As reports surface that Dell is considering entering the market for smart phones, we think the company is smart to not just hunker down and hope that problems in its personal-computer business go away. They won’t go away, not any time soon.
The whole industry is under such pressure that even Intel and Microsoft are feeling it. And, before demand plunged, the industry was moving away from Dell. It had thrived in a time when people mostly used desktop computers and purchased them based on how much computing power they provided for a given price. Now that laptops are ascendant, customers are much more concerned with how the computers look, with how the keyboard feels and with other subjective measures. But Dell barely has a presence in the retail channel, so customers have little opportunity to try Dell’s laptops. Besides, Dell has never shown great strength in the kind of design that catches a consumer’s attention the way Apple does.
Which brings us to the Red Queen–and why the move into smart phones is likely to be a bad idea.
The concept of the Red Queen comes from a growing body of research that explains why a company that prospers in one market likely won’t succeed in another. The concept draws its name from “Through the Looking Glass,” where the Red Queen tells Alice that “it takes all the running you can do to keep in place.” The idea is that successful companies keep working harder and harder to stay ahead of the competition. In the process, they optimize their culture, their processes, their organization–everything–to succeed in their part of the market. Companies often assume their success will carry over into new markets. In fact, the success may diminish the company’s chances. That’s because optimizing for one market may stifle the attributes that are needed in the new one. (For more, see The Red Queen Among Organizations by William P. Barnett.)
To apply this to Dell: The company succeeded through a super-lean manufacturing business. That means a host of things: standardization of parts, elimination of frills in the products, an emphasis on reliability, the use of parts that are easy to assemble, and so on. But smart phones don’t depend on lean manufacturing. They require a wow factor. Even though Dell has tried to reach out and find people with experience in making gitzy smart phones, everything about the Dell culture has been shaped over the years in ways that will fight the newcomers. Just imagine the questions and objections. Why use that part when it costs $1 more than this other one? Should we really use that type of shell, when it’s susceptible to cracking? That super-thin battery doesn’t meet our reliability standards. And so on.
For good measure, Dell will be dealing with new distribution channels–rather than dealing directly with consumers or with corporate customers, Dell will have to sell through cellular companies. Dell will likely have to change its marketing approach, to go from selling a reliable commodity to selling something that will get teens and 20-somethings talking. Dell will also face heavy competition, because it’s hardly the only company that’s thinking of expanding into smartphones.
By killing a music-player project before going to market with it, Dell has shown the ability to step back from a bad strategy. Dell should do the same again and stop the smart phone, and Michael Dell should go back to spending his time on the many efforts that could do his business some good.
