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The Power of Virtual
Integration: An Interview with Dell Computer’s
Michael Dell by Joan Magretta

Harvard Business Review
Reprint 98208

The Power of
V i r t ua l I n t e g r at i o n :
A n I n t e rv i e w w i t h
D e l l C o m p u t e r’ s
Michael Dell b y J oa n M ag r e t ta

H

ow do you create a $12 billion company in just 1 3 years?
Michael Dell began in 1984 with a simple business insight: he could by-

pass the dealer channel through which personal computers were then being sold. Instead, he would sell directly to customers and build products to order.
In one swoop, Dell eliminated the reseller’s markup and the costs and risks associated with carrying large inventories of finished goods. The formula became known as the direct business model, and it gave Dell Computer Corporation a substantial cost advantage.
The direct model turned out to have other benefits that even Michael Dell couldn’t have anticipated when he founded his company. “You actually get to have a relationship with the customer,” he explains. “And that creates valuable information, which, in turn, allows us to leverage our relationships with both

ARTWORK BY NATALIE ASCENCIOS

Copyright © 1998 by the President and Fellows of Harvard College. All rights reserved.

t h e p ow e r o f v i r t ua l i n t e g r at i o n :

suppliers and customers. Couple that information with technology, and you have the infrastructure to revolutionize the fundamental business models of major global companies.”
In this interview with HBR editor-at-large Joan
Magretta, Michael Dell describes how his company is using technology and information to blur the traditional boundaries in the value chain among suppliers, manufacturers, and end users. In so doing,
Dell Computer is evolving in a direction that
Michael Dell calls virtual integration. The individual pieces of the…...

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