Michael Dell: Thinking Out Of The Box

His credo -- cut out the middleman -- turned the computer business on its head
As part of its anniversary celebration, BusinessWeek is presenting a series of weekly profiles of the greatest innovators of the past 75 years. Some made their mark in science or technology; others in management, finance, marketing, or government. For profiles of all the innovators we've published so far, and more, go to www.businessweek.com/innovators/

Michael Dell
Ever since he decided to drop out of the University of Texas to run his PC's Limited in 1984, Michael S. Dell has taken full advantage of his rivals' refusal to see him as an innovator. Time and again, executives at giants such as IBM (IBM ) and Compaq Computer Corp. (HPQ ) derided his low-tech approach to hawking PCs as unbecoming a true tech company -- until it was too late to respond to his market-transforming ideas.

In the process, this soft-spoken son of a Houston orthodontist has changed the very definition of "innovation" as it relates to the high-tech industry. Before him, innovation was about well-schooled engineers in pricey research and development labs inventing high-margin products and technologies. Dell instead trained his eye on finding the most efficient way to get tech products into the hands of customers. By perfecting a simple credo -- cut out the middleman -- he turned the computer business on its head. To this day, despite a decade of effort by rivals to emulate his approach, Dell remains the only consistently profitable big PC maker. "Dell remade the PC industry in his image and likeness," says University of California at San Diego assistant professor Gary Fields. "He defined the terms of competition."

Not bad for a guy who only made it through one year of college. But Dell has always had a genius for spotting holes in conventional wisdom. At 16, he prospected for customers for his newspaper route by scouring lists of newlyweds and home buyers at the county courthouse, and made $18,000 that helped buy him a white BMW. By 1983, he had realized that every PC was created with the same readily accessible components, such as Microsoft Corp.'s (MSFT ) software and Intel Corp.'s (INTC ) chips. By assembling his own PCs and selling them directly to consumers, he could keep the middleman's cut for himself. "I want to compete with IBM," the 18-year-old told his father.

It didn't take long for him to live up to the bravado. By 1993, both IBM and Compaq revamped their business models with low-end PC lines designed to match Dell. Yet even as he continued gaining share in desktop PCs, rivals refused to believe Dell's model would work in selling laptops and servers. Their mistake. Today, Dell is tops in laptops and is closing in on the server crown as well.

That was still prelude for Dell's greatest accomplishment: pioneering, and very nearly perfecting, the art of e-commerce. When Dell became the first PC maker on the Web in 1994, its site offered little more than product and pricing information. Soon Dell had turned the Net into an engine for mass customization -- a perfect extension to Dell's direct-sales approach. By 1999, Dell was the largest seller on the Internet, trumping Amazon.com (AMZN ), eBay (EBAY ), and Yahoo! combined.

Certainly, Dell's influence will only increase. As he approaches his fortieth birthday in February, his company is making headway in using its efficient approach to sell storage gear, printers, and flat-screen TVs. But most amazing of all to his peers is Dell's near egoless management. From the start, he has sought out gray-haired mentors to help show him the way. Most recently, he gave up the CEO title to Kevin B. Rollins, whom he considers a master operating executive. Dell remains chairman and is just as active in the company as ever. That spells years of more pain for his competitors -- and more affordable technology for the rest of us.

By Andrew Park

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