Unknown face of Dell -- Interview with Dell senior executives

Dell is a riddle for many Chinese. Saying so is not at all groundless. It seems that there are two Dells on the media.

One Dell is glittering with numerous honors: the largest PC company in the world, the Most Admired Company in America in 2004 by Fortune, the richest young man in America as its Chairman ...

Another Dell is deeply troubled by an avalanche of bad news in China. The notorious Email story; the controversial Ice cream Advertisement; the disenchantment from a Professor with Zhejiang University who regarded himself mistreated by Dell Employees ...

Driven by those bad news, some Chinese media claim that Dell is not as good as it looks like. One newspaper predicted that Dell's direct model is likely to fail in China. A magazine branded Dell's corporate culture as a culture showing no respect and intimacy toward its employees. Most media criticism is focused on Dell's lack of innovation. According to one story, 95% of Dell's first stage manufacturing of notebooks is completed in China. Dell doesn't do any of its notebook design and relies completely on Taiwan ODMs(Original Design Manufacturers).

Which Dell is true? How does Dell respond to the criticism? How does Dell perceive innovation? In order to get the answers, our People's Daily Online Washington-based correspondent Yong Tang recently conducted an exclusive interview with Mr. Dick Hunter, Vice President of Americans Manufacture Operations and Supply Chain Management and Mr. Jeffrey Clarke, Senior Vice President and General Manager of Product Group.

Mr. Dick Hunter, Vice President of Americans Manufacture Operations and Supply Chain Management

Dell Will Never Give Up Direct Model

Yong Tang: Do you know Lenovo in China?

Hunter: Of course!

Yong Tang: After the merge with IBM PC business, Lenovo has become a real sense global competitor for Dell, hasn't it?

Hunter: Sure! I think it is a real competitor and we respect it as a competitor. But we feel that we can compete with Lenovo or HP or any other competitor in the world.

Yong Tang: Why are you so confident?

Hunter: I am very confident we can compete very well because we have a very good team of people and we are very focused on our customers. Over the time direct model will become a model of choice for more and more companies.

Yong Tang: Do you think the direct model should be improved today?

Hunter: Direct Model is continuing to evolve. Today we are Selling TVs, projectors and MP3 in the direct model. We know our customers want to see the product before they buy it. So we set up a Kiosk in hundreds of shopping malls around the country. You still buy direct but you can go to our kiosks to see samples and order your products there. It is another innovation for direct model.

A few years ago we decided to go into printer business. Our challenges are how to deliver ink cartridges within 12 hours to our customers. We bought a place in Cicinati in Ohio, which is only 15 minutes drive from Wilmington where DHL has a main distribution operation center. If you are ordering ink cartridges online by 11:00 at night, we will deliver our products to the center by 2:00 in the next morning. Then DHL will sort our products and get them on the right airplane to deliver them anywhere in the country by 10:30 AM.

Yong Tang: In the near future, does Dell have a plan to give up direct model and adopt a distribution model or just combine your direct model with retail one?

Hunter: You can't do direct model and retail model at the same time. Any companies who are trying to do that will fail. Why? Because they are radically different approaches in how you run your business. We much prefer a direct relationship with our customers. we don't want a third party between us and customers. I don't ever see Dell going toward a retail model.

Yong Tang: So Direct model is very effective. But why do most of your major competitors like HP and Lenovo in China still stay on retail today?

Hunter: The way we make and deliver products is on the front pages of local newspapers. So it is very likely they know our models. Frankly speaking even I am surprised by the fact they didn't copy our direct model.

I think there are a couple of key reasons. First, in order to go to direct, they should basically shut down all of their retails channels. It would be a big burden for them to do that. Second, building the infrastructure and capability of shipping directly to their customers is a big challenge for them given the complexities of answering the telephones or emails and being able to figure out an unique system for the customer. That becomes a barrier for our competitors. Other companies would really struggle to do direct model.

Employees Are Secret Weapons of Success

Yong Tang: So Dell's approach to run the business is quite unique and can not be copied?

Hunter: I have been in the management and supply chain for 31 years. Frankly anyone can copy our factories, our equipment and even our patented processes. What other companies cannot copy is our people and our culture.

