The trouble with racing to the bottom is that there's nowhere to go once you get there. But such a quandary won't slow the fall for Dell, which just went private (ending its 25-year run as a publicly traded company).
Consider this. The premium-priced innovative leader in an industry must innovate relentlessly to stay ahead of the competition. There are large financial rewards for innovations that customers and consumers value and will pay more for.
On the other hand, the low-cost leader must relentlessly cut costs to stay ahead of its competition. The rewards for cost cutting are an ability to charge ever-lower prices. Since the price of everything eventually gets competed down to its marginal cost, those ever-lower prices are highly correlated with ever-lower profits and ultimately a complete destruction of value for the cost-cutters.
Dell has had a good run finding ways to manufacture computers at ever-lower costs. But that game is over. Instead of buying the latest personal computer, customers are making-do with the perfectly adequate computer they already have and putting their discretionary cash into tablets and other mobile devices.
What's Next for Dell?
Dell needs a new game. That game could be selling the firm to another low-cost supplier in China or somewhere else so they can race to the bottom together. That game could be applying their manufacturing and distribution expertise to a new, related industry. That game could be something else entirely. But Dell's current game is played out.
As is the old Michael Dell. Don't get me wrong, he has done amazing things amazing well. His is a great American success story. But as Einstein said, "We cannot solve our problems with the same thinking we used when we created them." Dell needs new thinking.
Clearly, there were some that thought that new thinking should come packaged with a new leader. Now that that's not happening, Michael Dell must find a way to hit a re-start button on his own thinking. The hope is that the trauma he put the company through over the last year or so will be enough to make him realize that. If so, there's a chance Dell can find a new way to play in a new game. If not, we should expect to see the company he spent years building crash, burn and disappear.
George Bradt is the founder and managing director of PrimeGenesis executive onboarding, specializing in working with newly hired executives, and co-author of five books including "First-Time Leader: Foundational Tools for Inspiring and Enabling Your New Team" (February 2014)