Business Week ran an article titled “What Dell Should Do” to assist Dell in their falling stock price problem. I offered the following post on Business Week and have expanded on the “why” portion in this blog.

“Investors and traders should get ready to short Dell stock, because after seeing: “we expect to end the year with the widest product portfolio in our history, says Dell spokesman”, expect increasing trouble.

Dell is treading dangerous ground with expanding their offerings - companies increasing their complexity tend to lose focus and erode profits - that topples their stock price. It always begins by looking good. They expand their portfolio to capture marginal and fickle customers, overtax their quality control systems, and begin wavering on (or are overwhelmed by) customer service. After the stock price shock sets in (and with the usual management house cleaning) there is a consolidation wave to Value Engineer existing products and streamline the products and refocus marketing.

Get some help soon - before all those products launch.”

The “Why” portion:

There are a lot of whys, but the cleanest is some old (1970s and 1980s) studies by a couple of the larger branded consulting companies that looked at product breadth and company profitability. The data showed a sharp and linear decline in profitability with increasing products and brands that a company had.

Compare General Motors (eight brands) with Toyota (three brands). The television news program running as I write this said GM sales 2nd quarter 2006 fell 22% while Toyota increased 12%. Every day these two companies are nearing each other in annual sales.

Uncover the ramifications of complexity… A GM marketing budget needs to be almost three times larger to get the same mind-share (if not they are underspending on some or all of their brands). Likewise, an engineering design or manufacturing problem gets only a third of the management attention that such a problem might get at their competitor.

But one potential solution Dell should research: the platform engineering problems of GM in the 1980s. It was a naturally logical move then that became a liability. GM has only somewhat recently figured out what to do and has some great products launching now and in the coming months.

Often seeing and fixing the problem needs an outside opinion - too many inside the company are too vested in expanding their local efforts (products, brands, etc). A fresh set of eyes can aid the senior executives review, analyze, and decide these important issues. And there are a lot of details that need to be considered that cannot be covered even in a long weblog..

So send me an email if you think your company could use some help.

Cheers!