Monday, December 20, 2004

Efficiency and innovation

Today's NY Times has a fascinating article on Dell's approach to R&D, productivity, labour and manufacturing.

"Inside Dell ... computer software clocks the assembly-line performance of workers, whether they're putting together PC's or the servers and storage equipment that Dell sells to large companies. The most able are declared 'master builders' and then videotaped so that others may watch and learn. The weak are told that it takes a special set of talents to cut it on the Dell factory floor - and shown the door ...

The labor costs of a PC are 'roughly 10 bucks,' [Rollins] added, meaning that payroll costs account for maybe 2 percent of the overall cost of the typical Dell PC. Five years ago, it took two workers 14 minutes to build a PC; it now takes a single worker roughly five minutes to do the same."

Described in the article as more Wal-Mart than Ford, their focus on efficiency conjures Dickensian workhouses. But competitors like Sun and HP explain that with this efficiency comes a loss of product innovation and quality. One of the ways Dell keeps costs down is to spend only 2% of their budget on research and development, while their competitors spend between 5% and 8% on R&D. And others point out a decrease in employment opportunities.

"Innovation inside Dell is instead more about how one produces, packages and markets a product than it is about improvements in the product itself ... [and some say that] when Dell squeezes the profit out of a market it also squeezes out everyone's ability to innovate in any meaningful way ... People may marvel over Dell's manufacturing prowess, but the company is proving so efficient that it expects to employ only 1,500 people at its new North Carolina plant when it is fully operating."

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