Once a game-changer, always a game-changer.Michael Dell changed the rules of the personal computing (PC) industry with his disruptive direct-selling model and lean manufacturing. Now he's at it again. While the previous model worked well for over 20 years, the PC business commoditised and margins dwindled. Coming back as CEO in 2007, Dell who started the business from a college dorm in the early 80s, soon realised that the company needed an orbit changer.
So the path Dell chose to secure his company's future lay in transforming the box maker into an IT solutions provider. What followed was a series of acquisitions to build a portfolio in software, data storage, networking and security. Having filled the gaps, his company is now launching an attack on the domains of the IBMs and HPs of the world. In Mumbai to meet the captains of India, Michael Dell speaks with CD on the transformational journey that's been watched keenly by not only other IT companies but by big business around the world. Edited excerpts:
Every large IT company, be it Microsoft, Google, Cisco or Dell, is making a strategic course correction. The very products that made them very successful are no longer enough for survival. Why do you think this is happening?
I think all business are seeing some greater change accelerated and that to some extent is driven by IT itself. So every business has to evolve and understand how it is going to stay relevant, affordable, valuable and create things which are going to be important to current and future customers. In case of Dell, we are a very different company than we were just five years ago. We now have end-to-end solution capability in data centre, in storage, in networking, in IT security and in services, (particularly applications and BPO services), with a very strong presence in India. So today, Dell services has 45,000 people, a majority of which are here in India serving our global business.
If you think about it, as our underlying product and technology have become more powerful, it is imperative for us to be able to provide a broader range of capabilities for customers, like knowing about their particular challenges be it the banking sector, the manufacturing sector or healthcare or education, and so this is where our services and activities really become one.
Why choose the end-to-end solutions route as the way forward and not focus on the core: hardware?
Well, when you look at our business, we will only have to describe what we are doing here. So there are three different pieces to Dell. We have end-user computing, which would be the things you would think of as PCs or workstations, and interestingly, things like the virtual PC. If you are an individual wanting to use a mobile device but work at a bank, it becomes a challenge to security - how do you secure the information. So first you have to virtualise the PC and then you can access it from any device anywhere you are in any network.
Then we also have in Dell what we call ESG, which is the data centre, server storage and networking. And this is a foundational business, which is key to almost any part of IT. If something has to be run, then the data has to be processed and we are supplying one out of four, one out of three servers in the world roughly. So it is a very strong business. And we have added to that significantly with acquisitions in storage and networking and network security to secure that entire data centre. So operating the world data centres efficiently, that's a very big business for us. Then we have added a business of software and security.
Software, particularly in things like managers, because if you are going to operate all that efficiently, the tools to manage that and security to protect your data becomes one of the top priorities of all IT organisations. And then we wrap all of this around with our services capabilities.
So this has enabled us to change the conversation from a particular guy who is in charge of only the desktop computers in the company to now where we are dealing with the whole IT, the CIOs, the CFOs-so we can help companies transform their businesses using IT to be much more efficient. So changing the conversation from products to solutions opens up this new field, the things that we can deliver and it is being fuelled by 30 or so acquisitions. Again, we are a different company to what we were five years ago.
That kind of transition requires totally different skill sets, different set of managers, resource allocation strategy and delivery systems. How many things are in place? Where do you think you are in that journey of transition?
I don't think this is a journey that necessarily has a particular end point. You have to keep working. So I think companies have to keep evolving but we are looking for all our units. These new areas of Dell in the last five years have grown from roughly a $10 billion business, which already by itself is pretty substantial; you don't find many $10 billion companies around but now it is a $20 billion business. So we have really grown that part quite substantially and we intend to grow even more.
The latest quarterly figures from IDC show that Dell was probably the only company that grew its server business while HP was shrinking, IBM was shrinking and there's a little change going on in the data centre to access the open technology because we are unencumbered by a legacy of all those things. We can make this transformation by understanding where things are going and acquiring the right forward looking capability to help companies transform.
Why focus on mid markets?Mid-market focus is a global strategy and it is the strategy at Dell India. What you find here is the same phenomenon you find in many countries. The real growth is in the new companies, the emerging companies, the fast-growing companies. It represents the largest part of the market, the fastestgrowing part of the market, the most dynamic part of the market and tends to be a big process for Dell.
We service, of course, customers of all sizes; from the smallest to the largest but we see the fastest growth in the mid-sized and rapidly skilled companies.
You said some five or six days back Dell was ready for the post-PC era; last time, you told me that the PC is here to stay. I really want to know your point of view on this.
If we were to get our umbrellas out and walk around the streets of Mumbai and went in to businesses where transactions were occurring, you will find PCs. Actually in all countries in the world, like the US or Japan, you will find PCs. I think what you have is a multi-device world with smartphones, tablets, PCs; all kinds of connective devices.
Will this transition be the toughest bet after you started out?I think anytime that you are going through change, that has its challenges. Companies have to change, they have to evolve. Dell grew very rapidly and it was a rocket kind of growth story with one business model and that worked well for 23-24 years and then it didn't work as well.
