Dell Inc hopes for turn-around with return of former CEO

NY TIMES NEWS SERVICE , NEW YORK

Sun, Feb 04, 2007 - Page 12

When James Houghton began a second stint as CEO at Corning Inc in 2002, the company was reeling.

The first thing he did, Houghton recalled on Friday, was "to see if there was somebody I should shoot."

Now Michael Dell will be taking aim. This week he reclaimed the CEO job at Dell Inc, resuming day-to-day leadership, at the computer company he founded. He had handed the job over to Kevin Rollins only two years ago.

Dell has lost its stature as the world's largest personal computer maker, surpassed by Hewlett-Packard. Once a Wall Street darling, Dell has consistently disappointed investors over the last year and a half, missing profit forecasts time after time.

Dell is a textbook turnaround challenge, but one with a twist. The new leader is the old leader. These second-act CEOs, according to management experts, bring a deep knowledge of the industry and the company but may be reluctant to make radical changes in companies they either founded or helped build.

The evidence is mixed from the computer industry. Ted Waitt, Gateway's founder, was never able to revive the fortunes of the PC maker after he came back in 2001, and he eventually left the company in 2005.

But Steven Jobs, co-founder of Apple, has led a remarkable renaissance at the company since he returned in 1997.

Dell founded his company in 1984 and never left. He recruited Rollins from the consulting firm Bain & Company in 1996, and Rollins moved steadily up the ranks, becoming president before he was promoted to CEO in 2004.

Even after Rollins became CEO, the company's senior managers often sent e-mail messages directly to Dell, the chairman, asking for his help.

Company founders, said Joseph Bower, a professor at the Harvard Business School, tend to take a long-term view, having seen their companies grow and develop over the years.

The nature of the change required, management experts say, can determine whether a founder or former CEO is the most capable person to turn around a struggling company.

If the problem is mainly one of poor execution and a loss of competitive speed, they say, a returning leader has an advantage. But not if what is needed, they add, is a new strategy or new business model -- a real break with the past.

There are already signs that Dell is accelerating the competitive metabolism at the company.

In the last few days, Dell executives say, he has conveyed a sense of urgency that had been lacking under Rollins, whose management style was cooler and more cerebral.

Dell said he wanted to speed up decision-making and eliminate redundancies, suggesting that the company needed to recapture some of the vigor and hunger of its early years.

But some analysts say that Dell's problems are strategic and structural.

The market has also shifted as consumers, particularly in the US, increasingly buy notebook computers instead of desktops.

In addition, consumers were showing a clear preference for buying those devices in a store, where they could feel the weight or the finish of the product.

Analysts say many prefer stores to the Dell formula.

The problem for Dell, said William Shope, an analyst for J.P. Morgan, has not only been the change in the market but also the company's inability to recognize that change.

Dell is experimenting with some Dell-branded retail stores and kiosks in shopping centers.

But some analysts say that Dell must move much more aggressively to market its wares in the retail market -- a departure from its single-minded reliance on the direct model.

If statistical averages are any guide, Dell's performance may well improve.

Rudi Fahlenbrach, an assistant professor of finance at Ohio State University's business school, found that a company's stock performs 9 percent better than the market after the return of a founder, which has happened with 28 companies since 1993.

But business leadership and management is an individual craft.

Take the case of Corning. Houghton, who is the great-great-grandson of the company's founder, came back when Corning, a supplier of fiber optic cable, was suffering from the post-bubble collapse in telecommunications.

Houghton had returned as non-executive chairman nine months before the board pushed out the CEO and he took over himself.

Corning had always invested in a range of technologies, and one of those long-nurtured investments, in liquid crystal displays, was starting to develop into a promising business.

Today, the flat-screen display technology used in PCs, cellphones and digital televisions has powered the company's comeback.

Houghton's comeback formula, he said, relied on getting the right team and strategy in place and then pushing it -- the same steps mentioned by management experts.