The Fall of Dell: A Business Model Innovator Loses Its Way

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Update: After this story went live, I had a chance to speak with a Dell representative. His comments are included below.

Stuff happens. People and companies make mistakes. If you've had a long-term relationship with a vendor, reaching for the divorce papers too quickly can be the wrong move.

But what we've learned about Dell recently doesn't qualify as an understandable mistake. Only a rotten company sells defective computers and lies about it. How could anyone in IT or anyone buying a computer for personal use ever trust that company again?

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I hate saying this. Although Dell was never a leader in technology, it pioneered a business model, including one of the world's best supply chains, that helped make desktop computing ubiquitous, affordable, and secure. And how could anyone not admire the smarts and drive of Michael Dell, who founded the company in his college dorm room and built it into a multi-billion-dollar enterprise in less than a decade?

When I was an executive editor at PC World in the 1990s, our service and reliability surveys generally ranked Dell at or near the top. I almost always had a Dell PC on my desk at work and at home, and I had no hesitation in recommending Dell products to friends and family members.

But today's Dell is not the same company. It's not going to disappear, but like once-high-flying CA, it will always be tainted by the scandal and by its shocking breach of faith with customers.

Blame the Man at the Top

Business culture is formed in the corner office. Even the largest enterprises are a reflection of the men and women who run them, particularly if those executives were founders. The Hewlett-Packard steered by Bill Hewlett and Dave Packard was very different than the HP run by Carly Fiorina.

Dell, though, has always been Michael Dell's company. Sure, Kevin Rollins was CEO during the period when quality plunged. But Michael Dell was chairman at the time and, by all accounts, in close touch with Rollins; they even shared an office for a while.

So blaming Rollins doesn't cut it, and neither does blaming the company that produced the faulty capacitors at the heart of this story. Dell, along with many other manufacturers of PCs, used capacitors produced by Nichicon, a Japanese electronics giant. According to court documents [PDF] in the suit against Dell brought by a major customer, Nichicon sold faulty capacitors, a key motherboard component, that leaked and failed with alarming regularity -- and Dell knew it.

In his excellent piece in the New York Times this week, reporter Ashlee Vance refers to an internal study by Dell that predicted its Optiplex line of business computers containing Nichicon capacitors were expected to have a failure rate of 97 percent over three years.

Dell didn't make those capacitors, but once the company knew they were faulty, it obviously had a duty to its customers to recall the affected machines. It didn't. Instead it covered up the problems, relying on ridiculous excuses and blaming its customers.

According to the Times, when the University of Texas complained that its Dell PCs were failing, the company said the school's math department had pushed them too hard, making them solve difficult calculations. And in a somewhat ironic instance of poetic justice, even the law firm defending Dell was stuck with 1,000 faulty PCs the vendor declined to fix.

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