Over the past few years Dell has become a poster child for using social media. Their wake up call came in 2004 when an irate customer blogged about their horrible service. This prompted Dell to take Social Media seriously.

They first discover was that there were thousands of mentions of Dell daily in the blogosphere and nearly half of them were negative. Dell gets a lot of kudos for the positive way they responded to customers via social media and over time brought the number of negative posts down to the low twenties.

Dell didn’t stop with online reputation management. They setup a site called IdeaStorm to harness the innovation of the crowd. This also seems to have been highly successful in terms of the number of participants and the number of ideas they incorporated into new laptop designs.

Next, Dell was credited with winning over $3 million in incremental sales with a novel Twitter strategy.

Dell clearly figured out how to leverage social media.

Here’s the problem. During roughly the same period of time Dell market valuation dropped from $100 billion to $30 billion. What’s up?

From a social media perspective Dell does a good job. The problem is that their business model no longer matched up with the challenges or opportunities of the marketplace. Dell’s early success came from mastering logistics and the supply chain, allowing it to sell computers directly to customers at prices no rival could match. Competitors have now caught up in the efficiency department and moved ahead in two critical areas: Customer focus and innovation. Sure Dell seems to have a customer focus in their social media initiatives but at the heart of their business they are still selling PC’s when the world is shift to the Internet. Dell is still a product-centric company.

Now, Dell is amidst an extreme makeover. They now want to restructure their company around customers. Unfortunately, it seem like Dell isn’t really making the shift. They have restructured to focus on four customer groups: consumers, corporations, SMB and government/education. Certainly, these groups have unique needs. But, Dell now seems set on becoming a fast follower by bringing out their version of technology that is already on the market like smart phones.

The real message here isn’t a bashing of Dell. Dell is not alone in having to make the transformational shift from selling “things” to becoming flexible and innovative in ways that customers find meaningful. Companies in virtually all market segments will have to wrestle with this challenge. And, in doing so, they will have to realize that customers want better outcomes and help in extracting value they find meaningful from technology. The challenge is overcoming the inertia of the status quo; the inertia based on mindset and entrenched organizational practices.

Social media and social computing may well be imperatives for companies that expect to thrive in today’s business climate. However, they cannot simply be bolted on to business models that are not truly customer-focused, adaptive and innovative.