It is an autonomous and empowering culture. We have an excellent team of people who have been empowered to take on their own. We do this through BPI process(Business Process Improvement). Dell saved more than $1.9 billion in BPI projects last year. Many of these were led by our manufacturing employees around the world. So the secret weapon of Dell is its people.

Dell Chairman Michael Dell and CEO Rollins and I walk through the factories at least once a quarter, just to thanking people for doing a good job. We have done this for a long time. I don't see many Chairmans or CEOs or board members willing to walk around the factories. So we have a very high-touch and very visible leadership here.

Yong Tang: What you do shows a strong degree of intimacy toward employees.

Hunter: Absolutely! The factory folks see Michael and I all the time. Every time when we visit the factories, employees will leave their workstations and gather around us in a semi-circle. Michael and I will talk to them and thank them and answer their questions. It is quite a sight to watch the production employees get so excited about improving the productivity, the quality of products and being able to tell Chairman of a Fortune 28 company what they are doing.

Yong Tang: But recently I read a story from a Chinese magazine criticizing the corporate culture at Dell. The story said employees at Dell are considered merely as a part of assembly lines. The intimacy and personal respect toward employees are insufficient. The journal also claimed that employees tend to move somewhere else quickly after a short stay at Dell. How do you think the criticism?

Hunter: Absolutely unfair! In fact the turnover rate we have is quite low. We have done an anonymous survey twice a year to measure the employees' satisfaction with the company. Over 90% of our employees around the world participate in the survey. In the surveys there are some questions like: Does your manager treats you with dignity and respect? Do you think your career at Dell is developing? If offered another position outside Dell, would you stay at Dell? Overall employee satisfaction is 77 percent favorable, according to recent company surveys.

We Don't Rely On ODM Completely

Yong Tang: In fact, the criticism by Chinese media focused on innovation. Some newspapers claim Dell is a marketing miracle but lacks strong innovation spirit. One piece of evidence they often cite is 95% of Dell's first stage manufacturing of notebooks is completed in China. They even said Dell doesn't do any of its notebook design and relies completely on Taiwan Original Design Manufacturers (ODM). Is the report accurate? If yes, why does Dell rely on China so heavily for notebook manufacturing and rely on ODM so heavily for design?

Hunter: Dell partners with ODMs for basic design elements of some systems. However, Dell is highly influential and very much involved in the design process because of the customer feedback we receive directly from customers about the features and specifications they want. We will tell ODMs the feedback of our customers and also test the reliability of the systems designed by ODM. More than 70 percent of the value of notebook systems is added in Dell's design centers, contrary to what many reports falsely indicate. Some of our competitors ship systems directly from ODMs to customers. Dell never does this.

There are certain things that Dell is extremely good at. There are many things that other people are very good at. We do not try to do things that other people are very good at and we are not good at. So our value comes from the knowledge about what our customers want and our design teams that are very good at integrating. We are not inventing things for the sake of invention.

Yong Tang: How can you make sure those products made by your suppliers are high quality?

Hunter: We send our own engineers to live in the cities where our supplier factories are located. Our engineers will visit those plants virtually every day. So we very much understand how the production is going in those factories. We have tremendous knowledge about those products even before they are shipped to us. In addition, Dell will do very strict testing on those sample parts in order to make sure those products meet the customers' needs.

Mr. Jeffrey Clarke, Senior Vice President and General Manager of Product Group

Use R&D Dollars Very Efficiently

Yong Tang: R&D funding is an important indicator of innovation. How does Dell think of R&D?

Clarke: Dell spends nearly half a billion dollars each year on research and development. It is about 1% of our revenue. The percentage is not high. But we use our R&D dollars very efficiently. Dell generated more than $9 in operating income for every dollar invested in research and development in 2004.

Dell also recognized early that it is costly and inefficient to recreate work others have done very well. We foster an open environment of partnerships that brings together the best talent from across the industry. The result is we are able to deliver a collective research-and-development investment of more than $20 billion annually to meet real customer needs.

Yong Tang: How do you use your R&D money?

Clarke: Dell has more than 4 000 engineers globally. They have produced more than 1100 patents so far. Additional 700 patents are pending. We will continue to hire more engineers around the world.

By Yong Tang, People's Daily correspondent in Washington DC