Michael S. Dell, the chairman and chief executive of Dell, who built his business by selling direct to his customers, is now thinking about changing the way the company markets its computers.
“The direct model has been a revolution, but it is not a religion,” Mr. Dell wrote in a memorandum sent on Wednesday to 80,000 Dell employees.
It is the first time that Mr. Dell or any other senior executive has publicly conceded that the business model that was crucial to the company’s success could — and should — be altered. Until now, the company responded with an adamant no when Wall Street analysts or customers asked whether the company would consider other ways of selling.
While Mr. Dell’s memo was short on specifics, he also told employees, “We will continue to improve our business model, and go beyond it, to give our customers what they need.”
As Dell faced slower sales and increased competition, it experimented with minor variations of the model. For example, late last year it opened a showroom in a Dallas mall that displays, but does not sell, computers, printers and TVs. The products still had to be ordered for delivery.
Mr. Dell took back the responsibility of running the company in late January in an effort to reinvigorate slowing sales. He put a new management team in place with some promotions and by hiring from outside. And while he encouraged employees to start thinking of new ways of doing business, he stopped short of discussing the basic business model.
“He is understanding how the dynamics of the market have changed,” said Samir Bhavnani, director of research at Current Analysis, a market research firm in San Diego. “It is definitely overdue, but I wouldn’t say it is long overdue. This is something they should have done in 2005,” said Mr. Bhavnani.
He suggested that Dell team up with an existing electronics retailer to become the exclusive supplier of PCs and printers to that chain.
The Dell memo signals that the company is preparing to shift toward more full-fledged retail operations. Mr. Dell disclosed that the company is putting in place new manufacturing and distribution models in the United States and overseas. The plans are being overseen by Michael R. Cannon, the former chief executive of Solectron, a big electronics maker, whom Mr. Dell hired in February.
The direct sales model had been the key to Dell’s success. Taught in business schools and imitated by companies in other industries, the model enabled Dell to be the low-cost producer of computers and dominate an industry known for falling prices and low profit margins.
The key was building the computer systems only after they were ordered by phone or over the Internet. Having no retail stores enabled the company to lower its costs. Building to demand also allowed it to avoid products that were not in demand. And Dell could avoid an oversupply of parts inventory while it got price reductions from high-volume advance orders for parts.
Dell’s direct model came under pressure as the market for PCs shifted to notebooks from desktops last year. It is harder to custom configure notebook computers, so they had to be manufactured in advance, which lost Dell some of its cost advantage. In addition, consumers were showing a preference for touching and feeling a notebook PC before buying it.
As he has done since reassuming the helm, Mr. Dell pushed employees to feel a sense of urgency.
“This is a defining moment in our history and in our relationships with our customers,” he wrote.
But the company is not abandoning the custom configuration of PCs. Mr. Dell wrote that the Inspiron models that go on sale in June can be personalized in various colors.
Most of Dell’s customers are other companies. Mr. Dell wrote in the memo that the company was trying to simplify the procurement of informational technology equipment.
“We know our competitors drive complexity and needless cost into customers’ environments,” he wrote. He said their “so-called service divisions” create a never-ending buying cycle with no clear return on investment.