(FORTUNE Magazine) – In late summer Lloyd Ward, chairman and CEO of Maytag, that old-economy icon in Newton, Iowa, set off on a corporate pilgrimage to Round Rock, Texas, home of that new-economy icon, Dell Computer. Here Ward and his top managers met with Michael Dell and his top managers. They talked about speed and flexibility, and how to get a corporate culture to shift from problems to possibilities. They discussed the Internet, supply chains, and how to fill an order in five days. Ward and his team spent the day crawling all over Dell in the hope of answering a key question: How do you transform a noble but set-in-its-ways washing-machine maker into a new-economy contender?

For Maytag, that is not a rhetorical question. It has a strong brand name--remember the Maytag repairman?--and wonderful appliances. But those appliances can take half a decade to develop--an Ice Age in the Internet era. Lately it has missed some important changes in its markets. Its stock is ailing; it is rumored to be for sale. On this day at Dell, Ward is starstruck: "Dell is a continuous-growth model. It is like a living organism. It is constantly adapting and changing and finding ways to master its environment, as opposed to just respond to it. I want to know the essence of who they are," he says, partly in awe and largely envious. "Somehow Dell has been able to take flexibility and speed, and build it into their DNA. It's almost like water. I am trying to drink as much water here as I can."

For everyone from individual investors to the CEOs of companies like Maytag, the Dell story has been a legend to savor: Baby-faced Michael Dell grudgingly goes to college to please his parents but spends less time in class than building PCs in his dorm room. Everybody thinks he's just another bottom-fishing PC reseller. But with his build-to-order model, he turns out already-paid-for PCs at unbeatable prices, with next to no inventory. His company becomes the disruptive force that helps unhinge the likes of Digital and Compaq. His stock becomes the dazzler of the 1990s, and he gives new meaning to the word "rich": At 35, he's worth $16 billion.

But over the past couple of years the legend has faded. Dell Computer has shown that it is fallible. Earlier this year it lowered its growth targets, reminding investors that no company walks on water--particularly one with expected revenues of $33 billion in fiscal 2001. After growing 59% in fiscal year 1998, 48% in 1999, and 39% in fiscal 2000, Dell told Wall Street to look for 30% in fiscal 2001. Last quarter the number came in at a disappointing 25%. When Dell executives meet with analysts this week, they will tout the strengths of their direct model and the edge it gives Dell in capitalizing on the buildout of the Internet infrastructure. But you can bet what the analysts will be listening most closely for is just how much revenue growth Dell expects to have beyond this year. Like other makers of personal computers, it has been hurt by a worldwide slowdown in sales of PCs (see following story). According to Gartner Dataquest, the rate of growth in desktop sales this year is expected to be 15.5%, vs. 21.5% a year ago; the growth rate for notebooks and other portables will fall to 27% from 32%.

Though Dell has moved aggressively into new markets, desktops and portables still accounted for 83% of its revenues in the fiscal year that ended Jan. 28. Its stock, which grew at an average annual rate of 97% during the '90s, now looks more like Maytag's--no, worse. Dell shares have been trading in the low-$30 range, almost 45% below their high of nearly $60 in March. Maytag, in the low-$30 range, has fallen 38% from its 52-week high.

In Round Rock the attitude is clear: Dell may be down, but it's hardly out. Time and again the company has come out of nowhere to destroy competitors. In 1995, it was No. 6 in desktop sales and No. 7 in notebooks; in 1997, it was No. 5 in workstations. Now it's No. 1 in all three U.S. markets, according to IDC. In sales of Wintel servers, where Dell is No. 2, behind Compaq, it defied skeptics who said it could never sell something so complicated over the telephone or Internet. Now Dell is trying to move even further up the computing food chain by developing low-cost storage systems and services to sell along with its hardware--"sort of like a Coke goes with a burger and fries," says one executive. Skeptics? Let me at 'em, says Michael Dell: "We just sold our millionth server. The same thing is going to happen in storage. And just as people doubted us then, they doubt us now. I say, Bring them on. We're coming right at them."

