Dell Technologies One Year In: How Are They Performing And How Did They Do It?

By Patrick Moorhead - November 28, 2017
If you look at the largest tech mergers and acquisitions, there have been mixed results, some positive, most negative. When I say that, I’m talking about AOL-Time Warner, JDS Uniphase-SDL, HP-Compaq, Verisign-Network Solutions, JDS-E-Tek, HP-EDS, Oracle-PeopleSoft, Symantec-Veritas, and Compaq-DEC. Given past megamerger failures, many were understandably skeptical when Dell started talking about buying EMC back in 2015—especially considering it was, and still is, the largest tech deal ever at $67B. I’d like to spend time on this blog assessing how the first year went and how they did it. Overall, it appears Dell is managing to pull it off and doing it with style. Accomplishments so far Dell Technologies is the world’s largest privately controlled tech company regarding many metrics. Last fiscal year it boasted $74B in revenue, with over 140,000 employees, 30,000 full-time customer service, and support team members, located in 180 different countries. While the full fruits of the Dell EMC deal will be coming down the road, it’s important to look at what Dell Technologies did within the first year of getting the deal done. FY’18 Q2 is a good representation of how the company is doing financially, and results were impressive, with a posted revenue of $19.3B, and a $1.8B cash flow. When you are private, gross profit margin percent doesn’t mean anything, but cash is king.
While critics of the initial merger worried whether Dell could climb out of the debt it would incur, the new company has already paid down $9.5B, driven in part by free cash flow and the sale of Dell Services, Software and Enterprise Content totaling $5.3B. Dell EMC has been firing on all cylinders across many fields, gaining share in PCs, servers, HCI, and storage, and making impressive headway in IoT, data protection, and AR/VR. The Dell client group is doing very well as I illustrated in this recent article.
I highlighted that “the company’s global PC share grew for the 18th consecutive quarter (from 15.9% to 17%), and Dell’s overall shipments grew 3.7% year-over-year (aided in part by an unusually strong notebook showing). While not the #1 unit share lead, Dell does lead in commercial revenue share. The other big news is that Dell managed to surpass HP Inc. to reclaim the number 1 position in total global workstations share.”  All this and Dell client group brought in $566M in Q2 operating income. Dell also completely revamped their channel program, led by John Byrne, and is now a $35B business, adding 10,000 new accounts and growing at over 3X industry rates. Probably the best metric given the history of loser mega-mergers was that an impressive 91% of customers surveyed believe that Dell EMC has delivered on its pre-merger promises. OK, so Dell had a good first year with the backdrop of a history of mega-mergers is, so how did they do it? An ambitious merger Before the merger, neither Dell or EMC were strangers to acquisition. Both companies had been “serial acquirers” in their prior years, and had ample opportunity to put integration strategies into practice—Dell typically favored a tighter approach, while EMC tended to lightly integrate most of its acquisitions, tightening as needed. While this was all valuable experience, the fact of the matter was that regarding sheer scale and complexity, this megamerger had no precedent. Knowing that they were headed into uncharted waters, the two organizations brought Bain & Company and Deloitte on board as trusted advisors in the process. One thing I must point out that differentiated this merger was that this was to be a true partnership—without one “equal” partner trying to impose its will upon the other. Throughout the integration process, Dell and EMC worked hard to put to rest all notions that one of the teams was acquiring the other. This annoyed me a bit as it was technically an acquisition, but required to make the integration go smoothly.  The long working relationship and mutual respect between Michael Dell and Joe Tucci certainly didn’t hurt the effort. Creating a foundational framework for corporate integration To pull the merger off, the two companies needed to create a new foundational framework for addressing the big strategic questions on the table. The companies devised a Value Creation Integration Office (VCIO, for short) to accomplish this. The VCIO was chaired by senior executives from each company (Rory Read from Dell, and Howard Elias from EMC), who acted as Chief Integration Officers, with a direct line to the CEOs of their respective companies. The VCIO was comprised of certain “high-performance leaders” and experts from both companies, hand-selected by senior management. The office oversaw surfacing and quickly addressing the big strategic questions associated with the merger, which was closed in record-setting time in September 2016. To more closely understand how Dell EMC pulled it off, it’s useful to look at the six major lessons the company reports to have learned from this merger process. I picked up these insights from Dell’s own blog and after talking with many senior executives at the company. When in doubt, default to customer First, the VCIO focused on driving value for the two companies’ customers, without letting the merger disrupt revenue. This one element is often forgotten or mis-executed upon, and you get an early revenue dip. The office attempted to map the customer experience for key segments while identifying areas of potential merger conflict. Customer teams from each company were combined into seamless groups to make sure nobody was stepping on each other’s’ toes. The VCIO also made sure that account teams were able to accurately represent to their customers how exactly the integration would affect the customer’s day-to-day, managing expectations and minimizing any surprises. Customers were