Dell memo hints at shake-up, cuts and acquisitions

Michael Dell is considering a company shake-up to "eliminate overlaps", according to a corporate memo leaked to the press earlier this week.


Michael Dell is considering a company shake-up to "eliminate overlaps", according to a corporate memo leaked to the press earlier this week.

Dell has endured a sales slide in recent quarters that has allowed rival Hewlett-Packard to take over the top spot in PC sales, according to market researchers.

The company has also failed to file several recent financial results with regulators as it continues to struggle with an accounting investigation by the US Securities and Exchange Commission. To stop the bleeding, the company must trim costs and find new areas for business growth, the memo sent to 78,000 employees on 25 April said.

"We plan to eliminate overlaps in our [global operations] organisation and activities," Dell wrote. "We also need to improve sales productivity. These won't be merely exercises in cost-cutting."

The company may change the direct sales model that moved his company from a Texas start-up in 1984 to the world's largest PC vendor in 2006, the memo says.

"The direct model has been a revolution, but is not a religion," Dell wrote. In an effort to improve the company's results, Dell has already made broad changes in management, returning to his position as chief executive in February and hiring a new slate of managers, many from outside the company.

Now the new leaders are ready to act, with a plan "to make profound changes and take well thought-out risks".

A company spokesperson confirmed the text of the memo but declined to elaborate on the comments.

Analysts applauded Dell's new plan, saying its strict terms are what the company needs.

"Dell is in the early stages of major transformation of its business built around customer centricity, innovation and services. I would expect the realignment of resources around those three goals to include the exit and entrance of employees," said Charles Smulders, managing vice president for client computing at Gartner.

Michael Dell also described several steps in a long-term plan to build new products for the world's fastest growing markets and regions. The company is reaching for emerging markets of Brazil, Russia, India and China in an effort to sell PCs to the world's "next billion consumers". To gain a foothold, Dell has opened factories in Brazil and India.

Many of the steps outlined in the memo are in line with the company's "Dell 2.0" strategy, a plan launched by former chief executive Kevin Rollins in September to improve the firm’s industrial design, expand its IT services and boost sales in developing countries.

The new memo also describes Dell's plan to offer corporate customers a set of products that will "radically simplify IT".

"We know our competitors drive complexity and needless cost into customers' environments," Dell said. "We intend to break this cycle. We will build different kinds of services and offer key technologies that will help customers escape this complexity trap."

To reach that goal, Dell may have to acquire some new technologies or even companies, the memo hinted. "We won't hesitate to use our company's assets to build or buy the capabilities and technologies we need to deliver on our initiatives," Michael Dell wrote.

However, one industry analyst was sceptical that Dell's note would actually lead to serious change at the company, saying it was merely a "cheerleader memo", designed to be leaked to the press in order to soothe nervous investors.

"This gives Dell time - time to see who the memo makes nervous, time to see who reaches out to him with ideas and tactics to actually help Michael deliver on his vision," said Richard Doherty, research director at the Envisioneering Group. "It is a ‘shake up the box’ approach to management, see who scurries and see who has good ideas."

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