The power of virtual integration: an interview with Dell Computer's Michael Dell. Interview by Joan Magretta.

Abstract

Michael Dell started his computer company in 1984 with a simple business insight. He could bypass the dealer channel through which personal computers were then being sold and sell directly to customers, building products to order. Dell's direct model eliminated the dealer's markup and the risks associated with carrying large inventories of finished goods. In this interview, Michael Dell provides a detailed description of how his company is pushing that business model one step further, toward what he calls virtual integration. Dell is using technology and information to blur the traditional boundaries in the value chain between suppliers, manufacturers, and customers. The individual pieces of Dell's strategy--customer focus, supplier partnerships, mass customization, just-in-time manufacturing--may be all be familiar. But Michael Dell's business insight into how to combine them is highly innovative. Direct relationships with customers create valuable information, which in turn allows the company to coordinate its entire value chain back through manufacturing to product design. Dell describes how his company has come to achieve this tight coordination without the "drag effect" of ownership. Dell reaps the advantages of being vertically integrated without incurring the costs, all the while achieving the focus, agility, and speed of a virtual organization. As envisioned by Michael Dell, virtual integration may well become a new organizational model for the information age.

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