So we needed something new. We looked long and hard at what our real strengths are - the customer relationships we have and the best thing significant in this strategy is doing it in a fairly fearless way. So I am not particularly scared and I don't think it is typically a difficult decision but it certainly.... making a change like this is...it is a big change and takes time.
So what are the initial results from the change?Last year, we had the highest ever earnings in the company's history and this new part of the business is double than the last five years. So there are some encouraging results but also with the backdrop of the relatively challenging economic environment, we have four out of the eight powers in the world who are facing recession or close to recession. We look at this over a period of time and say that these are the right investments for us to be making for this day, or week or quarter or a year. It is sort of a long-term approach and we will keep doing it.
You have acquired a lot of companies over the last few years but research says that it is very difficult to get value out of acquisitions. So how has your experience been in acquiring, integrating companies and then stitching together solutions for the customer?I think we have done a very nice job. You capture the value when you successfully integrate it and Dell has tremendous depth of customer relationships and customer access. With the right kinds of technologies and solutions, we can really accelerate growth into new areas. To give you a few examples, we had the server business that we grew organically, internally within Dell. And as we went into storage, about four-and-a-halfyears ago, we bought a company called EqualLogic.
It had about 3,000 customers and was very successful literally; we bought the company on a Sunday and they were going to start their road show for the IPO on Monday. Now we have roughly 50,000 customers for EqualLogic around the world. We have had similar experience with Force 10, Wyse and other companies we have acquired.
So it is not really about finding something to buy. It is finding the right technology ingredient that is forward-looking combined with Dell's reach and distribution, customer access, can create a meaningful solution for our customers and so important whether in IT security or management or a backup and replication or vertical domain, like healthcare. So that's really key for us.
In the early 1990s, you had a fantastic distribution system and then very lean manufacturing. But now the game has changed to end-to-end solutions. So what are you going to do differently, that would rank as your USP and make you successful?The big differentiator is that first of all we have large customer relationships and trust amongst customers. I think we are unencumbered by legacy of old stuff and I think we have built a very strong set of solutions that address customer needs. While we are a large company, we are agile, flexible and extremely customer-oriented. If you look at the IT market, there are about 10 companies with more than one per cent of this 3 trillion and one per cent would be 30 billion.
So about 10 companies and we are one of the 10, though we are the only one that is focused on the 2.75 trillion who don't have the legacy of old stuff. Even though we have 5,000 patents and strong intellectual property, we spend a billion dollars a year on research and development. We have $50 billion in cash and so we have resources, we have asset capabilities and we can really be the next generation of end-to-end solution provider.
So the path Dell chose to secure his company's future lay in transforming the box maker into an IT solutions provider. What followed was a series of acquisitions to build a portfolio in software, data storage, networking and security. Having filled the gaps, his company is now launching an attack on the domains of the IBMs and HPs of the world. In Mumbai to meet the captains of India, Michael Dell speaks with CD on the transformational journey that's been watched keenly by not only other IT companies but by big business around the world. Edited excerpts:
Every large IT company, be it Microsoft, Google, Cisco or Dell, is making a strategic course correction. The very products that made them very successful are no longer enough for survival. Why do you think this is happening?
I think all business are seeing some greater change accelerated and that to some extent is driven by IT itself. So every business has to evolve and understand how it is going to stay relevant, affordable, valuable and create things which are going to be important to current and future customers. In case of Dell, we are a very different company than we were just five years ago. We now have end-to-end solution capability in data centre, in storage, in networking, in IT security and in services, (particularly applications and BPO services), with a very strong presence in India. So today, Dell services has 45,000 people, a majority of which are here in India serving our global business.
If you think about it, as our underlying product and technology have become more powerful, it is imperative for us to be able to provide a broader range of capabilities for customers, like knowing about their particular challenges be it the banking sector, the manufacturing sector or healthcare or education, and so this is where our services and activities really become one.
Why choose the end-to-end solutions route as the way forward and not focus on the core: hardware?
Well, when you look at our business, we will only have to describe what we are doing here. So there are three different pieces to Dell. We have end-user computing, which would be the things you would think of as PCs or workstations, and interestingly, things like the virtual PC. If you are an individual wanting to use a mobile device but work at a bank, it becomes a challenge to security - how do you secure the information. So first you have to virtualise the PC and then you can access it from any device anywhere you are in any network.
Then we also have in Dell what we call ESG, which is the data centre, server storage and networking. And this is a foundational business, which is key to almost any part of IT. If something has to be run, then the data has to be processed and we are supplying one out of four, one out of three servers in the world roughly. So it is a very strong business. And we have added to that significantly with acquisitions in storage and networking and network security to secure that entire data centre. So operating the world data centres efficiently, that's a very big business for us. Then we have added a business of software and security.
Software, particularly in things like managers, because if you are going to operate all that efficiently, the tools to manage that and security to protect your data becomes one of the top priorities of all IT organisations. And then we wrap all of this around with our services capabilities.
