Brent Bracelin, an analyst with Pacific Crest Securities. Dell's "moving quickly, and he needs to move quickly."

Dell is paring down his direct reports from a high of 22 executives to 12, he told employees in his memo. Of those 12, Garriques, new manufacturing head Mike Cannon (formerly of Solectron), services chief Steve Schuckenbrock (ex-Electronic Data Systems) and CFO Donald Carty (ex-American Airlines) will form a noticeable contingent of newcomers. Given the well-known names on the list, it's clear that Dell is serious about bringing in fresh talent and sending a message to other executives, said Roger Kay, an analyst with Endpoint Technologies Associates.

"What we are witnessing is the zero-base assessment of the company that Michael had to take," Kay said. "They're spending the bucks to get senior talent in."

For Dell, this means even taking a fresh look at areas in which it considered itself a leader, such as manufacturing.

Analysts such as Clay Sumner of Friedman Billings Ramsey noted earlier this month that the internal memo suggested Dell will increase its use of original design manufacturers, something the company has avoided but the industry has embraced as the PC market shifts toward notebooks. Cannon's experience with Solectron, one of the industry's largest contract manufacturers, may have been needed to change the grow-our-own manufacturing culture that's been pervasive at Dell for many years.

Credit: Motorola

Ron Garriques

And Dell still remains heavily dependent on corporate customers, who account for somewhere around 85 percent of its business. Executives raised in that enterprise-oriented culture have struggled to improve Dell's consumer businesses, leading to the appointment of consumer-focused executives like Garriques, who ran Motorola's cell phone business, and Sona Chawla, who headed up Wells Fargo's online efforts.

Bracelin believes Dell is putting a solid foundation in place. "This is a management team that's going to come in and lay the framework for a turnaround in 2008," he said.

But faces from new places don't necessarily guarantee success, Kay said: "Lou Gerstner (at IBM) showed it can be done. John Sculley (at Apple) showed you can screw it up."

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