That's exactly how he incited a crowd of thousands at the company's annual employee meeting in August. Dressed in metallic silver chaps, looking like a modern cowboy superhero (the theme of the event was the Wild Wild E), he drew roars as he railed against competitors for their "excess windfall obscene profits." They're "taking too much money from customers," he said. Michael Dell portrays his company as the good guy, the Robin Hood going into battle on behalf of its customers against the bad guys: price gougers with fancy offices and corporate perks and silly old ways of doing things.

The missionary zeal may seem out of place at a company where growth is slowing. But know this about Dell: Its sense of manifest destiny is as strong as ever. At the same time that Michael Dell is beating down Wall Street's expectations, he is beating his chest about glories to come. He boasts that Dell can roll over the bad guys even if it does nothing more than flog its core businesses. "If all Dell did was double its worldwide share in the next three years and didn't do any storage or any of this new stuff, our revenues would be $84 billion or something like that," he says. "We have every opportunity to grow significantly faster than the market."

Call that optimism, or call it hubris--but also call it harder than it sounds. At $84 billion, Dell would be almost as big as IBM is today (1999 revenues: $87.5 billion). Furthermore, Dell's strategy pits it against powerhouses like Compaq, Hewlett-Packard, and IBM in servers, and against EMC in storage. By now these competitors have got Dell's number; they aren't likely to ignore the boxmaker from Round Rock. And while the growth of the Internet should produce more demand for servers and storage, those markets will test Dell in areas that haven't been its strong points: sophisticated product engineering and labor-intensive services.

Finally, the disruptive company of the '90s can't ignore trouble coming from the low end of the computing chain, in the proliferation of cheap new Internet access appliances and devices. "That presents big challenges to somebody who has built a highly efficient model to deliver PC hardware," says Joel Kocher, a former worldwide sales and marketing president at Dell who is now chairman and CEO of Micron Electronics. Dell has a "confusing array of options. We've all been watching to see what choices they make."

Dell's weapon in the battle to goose its growth, spike its stock, and conquer new markets won't be radical new technology. Instead it will bring to the fight what it always has: the managerial skills that enable it to move quickly, and the discipline that enables it to keep costs low, allowing it to ruthlessly undercut prices and devour market share at rates that would make old-economy companies gag. Unlike most big companies, Dell (No. 56 on the FORTUNE 500) has retained its startup mindset. It has expanded creatively on its direct model to rewrite the book on everything from supply-chain management to customer relationships to marketing. Despite its growth, it has remained obsessively focused on execution. Dell's legacy is not technological brilliance. It is managerial brilliance. And when you see how deeply embedded it is in the company's DNA, you understand why Michael Dell believes his model is the foundation of an explosive future.

Stepping onto the grounds of the Dell campus in Round Rock is like setting foot on another planet. Dell looks like the anti-corporation. Looming out of the flat landscape are its white Bauhaus buildings, one pretty much like the next, as far as the eye can see. Nothing too tall. Nothing too fancy. Definitely sterile; each building named with a number. "Modern prison," one observer described it. Dell seems to be thumbing its nose at all those self-important old-economy companies that built monuments to themselves. (Dell also looks as if it got very big in spite of itself and doesn't want to say so.) "It's Dilbertville. It's definitely Dilbertville," says one employee.

Dell is deliberately, decisively anti-hierarchical. There are no fancy corporate offices; in fact, there are only four offices to speak of. They belong to Dell; vice chairmen Kevin Rollins and Jim Vanderslice (who insist they act interchangeably in one office of the chairman); and Mort Topfer, who recently retired as a vice chair but continues as a director and counselor to Michael Dell. Everybody else has a cubicle. The hallways are mostly devoid of art. There is strictly a startup, keep-the-costs-down-and-the-options-will-take-care-of-themselves feel to the place. The underlying message is unmistakable: Keep your eye on the ball.

