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How Did Dell Create Its Breakthrough Success?

Once upon a time, Dell Computer stood tall as one of the most successful and innovative tech companies ever. Michael Dell started the company in his dorm room at the University of Texas at Austin, to sell computers direct to consumers. In a little more than 10 years, Dell computer went from $0 in revenue to more than $10 billion!

The actual Dell Computers weren’t all that innovative. For the most part, Dell was integrating off-the-shelf components and software into a final computer. Pretty much the same product other Value-Added-Resellers (VAR’s) were offering at the time. So it would be stretch to say that Dell offered an innovative product since any technically competent integrator could offer the exact same product.

The real innovation Dell created was along the business model and the process types (or dimensions if you prefer – I discuss innovation types below). At the time, no one had thought it possible to offer a totally “customized” PC at a competitive price. Nor did conventional wisdom believe that a customized PC offering could be scaled beyond a VAR business model.

Taking advantage of the Internet’s disruptive forces, Dell’s second innovation was to create a configuration order entry system making it simple for the average user to design a PC to their unique requirements. Dell also created a back end supply chain processes to build and deliver the completed PC to the customer’s home or place of business within days, not weeks.

Innovating across the three innovation types

Dell is a great example showing how breakthrough business results don’t necessarily have to be in the dimension of product innovation. Recall from my last post, I described 3 types of innovations a company can explore and exploit:

1. Product and Service Innovation: For example Apple’s iPhone
2. Process innovation: Often happen behind the scenes to provide customers with expedited and customized service at a price advantage – like Dell’s PC configuration front and back end processes.
3. Business model innovation: Like Dell’s model to sell computers directly to the end customer and skip the middleman.

Don’t get me wrong, Dell computers were good, but really nothing exceptional that the rest of the competitors couldn’t offer. In fact, value added resellers’ primary differentiation was supplying its customers with custom configured PC’s (hardware and software) to get specific jobs their customers needed to get done. What VAR’s couldn’t master though, was creating a business model and supporting processes to scale the way Dell did.

The then competing PC firms at the time (i.e. IBM, HP and Compaq), could not respond to Dell’s business model either because their business models were too depended on their distribution channels and mass production lines. Specifically, the competitors were both “channel locked” and operationally constrained (mass-customization was not built into their manufacturing processes).

It would have been too much of a risk for them to disturb their channel relationships and change their core production process. To do so would be to kill the goose that lays the golden egg. So they thought.

Breakthrough results come from creating new value for customers

It’s unlikely Dell explicitly used the Jobs-To-Be-Done (J2BD) innovation framework to design and create its breakthrough strategy, since the Jobs-To-Be-Done framework wasn’t codified till sometime after Dell’s success.

But clearly Dell’s marketing and operational teams had great insights into what customers really wanted: “A PC designed specifically to meet their needs of getting their important jobs done.” And their desired outcome of buying “a state-of-the-art PC from a trusted company with no hassles, nor surprises, and at a fantastic value.”

Back testing the J2BD innovation framework on Dell

It’s easy to see how the J2BD innovation framework could be back tested using Dell as business case. That’s a useful exercise for you, as you dive deeper into the J2BD framework and start applying it to your innovation efforts. Of course, unless you were at Dell at the time, you will have to hypothesize how Dell’s innovation and operational teams actually achieved their success.

What we do know is that Dell was able to see past the conventional definition of what the market was, and what customers valued. They could have copied Compaq’s model (another success story – though they may have benefited primarily from jumping into the PC “tornado” at the right time). If Dell had copied Compaq, they probably would have found themselves in a “red ocean” battle sooner than later with the rest of the PC players.

Perhaps Michael Dell could have continued to take orders from his dorm room and hired his college buddies to build to order. But at best, they would have only become a super VAR – probably a successful one at that – but not to the scale Dell ultimately achieved.

Innovation happens across all three innovation types

There are many more examples we can explore on how companies innovate across the three innovation types. More often than not, breakthrough results happen by innovating across 2 to 3 of the innovation types. For example, Apple’s iPOD was indeed a product innovation, but combined with the iTune business model – Apple hit a grand slam.

When innovating, think beyond the product dimension and look across the business model and underlying processes that create value for customers. Focus your innovation strategy to address the specific jobs and desired outcomes customers really want – then design your innovation strategy to include all the dimensions that create value for your customer – even if it means disrupting the status quo.

So what happened to Dell? Love to hear your thoughts as to why Dell wasn’t able to continue to innovate and achieve success like Apple. A great topic for a future post.

Keep innovating and play to win!

Kevin

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