Management's Disaster Clock

Say it ain't so, Mike. The New York Times has just reported that thousands of Dell's corporate-line OptiPlex desktop computers were allegedly sold with serious potential flaws in capacitors, leading to alleged failure, data loss, and even combustion, according to recently unsealed papers from litigation against Dell.

I've owned a series of Dell corporate desktops for years. And I bought those models after both Dell sales staff and local academic tech support gurus assured me that the price premium over Dell's home and small business lines was due to higher-grade components. There's also no pre-installed trial software cluttering the desktop. I should say I've had no major hardware problems; and Dell's Texas-based premium support staff have been best of breed. So I do want to hear Dell's side of the matter.

I'm starting to wonder, though, whether business models, like major engineering projects and government agencies, have their own failure timetables. Leaving aside the case against Dell, which I've not studied, it's striking how many scandal-ridden companies have been not marginal players but (at some point) widely admired ones. Enron once appeared to the the future of the energy market, its auditors Arthur Andersen represented the accounting profession's highest standards, BP was becoming the jolly green giant of Big Oil. Just as bridge engineers begin to take successful new designs to ever-riskier levels, acclaimed managers are under tremendous pressure to sustain growth -- undermining the ethic that created their reputations. Acclaimed authors, too, eager to sustain their royalties momentum, have been known to cut corners.

What makes the Dell case so notable besides the company's own reputation is the fact that the supplier, Nichicon, is not some fly-by-night startup but a respected and established Japanese firm with a Web page celebrating its green certification. Were its capacitors really faulty and dangerous? I have no idea. But the litigation is coming at the very time when Toyota's recalls are reminding us of the business gurus' predictions in the 1980s that the quality-obsessed Japanese would soon rule the world economy.

In fact, the pursuit of a reputation for quality is paradoxically an obstacle to maintaining it, as Jeff Kingston wrote earlier this year in the Wall Street Journal:

There is a cultural element to this penchant for mismanaging crisis. The shame and embarrassment of owning up to product defects in a nation obsessed with craftsmanship and quality raises the bar on disclosure and assuming responsibility. And a high-status company like Toyota has much to lose since its corporate face is at stake. The shame of producing defective cars is supposed to be other firms' problems, not Toyota's, and the ongoing PR disaster reveals just how unprepared the company is for crisis management and how embarrassed it is. In addition, employees' identities are closely tied to their company's image, and loyalty to the firm overrides concerns about consumers.

So would I buy another Dell? Possibly, though my 2006 OptiPlex is working fine. The reason is that however the case is decided, the exposure and controversy have reset the failure cycle. Exxon's safety record after the Valdez has been exemplary. The real question isn't about Dell, Toyota, or BP. It's -- who's next?