Dell Cost Cuts Described in Leaked Memo

Stock in Dell was rising Monday on news that founder Michael Dell plans to remain as CEO for several years, trim the number of managers reporting directly to him and eliminate bonuses.

“We have a tough couple of quarters ahead. We didn’t get here overnight and we won’t fix things overnight either,” Dell wrote in a memo to employees on Friday. “Last year … we had great efforts but not great results. This is disappointing and it is unacceptable.”

Dell pointed to several problems with the company, including an overgrown bureaucracy and operating expenses that had grown too fast.

“We have great people … but we also have a new enemy: bureaucracy, which costs us money and slows us down. We created it, we subjected our people to it and we have to fix it!” Dell said. “I am asking each of you to look across your organizations and eliminate redundancies.”

On Monday, a corporate spokeswoman confirmed the authenticity of the memo, which had been leaked to media over the weekend.

The company has been buffeted in recent days by the resignation of CEO Kevin Rollins last Wednesday, Michael Dell announcing he would take over that job, and the accusation in a lawsuit by investorson Friday that 15 top executives had garnered millions of dollars by selling their stock after propping up the company’s faltering revenue with secret payments from Intel.

Even before those blows landed, Dell was wobbling on a threat by the Nasdaq stock exchange to drop its stock unless the company files its overdue quarterly earnings reports. Dell has delayed filing those numbers for the past two terms as it struggles to satisfy an investigation by the U.S. Securities and Exchange Commission of its accounting practices. It is not yet clear if that investigation is related to the investors’ charges that Dell hid payments by Intel in exchange for staying exclusively loyal to one brand of microprocessor in its PCs.

When Michael Dell announced on Wednesday he would return to his position as CEO, the company was already in the midst of a reorganization plan that calls for US$100 million in spending to improve the customer service practices that allow it to bypass retail stores with its famed “direct sales” business model. The company was also following Rollins’ plan to remake itself as “Dell 2.0,” trying to move beyond an enormous notebook PC battery recall in August by focusing on industrial design, overseas factories and a move to diversify its computers by using chips from Advanced Micro Devices as well as those from Intel.

In his Friday memo, Dell added new details to that strategy. He promised to turn around the company by focusing on the small and midsize business (SMB) sector, enterprise servers and storage, shorter design cycles for new products and increased sales in emerging markets.

He also made a few corporate changes, recalling Paul Bell from his job running the company’s markets in Europe, the Middle East and Africa to lead Dell’s new Americas group, which includes the fast-growing SMB sector. Dell also created a “global operations” division to focus on manufacturing and procurement.

“I remember what it’s like to start a company. We’re moving fast. There is no luxury of time. The competitors are fierce. The difference is this time we have many new assets and some hidden ones that can be brought out,” he wrote.

Dell did not describe the hidden assets he would use to rescue his company’s prospects, but he hinted that Dell has enough resources to outspend its competition. Although Dell handed the title of world’s largest PC vendor to Hewlett-Packard this year, it is still a corporate colossus.

“When I started back in 1984, it was just me. But now we are blessed to have an awesome team, many great assets and $11 billion or so,” Dell said.

-Ben Ames, IDG News Service (Boston Bureau)

Related Links:

• Dell Investors File Suit Over Accounting Practices

• Michael Dell Back in Charge as Rollins Departs Dell

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