To publish this post, I must first discredit myself. I'm 42, and while I love what I do for a living, Michael Dell is 47 and his company was already doing $1 million a day in business by the time he was 31. I look at guys like that and think: "What the h*** have I been doing with my time?!?" Nevertheless, Dell is a company I've followed more closely than any other but Apple since the mid-2000s, and in the past two years I've had the opportunity to meet with several Dell executives and employees – from Montpellier, France to Austin, Texas.
Because I cover both PC hardware as well as client virtualization here at Forrester, it puts me in regular contact with Dell customers who will inevitably ask what we as a firm think about Dell's latest announcements to go private, just as they have for HP these past several quarters since the circus started over there with Mr. Apotheker. Hopefully what follows here is information and analysis that you as an I&O leader can rely on to develop your own perspective on Dell with more clarity.
Complexity is Dell's enemy
The complexity of Dell as an organization right now is enormous. They have been on a "Quest" to re-invent themselves and go from PC and server vendor, to an end-to-end solutions vendor with the hope that their chief differentiator could be unique software to drive more repeatable solutions delivery, and in turn lower solutions cost. I say the word 'hope' deliberately because to do that means focusing most of their efforts around a handful of solutions that no other vendor could provide. It's a massive undertaking because as a public company, they have to do this while keeping cash-flow going in their lines of business from each acquisition and growing those while they develop the focused solutions. So far, they haven't.
Merging big companies while keeping focus is extremely difficult
It's a recipe for organizational malaise because the people they brought in through their acquisitions will want to naturally charge ahead with their strategic plans as they would have before the acquisition – they're human and it's what they know best to survive. Meanwhile, the people charged with building the differentiated end-to-end solutions have to walk a tightrope between getting enough expertise and budget to execute by begging, borrowing and stealing whatever they can from other teams. It's a scenario I've lived through many times myself, and it's painful. It's far too much change to take on, and even Michael Dell can't force his will through the organization or he'll lose the very talent he needs to execute, or just as bad – see product line revenues fall and angry customers mount.
The current organization is stretched to capacity
What I often see in organizations struggling with changes are 3 things: 1/ When I ask five different people what the aim of the company is and what their role is in getting there, I'll get five completely different answers. 2/ People are so inundated with meetings and e-mails that they can't get enough clear work time to get meaningful brain-work done, and 3/ Everyone is so focused inside the organization that they can't see the freight train of competition coming before they get run over – let alone prepare. Strategy is incredibly hard even when people have time to think. When they don't, or their goals don't align directly with the aims of the organization, or they don't have enough experience in a given domain and there's no time to learn, bad things happen.
More freedom from regulations will be a good thing
As if all of that wasn't enough, the regulatory overhead in a public company the size of Dell is suffocating – particularly after Sarbanes-Oxley. Product managers and strategists need to spend the majority of their time outside the firewall and in the market to know what's changing, get good ideas, and bring it all back to build great products. Instead, after the regulations went into effect in the mid-2000s, they find themselves in endless pricing and packaging meetings trying to re-align SKUs and product suites to keep from triggering the ire of the auditors. The net result is that the whole organization slows down and suffers yet another blow to its ability to stay on top of critical changes in the market.
What it means:
Most of all, I think what private equity means for Dell is that they can get out from under the regulatory burden and Michael Dell can make the kinds of changes he needs to redirect the company focus. The departure of their Chief Strategy Officer, David Johnson (my namesake, apparently) a few weeks ago signals that a major strategy shift is in the works.
Michael Dell knows how to find what customers value, get a unique angle on it, and focus on shortening the time to value. It was this know-how and singular purpose that that built the Dell empire to begin with. I would argue that it doesn't matter whether it's PCs, software or cloud infrastructure – the principles are still the same: Identify, simplify, focus, empower, execute, improve.
IT has only grown more complex. Very few companies are in the business of simplifying it in dramatic ways. Apple is one. Most others are just applying band-aids to a bursting piñata. Dell's opportunity is to double-down on simple and astoundingly innovative solutions to complex problems with a level of quality, excellence and speed that their still-hobbled public competitors can't match.
The Microsoft potential:
Should Microsoft decide to invest in an equity transaction, I think it would do a few things:
- Microsoft needs more supply chain expertise and capacity for PC hardware, and needs more dedicated focus from an OEM like Dell to execute on a strategy of better integration between the operating system and hardware – both on the desktop and in the datacenter.
- Microsoft also needs an enterprise channel for hardware sales and support for in-house hardware – the Microsoft Store concept will not build buyer momentum fast enough, and this is not a trivial exercise.
- Thirdly, converged infrastructures for cloud could get a boost through tighter integration between the hardware and OS, thanks to performance optimizations, better resource automation, and fault management throughout the stack.
- Finally, as my colleague JP Garbani pointed out to me today, hardware + core systems + management + packaged apps + services will belong to large companies with a lot of leverage in all the categories: IBM, HP and Oracle are getting there. To be competitive Dell has to be there too and so does Microsoft.
What does it mean for you as a Dell customer?
Nothing right now. There will be changes, no question, but customer facing roles usually get shored up during transitions like this to help ease the risk and keep relationships intact. Also, we don't expect Dell to jettison the PC business. It's easy to draw comparisons to IBM and Lenovo, and one could argue that the case for running an OEM hardware business out of the US is sketchy, but IBM had many other very strong businesses to fall back on. PCs still make up a significant piece of the pie for Dell and they'll need the cash-flow to double-down on the areas where they can drive new value and differentiation. Summary: I'm bullish on the potential benefits of a private equity transaction for Dell, and after conferring with my colleagues here at Forrester today, the sentiment appears to be shared.