WT Business Beat

By Nick Wakeman

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Nick Wakeman

Risks await Dell and Xerox

First, Dell Inc. bids on Perot Systems Corp. and then Xerox Corp. jumps in signs an agreement to acquire Affiliated Computer Systems Inc.

I made the point earlier that the deals showed the services are king in the technology market and that includes both the government and commercial sectors.

The logic is that you need a services business, otherwise you are relegated to the low-margin product business that is increasingly commoditized.

But just because it is logical doesn’t mean that it isn’t risky.

After talking and exchanging messages with a few executives, I thought I’d share some insights on those risks.

One executive told me that all successful companies, regardless of the market, must excel at one of three things – operational excellence, innovation or customer service. They need to be good at all three, but they can only excel at one of them.

Successful services companies such as systems integrators are really in the customer-service business, while product companies excel at innovation.

And that will be the top challenge for Dell and Xerox. Will they run their services businesses like a product company? If they do, that could be a recipe for disaster, executives told me.

“There is a basic difference in the approach to the customer, to long-term relationships with the customer, bidding strategies, etc. between those business markets,” one said.

Other issues include what kind of incentives do you give employees. A person whose job it is to understand the mission and the challenges a customer faces may not translate that understanding into units sold.

A big question yet to be answered is how much Dell and Xerox see these acquisitions as new channels for selling products. Are the services people going to get bonuses based on increasing sales of Dell and Xerox products? If so, will the services units be seen as resellers or pushers of Dell and Xerox products? Think of the hay competitors will make if there is even a hint of that perception.

One motivator that has been cited for these deals is that Dell, Xerox and Hewlett-Packard are following the leader, i.e., IBM, into the services and systems integration space.

So why does it seem to work for IBM? One executive told me it goes back to structure and incentives. IBM keeps its services business separate and on top of that, there is no expectation that IBM Global Services will sell IBM servers and software.

Again, it sounds like a simple solution, but when you are talking culture and values, nothing is simple.

Posted by Nick Wakeman on Oct 01, 2009 at 9:53 AM

Reader Comments

Mon, Oct 5, 2009 John Chantilly

I have to disagree with Dalton’s comments on two levels:
1). The secret of synergies is getting the parts to work together in new ways, not to continue to operate separately. For example, I’d expect that Dell hopes that Perot will be both a profitable service arm as well as a driver of hardware sales. Likewise, Xerox (I assume) believes that there technology know-how can make ACS’ core business more efficient and profitable. Net/net – neither is settling for simply the status quo in terms of performance.
2). The IBM comparison was particularly interesting as they’re somewhat of a ‘neutron bomb’ acquirer – not necessarily in terms of human capital, but rather, the brands themselves, which quickly disappear. For example, how many remember that IBM acquired PwC’s consulting arm? Net/net - acquired companies quickly become IBM companies.

Fri, Oct 2, 2009

HP's acquisition of EDS last year may shed some light on how these deals will work out.

Fri, Oct 2, 2009 Dalton Moraes Network Operations Manager

As you mentioned on your last paragraph Nick, the path for success is to make sure 1+1=3 and not 1+1=1. The meaning of that is this was not a Mege but an Acquisition. If Dell acquired Perot Systems is because they did feel Perot did a good job as a service company. Same of Xerox and ACS. Therefore they must let these companies operate independently with an oversight group that will make sure efficiencies between the companies are achieved. This is the main lesson IBM and GE geve to the M&A world.

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