Dell, Wall St., and Toyota
Here’s another contrast between Toyota and Dell, particularly striking in context of my recent podcast with Norman Bodek:
Dell shares rallied nearly 3 percent Monday after Goldman Sachs upgraded the stock to “buy” from “neutral” amid calls on Wall Street for the company to cut jobs and improve profit margins.
Meanwhile, a report in the Wall Street Journal’s “Heard on the Street” column highlighted the argument for Dell to reverse a sharp rise in its workforce of over 50 percent during the past two years. Bernstein analyst Toni Sacconaghi, among others, has called for Dell to cut jobs by 10 to 15 percent.
Problem #1: Dell revenue was $49B in 2005 and $57B in 2007. How you grow the workforce 50% with only a 16% increase in revenue is pretty astounding. This is yet another reason why I don’t like lumping Dell into the broad category of “lean” companies. Is Dell throwing people at it’s processes rather than improving the processes themselves? Adding so many people so quickly leads you to….
Problem #2: Only Wall Street can see huge job cuts (10% of 82,200 employees is 8220 jobs) as a positive thing for a company. Toyota has gone over 50 years without huge layoffs, Dell does it every few years (starting in 2001). Think about the cost of poor morale that comes from these boom and bust cycles (and Dell’s “boom” wasn’t much of one). Think about the loss of human capital.
I’m guessing that one reason Toyota has been able to avoid layoffs is prudent and careful hiring in the first place. Dell might do well in “lean” measures of time to cash and inventory, but lean is about more than pure financial measures. I can’t see how Dell can do well on the people side with all the hiring the firing and the fear that it must create within the organization.