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Published: August 25, 2004

 
 

How Dell Got Soul

When growth slowed in Y2K, the computer maker’s leaders realized they needed to redesign their win-at-all-costs culture.

Photograph by Wyatt McSpadden
It was late 2000, and Dell Inc. was hurting — badly. A favorite of personal computer buyers since its founding in 1984 and a darling of investors since its initial public offering in 1988, Dell, renowned for the supply chain expertise that allowed it to customize and deliver PCs for every purse and purpose, had stalled. With the bursting of the Internet bubble, the company’s growth stopped. It announced its first layoffs, and proceeded to fall short of Wall Street estimates and internal earnings estimates for five consecutive quarters. The company’s share price tumbled from the high $50s to $17.

Kevin B. Rollins had been at the company for seven years. Then the senior vice president for strategy, he had come to Dell on a consulting assignment in the midst of another crisis, in October 1993, when the company recalled an entire line of new notebook computers because of design flaws.

As he observed the reactions of employees lamenting as their stock options and dreams went underwater, Mr. Rollins recognized that the new problem was worse.

“I realized that we had created a culture of stock price, a culture of financial performance, and a culture of ‘what’s in it for me?’ throughout our employee base,” says Mr. Rollins, who this year became Dell’s chief executive officer. “There had to be something more in this institution that we loved and enjoyed than just making money or just having a stock price that went up.”

Today, by nearly any measure — market share, return on invested capital, or simple revenue growth — Dell is among the most successful companies created in the last 50 years. This year, its 20th anniversary, the company expects to reach nearly $50 billion in revenues, and to grow more, in dollar terms if not by percentage, than in any previous year in its history.

It’s easy to forget that Dell’s success was not foreordained. Indeed, the company’s resurgence and sustained growth during the past several years owes much to its leaders’ insight that something fundamental — at least as essential as its supply chain, and perhaps even more so — needed to be reformed: Dell’s soul.

As he and other senior managers led the company through two painful rounds of layoffs, which further damaged morale, Mr. Rollins began to examine seriously Dell’s corporate culture — the institutional values and belief systems that influence Dell’s behavior as an organization and the behaviors of each employee. He wondered if these not-easily-understood facets of corporate culture were adversely affecting near-term financial performance, as well as Dell’s long-term health and strength.

Mr. Rollins had been thinking about the role of culture in civil societies and organizations for some time. But the confluence of the market downturn of 2000 and the terrorist attacks of September 11, 2001, prompted him to reflect more intensely about what Dell stood for, and why he was there. He concluded that underpinning traditional business performance benchmarks are new measures for how to succeed in business: Speed, integrity, adaptability, and resilience are becoming the true tests of whether a company is built to last.

How Mr. Rollins, together with company founder Michael S. Dell and other leaders, put Dell back on track makes a powerful case for the role corporate culture plays in enduring business performance. Their story also strongly suggests that, over the long run, the healthiest and wealthiest companies are those that define their strategies and management systems with a purpose beyond merely increasing returns to shareholders.

“What great companies have always done is to find ways to appeal to another side of human nature, wanting to be associated with something that’s great,” says John P. Kotter, an expert in leadership and culture and a retired Harvard Business School professor. “You want to find the nature of what you’re making exciting and believe that this product or service does something useful for humanity. Great companies institutionalize that, and you can’t fake it.

 
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Resources

  1. Gary Neilson, Bruce A. Pasternack, and Decio Mendes, “The Four Bases of Organizational DNA,” s+b, Winter 2003; Click here. 
  2. Terrence E. Deal and Allan A. Kennedy, Corporate Cultures: The Rites and Rituals of Corporate Life (Perseus, 1984)
  3. Terrence E. Deal and Allan A. Kennedy, The New Corporate Cultures: Revitalizing the Workplace after Downsizing, Mergers, and Reengineering (Perseus, 1999)
  4. Joseph J. Ellis, Founding Brothers: The Revolutionary Generation (Alfred A. Knopf, 2000)
  5. John P. Kotter and James L. Heskett, Corporate Culture and Performance (Free Press, 1992)
  6. Brook Manville and Josiah Ober, A Company of Citizens: What the World’s First Democracy Teaches Leaders about Creating Great Organizations (Harvard Business School Press, 2003)
  7. Edgar H. Schein, Organizational Culture and Leadership (Jossey-Bass, 1985)
  8. William E. Schneider, The Reengineering Alternative: A Plan for Making Your Current Culture Work (McGraw-Hill, 1994)
  9. Lynn Sharp Paine, Value Shift: Why Companies Must Merge Social and Financial Imperatives to Achieve Superior Performance (McGraw-Hill, 2003)
  10. AES’s values statement: Click here. 
  11. Johnson & Johnson’s values statement: Click here. 
  12. John Kotter: Click here. 
  13. Levi Strauss & Company’s values statement: Click here. 
  14. Edgar H. Schein: Click here.
 
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