Dell's laser focus on cost efficiency has long been a core strategy. But like Home Depot, Dell's cost-cutting efforts have alienated its customers. The "direct" sales model of selling computers to consumers via phone and the Internet eliminates the costs of shipping to stores and tracking inventory. But outsiders say that mentality also leads to moves that almost seem designed to put customers last. Dell, for instance, staffs some customer service call centers with fewer than 500 workers. A center that small is almost guaranteed to be frequently overwhelmed.

Enter Richard L. "Dick" Hunter, Dell's (DELL ) new head of customer service. If he has his way, workers in the company's call centers will soon have a colored flag to raise when they run into trouble helping a customer. When the flag goes up, a supervisor will come running to help out. It's an idea Hunter cribbed from Dell's computer factories, where an assembler can raise a similar alarm. "In the factory, if there's a problem, he flicks on a light and the next-level [builder] comes running," says Hunter. In the call center, "why not do the same?"

An eight-year veteran who made his reputation overseeing Dell's legendarily efficient assembly plants, Hunter is remarkably candid about how hard it will be to turn things around. In 2005, Dell's customer satisfaction rating fell 6.3% to a score of 74 in the Michigan ranking, the steepest decline in the industry. Analysts say poor service is complicating the $56 billion Round Rock (Tex.) giant's struggle to get back on the growth path. Competitors have matched its prices, rolled out aggressive marketing campaigns, and raised their own service levels. In the U.S. consumer market, Dell's first-quarter share fell to 28% from 31%, according to researcher IDC. "Dell has to repair its reputational damage," says Jason Maxwell, an analyst at TCW Group, which owns about 25 million Dell shares.

Hunter thinks the solution is to treat the call center like a factory. Now, many call center reps are trained to solve only one type of problem -- say, a hardware glitch on a Dimension desktop. That explains why it's so common for the agent who answers a call to have to transfer it in search of a techie with the right expertise. Hunter estimates that almost 45% of calls to Dell require at least one transfer. "That's terrible," he says. "It's like delivering materials to the wrong factory 45% of the time." Last year, to discourage people from calling at all, Dell removed the toll-free service number from its Web site, a move that Hunter says "falls into the stupid category." It put the number back a couple of weeks ago.

Just as each Dell factory worker is trained to assemble different types of computer models, Hunter plans to train the phone reps in fixing more types of machines. That's supposed to increase the likelihood that the first person who answers a call will be able to help.

Dell long ago found the optimal size for its factories. Now, Hunter intends to do the same for call centers. He plans to expand small centers to house 1,000 to 3,000 reps. That should boost the chances that any caller's problem can be solved by someone within the building. In the next six weeks, Dell will install large monitors to let workers see the number of callers who are on hold. Hunter will have access to each board from his desk so the centers will know, he says, that "Big Brother is watching." Dell points to some progress. The dismal on-hold experience has improved markedly since its November nadir. During a week in May, aided by recent service hires, only 80 people waited more than 30 minutes for an answer.

But can frustrated people be handled like so many widgets in a factory? Customers aren't so easily standardized. The bigger question, though, is whether Dell has the stomach for investing in better service. It plans to spend more than $100 million this year on the effort, far more than it spent last year, when its expenses were 9% of sales, compared with 13% for Apple and Hewlett-Packard. Hunter believes his effort will ultimately pay for itself by boosting sales. But in the meantime, as analyst Maxwell points out, "It sure doesn't help Dell make its quarterly numbers."

By Louise Lee in Round Rock, Tex.

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