All of which can give recruits from the old economy a case of culture shock. Moe Grzelakowski, Dell's new senior vice president for wireless, tells of trying to dial directory assistance and finding 411 blocked (too expensive). She describes her health insurance card as "barely cardboard. There's no such thing as a free lunch"--literally, she says with amusement. "The first week I asked my assistant out to lunch. I didn't realize it was going on my personal credit card. I mean, just about everything goes on my personal credit card." Grzelakowski, previously a senior vp at Motorola, says she is getting a kick out of her new job. "But I know a lot of stodgy types who wouldn't fit in."

That's okay; they would never get through Dell's picky hiring process anyway. Here again, the company is clear about what it wants, and Michael Dell has been well known for his ability to blend the young and hungry with seasoned executives from FORTUNE 100 companies. The hiring is designed to weed out anyone who would slow Dell down. People with big egos who get off on big budgets and big staffs (not to mention big corner offices) need not apply. An otherwise strong applicant to be head of PR for Dell Ventures was nixed recently after he asked where he'd be on the corporate ladder. Kiss of death! Newcomers are told they must be comfortable with a "high level of ambiguity." Even old-timers are hard-pressed to draw an organization chart. Some people are in charge of segments; some are in charge of products. When an empire grows too big, it's broken up to make everyone nimbler. "Think six-dimensionally," says Grzelakowski.

During her job application process, Grzelakowski took four to six hours of psychological tests. She speculates they were designed mostly to test her aptitude and her ability to speed-read data. Those qualities don't make for the most social of corporate cultures, but they do help Dell move fast. "The culture is results," says Michael Dell. "It's 'Get it done.' It's 'Do whatever it takes.' "

What would be a stretch target anywhere else is business as usual at Dell. On Grzelakowski's first day, she received a binder that mapped out how to spend her first 30 days. She was to meet individually with the 50 people in the company who could best help get her started. At the beginning of each "one on one," the Dell executive would ask where she was headed and then do a brain dump on the spot. This is how Dell transfers knowledge. Sometimes she had three brain dumps a day. At the end of the 30 days--no messing around here--Grzelakowski was to unveil Dell's new wireless strategy (which she did, and which she won't talk about). She says the same process would have taken six months to a year at either of her prior two employers--Motorola and AT&T. Oh, by the way, during the same time, this single mother of two found a house and moved. She did it Dell style, by occupying a "house on a lake with everything in it: the dishes, the linens, the knickknacks, the furniture, the wave runners, the boat, the rakes, the shovels."

Dell's obsessions with speed and thrift come straight from the boss. Michael Dell has turned the company's direct, low-cost, cut-out-the-bells-and-whistles, be-the-fastest business model into a mission and a rallying cry. Nowhere is that more evident than at the company's annual employee meeting. It is a big event, a time when everyone can glimpse Michael Dell in person. It is also a time when he can tell them in person exactly where he wants them to go in the year ahead. Here is where the company begins the process--so mysterious to old-economy CEOs--of turning on a dime. At this gathering in 1996, Michael Dell told the crowd he wanted them to push hard into servers; Dell is now second behind Compaq. This year he tells the crowd that Dell's goal is to be No. 1 in servers and storage, and to be "the premier Internet partner for customers around the world. Let me tell you why we're so focused on the Internet infrastructure.... Every time someone types 'www,' they go to a server...."

A key reason for Dell's success is that it has remained perfectly clear about what it is and what it does. So far the convulsions in the technology industry haven't thrown it off. "We know what we are and what we're not," says Topfer. "We are a really superb product integrator. We're a tremendously good sales-and-logistics company. We're not the developer of innovative technology." A Dell mantra is that today's technology is tomorrow's commodity. Dell waits until the cost of that technology falls low enough for it to be stuffed into computers at state-of-the-art factories and then sold direct at a cheap price, which allows the company to drive for share. Michael Dell thrives on stealing share from high-margin competitors. "High margins are sort of a paradox," he says. "You look at business and say, 'Gee, you've got high margins.' A lot of people say that's good. But in this case, it's not good. Because if you have high margins, that means you have this big, soft underbelly. That's what we live for. That's what we consider to be fun."

