How Michael Dell innovates to keep Dell Inc. on the cutting edge

Michael S. Dell is no longer the rock ‘n’ roll kid who became the youngest CEO ever on the Fortune 500, but he’s still hip to keeping up with the kids.

Dell, who founded Dell Inc. in 1984 with $1,000 and an idea to build relationships directly with computer buyers, today oversees a company with more competition in pricing, product and service than ever before.

More than 26 years into his gig as chairman and CEO, though, Dell, whose company did $52.9 billion in fiscal 2010 net revenue, still talks like that fresh-from-college kid about innovation in products and customer service. He talked about these points to a standing room only crowd at the Cleveland InterContinental Hotel’s Bank of America Conference Center in May. Speaking as part of the Cleveland Clinic’s Ideas for Tomorrow series, Dell spent nearly an hour talking about what makes his company tick.

The conversation started with thoughts on health care — including a moment of glee from the Cleveland Clinic folks that Dell Inc.’s properties are entirely smoke-free — and transitioned into how Dell keeps an edge on innovation. His first rule to keeping an edge: failing.

“When you get a business that changes very quickly, you get some of that naturally,” he says. “You just have to change. To be successful, what you have to do is have an acceptance of risk and you have to be pretty explicit about that, because if you don’t accept risk, you don’t get any innovation. And that means part of risk is you have to accept failure because not everything works.”

And when it doesn’t work, Dell gave some advice that should help soothe leaders coming off the rough landscape of the last few years: Failure can be your best lesson for your next big success. He pointed to a tripping point for Dell Inc. in the ’80s when there was a great flux in the price of pieces related to computer memory. The company’s system of holding onto a lot of inventory put it into an unfortunate bubble.

“It created a huge bubble for us at the time, and what we learned from that is you have to be really world class at managing inventory,” he says. “We went from being bad at that to being a lot better at that. Today, we typically have about eight days of inventory; the average manufacturer tends to have 40 to 50. We’re arguably one of the best in the world at managing inventory. And that became a huge competitive advantage that led to all kinds of growth for us. When things are going well, it’s hard to learn because you’re just growing, so you have to make mistakes. One of my guys says I’d rather try to do 10 things and get seven right than try to do five and get five right.”

Mistakes today are even more manageable, as Dell noted that the opportunity to discuss those problems with your customers through social media changes the landscape. has more than 500 million users per year, and the company also is active in social media ranging from Twitter to YouTube. In all, Dell estimates that his company has 2 billion conversations per year with customers. His reasoning for the chunk of that coming from social media is simple business.

“The first thing you have to realize is the conversations are going to happen whether you are there or not, so you might as well pile in and get engaged in conversations and begin to understand,” he says. “What we found, for example, in social media, is it has reduced our time to understand new trends and problems.”

Dell followed this up with an example of a computer display released in Australia that showed a glitch on certain test programs. The immediate conversation about that on social media rushed up the company’s chain.

“We were able to solve that problem in about a week or two because we were paying attention to the different things out there, whereas previously, those things might stay out there for quite a long time and not get addressed,” Dell says.

Asked to expand upon points made during his conversation, Dell kept it simple and consistent: “Be willing to take risks and change,” he said.


“Imagine what something could be in five years and start putting the pieces together today.”