prioritized in the merger, which in turn helped built trust across both companies and making it harder to say “Dell” or “EMC” was being favored. Over-communication The next tenet of the merger strategy was over-communication. Before the process even really began, the VCIO facilitated early communication and team-building between key employees from the two companies, letting them get to know each other, develop relationships, and define key objectives before really digging into the nuts and bolts of the merger. As the process continued, work teams met daily and checked in with VCIO leadership on a weekly basis. VCIO leadership frequently met throughout every week, and regular updates were given to the boards and CEOs of both companies. This level of communication might seem like overkill to some, but when stakes are this high, it makes sense to err on the side of over-communicating to keep everyone on the same page always. I like to say that it takes “three inoculations” for the message to sink in and I think this is true here. Reinforce innovation Thirdly, the VCIO put a focus on building on the companies’ legacy of innovation. As I talked to some EMC executives early-on, I know there was a fear that Dell would take a hatchet to R&D and innovation and when I talked to some Dell executives that were the case. So it was important that the innovation precedent and message was sent to get everyone on the same page. While Dell and EMC’s hands were tied somewhat by only being able to share a limited amount of product information with each other before the merger close, the VCIO created a team of experts who focused on making sure the new company could bring several new solutions to the market starting pretty much at Day 1. They wanted to send the message that the combined company was ready and well-suited to innovate.
Streamlined decision making
Next, to manage the deluge of questions, decisions, and work brought on by the merger in a way that didn’t absolutely swamp the top executives of the companies, the VCIO put into place a streamlined decision-making process. A small leadership group was devised to handle decisions that were either strategically sensitive, critical to value realization, or impactful to operations, business units, or stakeholders. This process ensured that the top executives were only faced with the most critical 20% of the decisions, while the rest was delegated to integration teams. This was huge, I believe, as it reduced the chance that the biggest private tech company slows down to a crawl. Culture The next lesson learned was the importance of respecting company cultures and amplifying foundational elements of the new company. I’m glad this was addressed as I knew both Dell and EMC pre-merger, I really thought they were different companies culturally. The nature of this megamerger lent itself to much cultural conflict—both companies have been around for a long time, and while they shared many values, they each had their own deeply entrenched corporate cultures. The VCIO integration team implemented surveys to understand and delineate the core differences in the two companies’ cultures (for example, EMC touts its world-class customer support, while Dell takes great pride in its design and supply chain innovation). The basic idea was to identify these clashes when they were just beginning to emerge and take care of them before they snowballed into something more serious. One size does not fit every customer The final takeaway from the merger was that one size does not fit all—choosing a single integration strategy to apply across the entire company portfolio would have been extremely problematic. To tailor with more nuance, the companies identified their key operating differences: EMC with more low-volume/high-value relationships, Dell with more high-volume/high-value relationships. To navigate this, the best part of each company’s prior approaches were utilized: Dell’s model took the front seat with end-user and computing centric solutions while giving way to EMC’s operating model for enterprise solutions. Wrapping up Looking back at history, most technology megamergers have ended in disaster. Dell Technologies, a year in, looks like a winner. This didn’t come about by luck or sheer force of will, but by good leadership and a solid process. I’ll admit, as an ex-corporate guy who ran some large corporate engagements, I still do eye rolls when presented with the combination of “office of” and external consultants, but I can’t argue with results. Having lived through a few failed mergers and acquisitions, I think the most impressive thing the integration team did was to provide the right amount of guidance and control. This requires the skills of a modern-day jet fighter pilot, gently squeezing and forcefully moving the stick. Dell Technologies has matured considerably over the past year regarding integrated product and messaging, and I’m optimistic we’ll see it continue to progress. Dell Technologies has a lot of work to do to show the complete payoff on Michael Dell’s vision, but this is one heck of a way to start.
Patrick Moorhead
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Patrick founded the firm based on his real-world world technology experiences with the understanding of what he wasn’t getting from analysts and consultants. Ten years later, Patrick is ranked #1 among technology industry analysts in terms of “power” (ARInsights)  in “press citations” (Apollo Research). Moorhead is a contributor at Forbes and frequently appears on CNBC. He is a broad-based analyst covering a wide variety of topics including the cloud, enterprise SaaS, collaboration, client computing, and semiconductors. He has 30 years of experience including 15 years of executive experience at high tech companies (NCR, AT&T, Compaq, now HP, and AMD) leading strategy, product management, product marketing, and corporate marketing, including three industry board appointments.