Dell's low-margin strategy is on vivid display at its new OptiPlex factory in Austin. A small glassed-in office on the second floor functions as a control tower where employees receive orders, alert suppliers, order parts, and arrange shipping. Eighty-four percent of orders are built, customized, and shipped within eight hours. Everything is so just-in-time that inventory at the OptiPlex factory is two hours--two hours!--(Dell's overall inventory is seven days); so easy on the balance sheet that many computers have already been paid for; so clever that every component in every machine has a bar code that enables Dell to know exactly what has been put on that machine if the customer has a problem.

Dell has also rewritten the book on Internet marketing, which may be one of its greatest strengths going forward. Marketing has always gone like this: Companies make stuff. Then they advertise it so people will buy it. They make many variations on a product because they don't know exactly what customers want. The process involves a lot of expensive guesswork. As Michael Dell explains, it ends up like this: "You go to a car dealer and you say, 'I want a red two-door.' He says, 'We don't have any red two-doors. We've got blue four-doors.' And the slick salesman all of a sudden has convinced you that it's time to buy a blue four-door. And you've got this guy making this big commission, selling you something you didn't want to buy. You're not totally happy. And the salesman goes back to the factory and says, 'Hey, the blue four-doors are really hot. Build some more.' This system is all screwed up."

Dell eliminates the guesswork, quantifies the cost, and reduces marketing to more science than art. A good computer salesman once needed to know your spouse's name and the names of all your children. He had to know your secretary's name, too, and her birthday as well so that he could send her roses. Goodwill oiled the relationship. At Dell, no one has time for goodwill. "This relationship from the very beginning has been driven by data, not dinners," says Mark Mastrianni, manager of technology acquisition and licensing for GE, which buys most of its desktops and laptops from Dell.

By data, Mastrianni means that Dell knows how long it took to ship a product after receiving an order. It knows if a product caused a problem, and whether the problem was fixed with a phone call, and how long the phone call lasted. If a service call was necessary, it knows whether the service man arrived on time and how long he stayed. Dell measures customer satisfaction every which way. This was true when Dell took most of its orders by phone and is even more so now that 50% of revenues come via the Internet.

Through Dell's Website, customers can research products. They can design their own computers and systems. They can order parts. By studying this information, Dell gets to know its customers' buying patterns, replacement needs, and strategy shifts. The company is at the point where it can almost read its customers' minds. "People aren't going to tell you exactly what they will want to buy in four months," says Joe Marengi, a senior vice president and general manager who supervises Dell's accounts with any company that has more than 400 employees. "But you know their needs well enough. You know what Intel is doing, what Microsoft is doing." Dell is right with its customers as they design their new systems. (One reason Dell managers spend so much time with executives like Maytag's Ward is that Dell often ends up helping the visitors reconfigure some part of their business.) The goal, says Marengi, is to be "so tightly coupled" that a customer won't ever want to shop around.

Not all customers at Dell are created equal, nor are they treated equally. Dell's data enable it to know the ultimate fact about its largest customers--exactly how profitable they are. The more money a customer brings in, the better treatment it gets; for instance, someone who buys servers and storage from Dell is more likely to get a special package that includes PCs and portables. Other industries--airlines, advertising, banks--have also begun to offer better service and prices to large accounts, but they don't like to say so. Dell is willing not only to admit it but also to say that some accounts may not be worth its time. "I have told customers we may not bid again for their business," says Topfer (he won't say which customers). "They look at me like I'm crazy or like I've had too much to drink."

