The return of the king

Investors have welcomed Dell's decision to reinstate its founder as chief executive. But as the dust settles questions have begun to be asked about what Michael Dell can bring to the role that outgoing CEO Kevin Rollins could not. IT Weekly assesses Dell's prospects

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By  Administrator Published  February 8, 2007

When Michael Dell announced in 2004 he was to promote Kevin Rollins to CEO of the company he had founded 20 years earlier, Dell could not have been more fulsome in his praise. "While I've been getting most of the credit, there is no single person who deserves more recognition for Dell's great accomplishments than Kevin Rollins," he said at the time.

By last week, Dell had clearly decided that Rollins also deserved to take his share of recognition for the problems that have bedevilled the firm since then. Dell's resumption of the CEO role was, he has said, his own decision, following Rollins' resignation from that post.

"Kevin has been a great business partner and friend. He has made significant contributions to our business over the past ten years. I wish him much success in the future," Dell said in the statement announcing the changes.

That same statement also carried a warning that the firm expects both revenue and earnings for its fourth quarter fiscal year 2007 results to be down on analysts' forecasts - the latest in a series of disappointing financial results for Dell, which has faced one crisis after another over the last year. The company has lost its number one spot in the PC market to rival HP, suffered increasing criticism of its customer service and is the subject of an ongoing investigation by the US Securities and Exchange Commission (SEC) into its accounting practices.

Last August, Dell issued a recall for 4.1 million notebook batteries, one of the largest electronic products recalls in history. Battery supplier Sony took responsibility and other companies also followed suit with similar recalls, but footage of a Dell laptop catching fire was widely circulated on the internet - helping to cement a perceived perception that Dell laptops suffer from poor design compared to rivals.

To rub salt in the wound, Dell has had class-action lawsuits filed against it in the US and Canada, alleging defects in the design of some of the vendor's notebooks resulted in problems such as overheating and premature motherboard failure.

Rollins was with Dell for ten years, having joined in 1996 from management consulting firm Bain & Co. While the firm made spectacular progress between 1997 and 2004 - with Rollins being seen as making a major contribution - complaints about customer service had already begun by the time he took on the CEO role.

Although Dell last year said it was spending over US$100million on fixing customer service problems, these measures were criticised as being too little, too late.

While Dell had said repeatedly that he would stand by Rollins, last week's announcement was not seen as any great surprise; investors had grown increasingly frustrated at the company's performance under Rollins' leadership and his departure saw shares rise by as much as 5%.

Now that he's back as CEO, Dell has wasted little time in attempting to cut costs: announcing in an e-mail to all company staff that there will be no bonuses; streamling the number of senior managers; and making some personnel switches, with Paul Bell - widely regarded as having done a good job leading the EMEA organisation - being brought back to the US to take charge of the under-performing Americas operation.

"I remember what its like to start a company... The difference is this time we have many new assets and some hidden ones that can be brought out," Dell said in the e-mail.

While Dell may well remember what it is like to start a company, analysts have been quick to point out that it is many years since he has led one single-handed: even before Rollins joined, he had worked with other strong number two figures. And just how useful is the experience of starting a mail-order PC firm in your dorm room with US$1,000 in capital going to be in running a company with a turnover approaching US$60 billion?

Not that Dell hasn't been closely involved in running the company; before Rollins was promoted to CEO they adopted a strong working relationship that continued until last week, with Rollins looking after day-to-day details and Dell spending more time on strategy. The press release announcing Rollins' promotion quoted Dell as saying it was a change "primarily of title, not of roles or responsibilities".

In which case, analysts have asked, just what new ideas can Dell bring? Both he and Rollins were closely aligned on virtually all major decisions the firm has made in the past three years. For instance, it is understood Dell backed Rollins decision not to go with chips from AMD, maintaining close ties with Intel instead. When Rollins backtracked last year, Dell agreed the time was right to do so.

Rollins was not helped by the resurgence of rivals such as HP, which has made steady progress since Mark Hurd took up the reins as CEO in 1995. While Dell had outperformed HP consistently for several years, Hurd introduced many of the supply chain efficiencies that had worked so well for it. He even went so far as to hire Dell's highly regarded CIO Randall Mott to help improve operations, allowing HP to compete more aggressively in the market.

Simply put, Dell has suffered because rivals have been able to use its own tactics against it, while it has struggled to find new ways of staying ahead.

Last year, Dell and Rollins jointly announced Dell 2.0, a series of strategy tweaks focused on improving service levels, a greater emphasis on emerging markets and wider customer choice. However, it has been criticised as lacking substance.

As CEO, Dell will face a lot of the same challenges that Rollins did; while the markets welcomed the change in leadership initially, he may just have taken on his toughest challenge yet.

By taking over the reins as CEO again, Michael Dell is clearly hoping to inspire a strong turnaround in the company he also founded. According to a US research study, companies that were under performing the market by an average of 20% were able to go on to outperform the market by an average of 8% after rehiring a former CEO. So the stats look promising.

If Dell wants further proof, he could do no worse than look at Steve Jobs’ performance as CEO of Apple. Since returning to the role in 1997, he has completely transformed its fortunes, making it once again one of the big names of the industry with a string of hit products such as the iMac, iPod and soon to be released iPhone.

Dell might be less keen to dwell on the performance of Ted Waitt, the founder of PC maker Gateway. Waitt released the reins as CEO in late 1999 only to return to the post in January 2001. However, he was unable to turn the company’s fortunes around and in 2004 he stepped down as CEO and in May 2005 he resigned as chairman of the company.

“Kevin has been a great business partner and friend. He has made significant contributions to our business over the past ten years. I wish him much success...”

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