So this has enabled us to change the conversation from a particular guy who is in charge of only the desktop computers in the company to now where we are dealing with the whole IT, the CIOs, the CFOs-so we can help companies transform their businesses using IT to be much more efficient. So changing the conversation from products to solutions opens up this new field, the things that we can deliver and it is being fuelled by 30 or so acquisitions. Again, we are a different company to what we were five years ago.
That kind of transition requires totally different skill sets, different set of managers, resource allocation strategy and delivery systems. How many things are in place? Where do you think you are in that journey of transition?
I don't think this is a journey that necessarily has a particular end point. You have to keep working. So I think companies have to keep evolving but we are looking for all our units. These new areas of Dell in the last five years have grown from roughly a $10 billion business, which already by itself is pretty substantial; you don't find many $10 billion companies around but now it is a $20 billion business. So we have really grown that part quite substantially and we intend to grow even more.
The latest quarterly figures from IDC show that Dell was probably the only company that grew its server business while HP was shrinking, IBM was shrinking and there's a little change going on in the data centre to access the open technology because we are unencumbered by a legacy of all those things. We can make this transformation by understanding where things are going and acquiring the right forward looking capability to help companies transform.
Why focus on mid markets?Mid-market focus is a global strategy and it is the strategy at Dell India. What you find here is the same phenomenon you find in many countries. The real growth is in the new companies, the emerging companies, the fast-growing companies. It represents the largest part of the market, the fastestgrowing part of the market, the most dynamic part of the market and tends to be a big process for Dell.
We service, of course, customers of all sizes; from the smallest to the largest but we see the fastest growth in the mid-sized and rapidly skilled companies.
You said some five or six days back Dell was ready for the post-PC era; last time, you told me that the PC is here to stay. I really want to know your point of view on this.
If we were to get our umbrellas out and walk around the streets of Mumbai and went in to businesses where transactions were occurring, you will find PCs. Actually in all countries in the world, like the US or Japan, you will find PCs. I think what you have is a multi-device world with smartphones, tablets, PCs; all kinds of connective devices.
Will this transition be the toughest bet after you started out?I think anytime that you are going through change, that has its challenges. Companies have to change, they have to evolve. Dell grew very rapidly and it was a rocket kind of growth story with one business model and that worked well for 23-24 years and then it didn't work as well.
So we needed something new. We looked long and hard at what our real strengths are - the customer relationships we have and the best thing significant in this strategy is doing it in a fairly fearless way. So I am not particularly scared and I don't think it is typically a difficult decision but it certainly.... making a change like this is...it is a big change and takes time.
So what are the initial results from the change?Last year, we had the highest ever earnings in the company's history and this new part of the business is double than the last five years. So there are some encouraging results but also with the backdrop of the relatively challenging economic environment, we have four out of the eight powers in the world who are facing recession or close to recession. We look at this over a period of time and say that these are the right investments for us to be making for this day, or week or quarter or a year. It is sort of a long-term approach and we will keep doing it.
You have acquired a lot of companies over the last few years but research says that it is very difficult to get value out of acquisitions. So how has your experience been in acquiring, integrating companies and then stitching together solutions for the customer?I think we have done a very nice job. You capture the value when you successfully integrate it and Dell has tremendous depth of customer relationships and customer access. With the right kinds of technologies and solutions, we can really accelerate growth into new areas. To give you a few examples, we had the server business that we grew organically, internally within Dell. And as we went into storage, about four-and-a-halfyears ago, we bought a company called EqualLogic.
It had about 3,000 customers and was very successful literally; we bought the company on a Sunday and they were going to start their road show for the IPO on Monday. Now we have roughly 50,000 customers for EqualLogic around the world. We have had similar experience with Force 10, Wyse and other companies we have acquired.
So it is not really about finding something to buy. It is finding the right technology ingredient that is forward-looking combined with Dell's reach and distribution, customer access, can create a meaningful solution for our customers and so important whether in IT security or management or a backup and replication or vertical domain, like healthcare. So that's really key for us.
In the early 1990s, you had a fantastic distribution system and then very lean manufacturing. But now the game has changed to end-to-end solutions. So what are you going to do differently, that would rank as your USP and make you successful?The big differentiator is that first of all we have large customer relationships and trust amongst customers. I think we are unencumbered by legacy of old stuff and I think we have built a very strong set of solutions that address customer needs. While we are a large company, we are agile, flexible and extremely customer-oriented. If you look at the IT market, there are about 10 companies with more than one per cent of this 3 trillion and one per cent would be 30 billion.
So about 10 companies and we are one of the 10, though we are the only one that is focused on the 2.75 trillion who don't have the legacy of old stuff. Even though we have 5,000 patents and strong intellectual property, we spend a billion dollars a year on research and development. We have $50 billion in cash and so we have resources, we have asset capabilities and we can really be the next generation of end-to-end solution provider.
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