Low prices were essential to Dell's success in the desktop and notebook markets. But as the company enters new businesses, leveraging customer relationships will become almost as important. Says Topfer: "I tell [customers], 'if you just give us your desktop and notebook business, which is really competitive price-wise, but then give the server and storage business to our competitors, then we can't make a fair return for our stockholders.' " Marengi says he has walked away from some big accounts (which he, too, declines to identify). "These are difficult conversations, but they need to be had," he says. "If people consider what we do really valuable, oftentimes they will say, 'Okay...what do we need to do?' "

Like almost every large company, Dell is facing constraints. Some are the byproducts of its success. Austin is teeming with people Dell has made rich--"Dellionaires," they're called. Many have left the company to start their own businesses or become angel investors. "I think Dell has the same challenges a lot of other companies have in a scarce talent environment when you have made a lot of people very wealthy and they don't need you anymore," says John Thornton, a general partner at Austin Ventures. Dell has had to recruit huge numbers of people over the past few years just to keep up with itself; it has 37,000 employees now, vs. 16,200 two years ago and 8,400 two years before that. Says Kevin Rollins: "Hiring good people, getting them into place, trained, and working without missing a beat is a great challenge"--especially with a deflated stock.

And do those new hires have the right stuff? Kocher, now at Micron, remembers the competitive spirit during Dell's early days. He says he called a special meeting one Saturday morning in 1992 after the company had been stunned by Compaq's decision to drastically reduce PC prices. He arrived at an auditorium filled with 3,000 Dell employees wearing army fatigues. "I couldn't believe it," he says. "Nobody told them to do that. It took 20 minutes to quiet them down so I could speak." Some former Dell veterans wonder how many of the newcomers have true grit and how many are just gold diggers.

Morale at Dell has definitely flagged with the stock price. "Are people a little down that the stock is undervalued? You bet," says Mike Lambert, senior vice president of the Enterprise Systems Group. Some ruminate about whether Michael Dell still has his heart and soul in the business. He has four young children and obscene amounts of money. His wife, Susan, has started a designer-clothing business. He has his own private investment firm, MSD Capital, and is spending considerable time with Dell Ventures in pursuit of the new new thing for Dell. If Michael Dell were to lose interest, it would be a huge blow to a work force that still idolizes him. (Employees proudly post his electronic "high fives"--personalized e-mails bedecked with smiley faces that say, essentially, Job well done--in their cubicles.)

Executives who have worked side by side with Michael Dell through the years believe he's far too fanatical about the business to pull back now. Not to mention proud--it's his name on the door. They say he is still very much in the thick of business, e-mailing them on weekends and the middle of the night as he moves his company into servers, storage, and other new markets.

While the CEO and his company may not have changed their intensity and focus much, the competitive game they're playing is about to alter significantly. For Dell's competitive targets aren't so much Gateway and HP anymore, but Sun, IBM, and even storage kingpin EMC. Securities analyst Steven Fortuna at Merrill Lynch believes Dell can inflict serious damage. "Sun's days of 55% profit margins may be over if Dell can sell a ton of servers at 35% margins," says Fortuna. "Dell can price its Wintel servers way below Sun [which sells higher-end machines based on its version of the Unix operating system, called Solaris]. Because Dell's typical margin now is 20%, they can drive a ton of volume and still get huge margin improvement. They can have their cake and eat it too."

Dell's vice chairmen are scheming to do something similar in storage. "We're going to deliver a new ten-gigabyte storage subsystem for about half the price Sun is charging," says Vanderslice. "And long term, taking business away from EMC is absolutely inevitable for us." Rollins points out that Dell doesn't have to take on EMC directly. "A small business is not going to buy a big, huge EMC [storage system]. It's too expensive, and they don't need it. They'll go buy a little storage solution. What about a medium-sized [business]? They'll need something else. So we'll sell and target the storage solutions we have for each one of these customers. We'll take apart the [storage] market and target rifle shot at every one until we get big enough that the competition can't deal with us anymore. Because you were the parakeet, and now you're a gorilla."

