Why Apple has thrived while Dell may die

Dell, the company, isn’t Apple, and Michael Dell, the man, isn’t Steve Jobs. No matter how the farcical Dell buyout drama ends (yesterday, the denouement was put off yet again), everyone who isn’t an investment banker or a major shareholder is going to lose — big time.

The company is a mess, dragged down by its dependence on the dying PC market and the inability of Michael Dell and his team to come to grips with a changing world. Unlike Steve Jobs, who left Apple unceremoniously and came back chastened and refreshed with a head full of creative ideas and immense energy, Michael Dell wants to be the unchallenged master of his company — without ever having left or shown that he has something truly different to offer in these changed times.

[ On the downside, Apple’s brains are starting to drain away. | Apple’s perceived innovation has also taken a hit — Galen Gruman tells why it’s not necessarily true. | Stay ahead of the key tech business news with InfoWorld’s Today’s Headlines: First Look newsletter. ]

It’s a sad story. Dell revolutionized the computer industry, introducing mass customization and just-in-time supply chains that put an affordable PC on hundreds of millions of desktops over the decades. Dissecting the fall would take a Harvard case study, but a recent article by a British business professor highlights how Apple outfought and outthought Dell and the rest of the PC industry.

Apple, which has never had a dominant share of the personal computer market, earns 45 percent of the operating profits in the PC industry, according to Asymco analyst Horace Dediu. The top five sellers — Hewlett-Packard, Dell, Lenovo, Asus, and Acer — together make only 33 percent of operating profit.

Sure, Apple is facing serious challenges now, and Tim Cook isn’t Steve Jobs. But what technology company doesn’t face obstacles in a world that’s changing so rapidly? Writing Apple’s obit, as the digerati are ready to do, is a very risky bet. Writing it for Dell, by contrast, is not at all risky.

Apple’s quantum business strategy You’ve probably heard of quantum physics. But what on earth is a “quantum business strategy”? That, says Loizos Heracleous of the Warwick Business School in Coventry, England, is how Apple came to dominate the computer industry. The “quantum business” term comes from the notion in quantum physics that the same electron can be at two places at the same time, Heracleous tells me.

But enough physics. What he means is this: Apple has been able to combine two seemingly contradictory ways of doing business. It has the highest efficiency in operations of any company in its peer group, plus it has “outstanding serial innovation and addictive product design, both of which command premium pricing and redefine markets,” says Heracleous.

Let’s take that apart. Dell was rightly known for its mastery of manufacturing and the supply chain. But when it came to innovation, Dell was AWOL. In fact, Dell executives used to brag that their company’s R&D budget was essentially zero. (Actually, some money was spent on product development, but not on research.) In any case, Dell produced very serviceable, but unremarkable, PCs that couldn’t command a premium in the market.

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.

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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.