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The reinvention of Dell: What it must do next to succeed

Two years after going private, Dell still has some work to do to educate the enterprise about what it has to offer

Whenever there’s a news piece about Dell, have you noticed that it generally starts with the phrase “PC maker Dell”?

This simple description has long been a problem for Dell. Despite being in the server business nearly as long, its business performance is still largely measured by how many PCs it has sold globally and how profitable this side of the business is.

As a result, when businesses found they could sweat their PC assets as a window to adopting virtual desktops and web-based applications in recent years, concerns about the future of Dell began to surface.

Company CEO Michael Dell has been trying to change this perception of Dell for some time and draw more attention to its server business, which has been doing well.

With the acquisitions of storage companies EqualLogic and Compellent, as well as network supplier Force10, Dell has created a solid hardware portfolio. 

Software acquisitions, such as Ocarina, Quest, AppAssure, Enstratius and Boomi, have helped the firm build up a functional capability for a managed, secure overall platform.

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It has also fostered a security business with the acquisition of SonicWALL and SecureWorks, and has added systems management capabilities with its purchase of KACE for end-points.

Dell has also made a play for the professional services space with its acquisition of Perot Systems. This was far more of a North American play, though, as Perot had only a small footprint outside the US.

Despite all this, some market watchers felt Dell’s strategy was a little confused, and the firm was feeling the pressure of the chronic, market-wide decline in PC sales.

This left Dell with two choices, the experts said: it could either take itself private or risk being acquired, and then (most probably) ripped apart by a fire sale. 

Activist investor Carl Icahn made a hostile bid for Dell while Michael Dell was running around trying to pull in enough shares to go private.

Luckily, Michael won and, in late 2013, Dell delisted and became a privately held company, with Silver Lake Partners as an equity investor.

Privatisation benefits

Going private removed the 12-week rolling financial horizons that Dell had been forced to report against. Now the company could focus on reinventing itself, and what it means to customers, but concerns persist in some quarters about whether Dell is going in the right direction.

At the hardware level, it has embraced convergence. The PowerEdge FX2 system brings together server, storage and network equipment, along with management software to challenge the likes of HP’s Converged Systems, VCE Vblocks and Cisco UCS. 

After an abortive attempt at hosting its own cloud platform, Dell has turned its attention to playing the role of a cloud aggregator that glues together accredited cloud services from various partners. 

With its Enstratius acquisition, the firm can provide the front-end and management tools required for this to work. As such, Dell can be the “one-throat-to-choke” contract holder between an organisation and a collection of disparate cloud providers.

Staff investments

Even before it went private, Dell had been on a staff recruitment spree to help reposition itself as a solutions provider, as part of its continuing push to shed the old-style box-shifter mentality of its workforce.

To this end, Dell has invested heavily in bringing in staff from organisations that understand business problems and the approach required to solve them. The Perot Systems team has been bolstered with new staff, giving Dell a reasonably large professional services group, underpinned by people with domain expertise in various areas.

As always, the devil is in the detail and the reinvention of Dell has required some big changes, none more so than where its approach to the channel – a relatively new addition to its go-to-market strategy – is concerned.

It still has a lot of rough edges, and the move to more solutions-led sales has meant a chunk of it is still unable to step up to the mark. Whereas a degree of pure hardware sales can still be supported, particularly in the SMB and SoHo markets, this is unlikely to be sustainable in the long term. 

Dell will have to keep working to ensure its channel can keep up with where the company is going.

Identity crisis

Dell also has to know what it is aiming to be. Is it just taking on HP, Fujitsu and others, or does it want to move right into the top echelons of the enterprise with the likes of IBM and its Global Business Services? 

This will be an unfolding journey. Aim too high, and fall heavily; aim too low and, in a fast-changing technical world, watch as smaller suppliers, such as Nutanix and SimpliVity, take market share away from you.

Dell needs to position its cloud model well. The lack of a Dell-owned and managed cloud is a double-edged sword. On the positive side, there is less chance of supplier lock-in through proprietary extensions to the underlying platform. 

But on the downside, unless Dell can accredit and support a broad set of solutions rapidly, prospective customers are likely to look for those offering a mix of infrastructure-, platform- and software-as-a-service directly, such as IBM with its SoftLayer platform or Cisco with its aggregator/broker cloud model. 

The secret will be in Dell’s messaging. It may need to focus less on its consumer offerings and become more IBM-like in its business targeting. It certainly needs to let people know, outside its customer base, that it is not just an equipment maker or PC supplier, but a full-service enterprise solutions provider.

So, is the new Dell going to survive? Undoubtedly. Is it going to thrive? Probably. The management team is reinvigorated, and Michael Dell looks younger and fresher than he has for a long time. 

Customers will decide Dell’s fate, but it has to ensure they fully understand where it is going and what it now stands for. The secret is in the message – and Dell has to get this right.

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