Not so fast, say analysts and competitors. John Enck of the Gartner Group notes that much of Dell's growth in servers is a result of stealing share from second-tier players like Micron, Gateway, and Acer. Now, in both servers and storage, Dell will have to contend with big, prosperous competitors that are leaner than ever--Compaq, IBM, and HP--at the same time it's gunning for the soft underbellies at Sun and EMC. Although every company is drooling over the prospects of Internet-driven growth in servers and storage, Enck believes "the future is not about the price of hardware anymore but about total solutions." He thinks Dell will be at a disadvantage because it lacks strength in software development and in higher-end services.

At Sun, Jonathan Schwartz, senior VP of corporate strategy and planning, says, "I don't think Dell understands what it's up against. PC companies think the business is done when they put stamps on the box. But selling a server is just the beginning of a long relationship. It's about reliability, serviceability, availability, and manageability." Sun, however, is not taking Dell lightly: To protect its flanks, it recently paid $2 billion for Cobalt Networks, which makes low-priced servers using Intel chips.

No wonder Wall Street has hammered Dell's stock: This company is at a turning point, with its old business slowing down and its new businesses dominated by competitors much tougher than any it has vanquished in the past. In a new book, How Digital Is Your Business?, consultants David Morrison and Adrian Slywotzky cite Dell, along with Cisco, Schwab, and Mexican cement maker Cemex, as paragons of the new economy. But now, says Slywotzky, "each faces a key question: How do we make the next business world-class? Dell must make the right choices as to what is the next value proposition that really matters to its customers."

That is not an easy choice. There has been considerable internal debate, for example, about what Dell should do amid the explosion of new Internet access technology. "The key for us is to not lose focus on who we are and what we do. Not try to be somebody else," says Marengi. "We don't need to enter the PDA market tomorrow. We have a three-pound notebook, and when you get wireless embedded in that thing ... the opportunity is huge, and I don't have to carry this anymore," he says, holding up his Palm computer. "I've had all kinds of problems with this thing. It was eating up my calendar. It was throwing meetings away.... I personally think the PC is going to be the center of the universe as we evolve."

As Wall Street pressures Dell for more top-line growth, the temptation will be to concentrate on opportunities large enough and profitable enough to make a difference to the bottom line. "One of the bittersweet rewards of success is that a big company loses its capability to go into emerging markets because none are big enough to enable it to grow," says Clay Christensen, a professor at the Harvard Business School and author of The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail.

Dell, in fact, has already decided not to enter the PDA market, dismissing it as, in effect, small potatoes. And its first foray into the slimmed-down Internet PC market ended in comeuppance. Earlier this year it pulled the plug on its WebPC, which it had developed and introduced with fanfare just seven months earlier. "We really didn't hit the price point," says Topfer. "There was too much new technology in it, which put the cost higher, which caused us to price it too high." Instead of making a full retreat, however, Dell is putting the new technology into other products.

Another way of explaining the troubles with WebPC is to say that Dell lost focus on being a market taker and tried instead to be a market maker. But as the company moves toward its third decade, it seems fair to ask if market taking will be enough. "The challenge for Dell and a lot of us," says Micron's Kocher, "is how to cope in a new world where the devices themselves cost less, much less." Has Dell's direct model run its course? Can the company that has been held up as such a model in other industries continue to hold an edge in its own? Is it so cost-conscious that it won't spend money on r&d or software development or additional services if it needs to? Is it so focused on execution that it might miss the next big thing?

Michael Dell has heard it all before. "At various points in our history we've had varying degrees of skepticism on whether or not [our model] will work on the next thing," he says. "At one point people said, 'Gee, can you do this in the business market? Can you do it in Europe? Can you do it with servers? Can you do it with notebooks?' It remains to be seen how far we can push this."

Nothing lasts forever. Michael Dell's biggest challenge will be to have the discipline to know when and how to change what has worked so well up to now. If he does not, it will be just a matter of time before another company does a Dell on Dell.

REPORTER ASSOCIATES Noshua Watson and Matthew Boyle

FEEDBACK: bmorris@fortunemail.com