Why Apple has thrived while Dell may die

Unlike Dell, Apple combined two seemingly contradictory strategies: top operational efficiency and laser focus on creativity

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Apple, by contrast, sells fewer Macs at higher prices, and it has better margins (the key to profitability) than its competitors, which tells you two things: It produces very efficiently, and buyers are willing to pay more for its products.

Two other metrics stand out: Over five years, Apple has had the lowest sales and administrative costs of the eight major companies in the tech industry, including Intel, Google, and the major PC makers. It has also has the most inventory turns (the cost of goods sold, divided by the value of inventory) in its competitive group.

And don't forget: Much of that operational excellence was the work of Tim Cook, now two years into his term as CEO.

One market or many?
When Cook left Compaq for Apple in 1998, one of his first acts was cutting the number of key suppliers from 100 to 24, giving Apple much tighter control. He also rationalized the warehouse system, saying, "If you have closets, you'll fill them up." In other words, he trimmed back inventory storage, as carrying old inventory increased costs and reduced profits.

That was just the beginning. "However, what is not widely recognized is that Apple's efficiency is as much due to strategic focus and simplicity as to supply-chain rationalization. Apple focuses in terms of target market, of product line, of product design, and even in terms of its own organization design," says Heracleous.

First, Apple largely aims for the consumer market as opposed to the business sector, allowing the company to simplify its investments and operations and focus on what it does best, he says. Dell, on the other hand, says business is its core focus, but in reality it's always had one foot in the consumer market, a difficult balancing act. Take a look at Dell's website and you'll see exactly what I mean.

Apple chose not to produce low-margin printers and scanners, and rather than offering many flavors of the iPhone it offers one -- and updates it. "The market proposition in the consumer sector can focus on coolness, desire, and fun -- elements alien to corporate buyers who are accountable for IT investments and go for reliability and value," says Heracleous. Indeed, when Jobs in 1997 returned to the company he co-founded, one of the first things he did was kill two-thirds of the project then under development because they weren't cool. Can you imagine Dell doing that?

"Second, the narrow depth and breadth of the product line preserves management attention, facilitates marketing, and increases negotiating power over suppliers," says Heracleous.

I'll part company with Heracleous a bit here. Apple has, in fact, gone into the business market -- but on its own terms. The iPhone was so popular with consumers that they insisted on bringing it to work, and that ultimately helped overcome the resistance of business IT. In fact, without Apple, there would be no BYOD movement and Apple would not be the dominant provider of mobile devices to businesses, as it is now.

Apple may or may not regain its footing. Having created a new category of devices, it faces very stiff competition from the likes of Samsung and perhaps Google that have learned from its example.

But Dell's future, I'm afraid, is clear -- and it doesn't look bright.

I welcome your comments, tips, and suggestions. Post them here (Add a comment) so that all our readers can share them, or reach me at bill@billsnyder.biz. Follow me on Twitter at BSnyderSF.

This article, "Why Apple has thrived while Dell may die," was originally published by InfoWorld.com. Read more of Bill Snyder's Tech's Bottom Line blog and follow the latest technology business developments at InfoWorld.com. For the latest business technology news, follow InfoWorld.com on Twitter.

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