Can Dell learn from HP's mistakes in the IT services sector or will Ross Perot be the only winner?

When HP acquired EDS it had a plan to become a global leader in IT services. HP realized that the future was not in the PC and server markets where commoditisation and cut throat competition was pushing prices down.

Dell has realized this and is now transforming itself into a services firm. It now wants to go private so it can invest more in services.

HP acquired EDS in 2008 for $13.9bn and has since devalued it to $8bn. EDS was set up by Ross Perot in 1962 until he sold it to General Motors in 1984.

HP announced its results this week and it seems it is not just PC and server sales that are declining. In the company’s second quarter financial results HP said its enterprise services revenue declined 8% year on year. Ok this is the best of a bad bunch.  Revenue in its commodity server business was 12% lower than the same period last year, while its Itanium business-critical systems revenue was down 37%. The PC business plunged 20%, commercial PC revenue were down by 14% and the consumer PC revenue down by 29%.

Things could get worse in services. General Motors, which was a huge customer of EDS and then HP, decided in October to take outsourced IT back in-house.

There was also recent new that another big HP services customer US manufacturing giant Procter & Gamble is considering moving outsourced work in-house.

Also read:

How did EDS lose $8bn in value in four years?

HP troubles show dangers of demotivated staff

If you look at Dell’s results you can see that services is growing. And they need to continue to grow. Dell saw profits plummet by 73% to $226m (£149m), as its first quarter results revealed its hardware division’s profits to be in freefall. Dell’s services division now contributes more than half of overall profits.

Dell has probably learned from HP’s mistakes. It was less extravagant in its acquisition strategy. It bought another Perot business, Perot Systems for £2.4bn in 2009. Ross Perot set up Perot systems when he sold EDS to General Motors.

So can Dell make its services work where HP is failing?

I wrote about Dell’s services arm quite a bit in the past. Here is how the company described its services business in 2010 after it acquired Perot Systems.

Dell claims:

“1 – The IT industry remains fragmented with only 4 companies offering a set of integrated service offerings (IBM, HP, Fujitsu, and now Dell).
2 – Dell is powerfully positioned as one of the 10 largest IT services providers.
Industry comment: “In terms of pure services turnover maybe number 15-20 worldwide.”

3 – From a customer point of view, we know IT budgets are pressured, and customers want technology that offers best value solutions.

4 –   We want to help organisations innovate and focus on strategic objectives while spending less on routine IT management.”

This is why Dell says it bought Perot:

1 –   Dell became an IT leader through highly efficient built-to-order solutions.

2 – Now, we want to do the same thing in services, reducing complexity and driving out inefficiencies across the service and support lifecycle.

3 –    We believe that the new Dell Services (Dell’s legacy services organisation combined with Perot Systems – which we acquired last November) is big enough to be credible, yet nimble enough to lead a transformation in the services industry.”

This is what Dell says about the merged services organisation:

1 – We are a $7.5bn global services organisation with more than 42,000 employees.

2 – The organisation generates approximately three-quarters of its revenue from infrastructure and related support services 18% from applications and consulting services, and 7% from business process services.
3 – We serve the entire spectrum of potential clients, from large organisations to consumers.

4 – We see the combination of our solutions and teams creating enhanced growth opportunities through cross-selling opportunities as well as being presented the opportunity to participate in a broader range of sales activities

5 – This is a very exciting time and we’re stronger together

6 – We can fill out capabilities that neither company owned by itself

7 – Qualify for more RFPs and win more deals
8 – Sell more products and services at existing accounts.”

This is what Dell claims to do?

1 – In addition to scale, the components that now form Dell Services have a comprehensive range of complementary strengths … and a consistent history of creating an award-winning customer experience.

2 –   Together, the companies support nearly 15 million systems and manage over two million seats

3 – Consistently, Dell Perot Systems has ranked number one as healthcare IT contractor and number one by KLAS for Clinical Implementation Services

4 – The combination of solutions and teams from each company creates growth opportunities through cross-selling, but even more significantly presents the opportunity to participate in a broader range of sales activities.

5 –  Dell Services offer best-in-class suite of intelligent, end-to-end services and business solutions to reduce IT complexity and lower costs

6 – From our knowledge of industry requirements, we then tailor industry-specific solutions that solve business problems and deliver the best value for the resources invested.

7 – The strength of our combined business model rests in several areas:

–  Intense customer focus – committed to top customer success
–  Domain knowledge – Industry expertise in healthcare, government, and large enterprise is a competitive advantage that allows us to add long-term value through industry-focused solutions 
– Breadth of services – Integrated technologies, IT and business services, and industry-specific consulting are combined to create services that transform organizations
– Global delivery model – Modular services delivery put customers in control, allowing them to select only what they need, which means lower cost for customers
–   Recurring revenue – Over $13 billion in annuity-like revenues.”