Watching the Dell/EMC story, as with any big merger, a lot of misinformation is being tossed about, particularly with regard to what is going to happen to parts of EMC once Dell buys them. Much of this is coming out of the various research firms and is being authored by folks that I know and respect. However, most of it that I’ve seen is poorly founded, because it doesn’t start with Dell’s acquisition process, which is unique within the industry. Granted, that process has largely been used for small acquisitions, but it does scale. Given how successful it has been for Dell and how unsuccessful the more traditionally invasive acquisition processes that firms like HP use are, it would seem unlikely that for any acquisition, let alone one of this scale, Dell would throw out the process that works in favor of one that doesn’t work.
The most recent report I’ve seen suggests that within a few months of the acquisition, Dell will effectively blow up VCE (despite commitments to the contrary), because it competes with Dell’s own converged infrastructure unit. VCE is profitable, growing in the double digits, and a multi-billion dollar business, so any suggestion that Dell would off the venture makes Michael Dell seem like an idiot. I assure you he isn’t, I know the guy. Let me explain.
Dell’s Acquisition Process
I’ve written about Dell’s acquisition process before and my fascination starts with the fact that I was part of an acquisition cleanup crew for IBM. This is where I grew to hate the acquisition process that most companies use, where the effort seems to be to simplify the management structure of the new company and find homes for surplus employees of the acquiring company. As a result, this tends to destroy the value of every acquisition that follows this process. Don’t get me wrong, this process provided a never-ending career opportunity, but cleaning up after brain-dead decisions got really old after a very short time.
Dell’s process was actually developed at IBM after I left, and it has proven to be uniquely successful. What makes it different is that it isn’t designed to make management’s job easier or solve employee placement issues for Dell. It is designed (and this really doesn’t sound like rocket science to me) to identify the key assets of the acquired company and make damn sure they gain in value as a result of the acquisition.
This is why Dell doesn’t invasively go in and blow up the acquired company—it isn’t religious about protecting its existing businesses. So if there was a profitable unit growing inside a firm that Dell acquired, even if it competed with Dell’s own unit, he’d likely leave it in place. For instance, when Dell acquired Alienware, a gaming PC company, it competed with his own XPS unit. The company didn’t kill it; however, over time he did remission the XPS unit to focus more on luxury PCs rather than gaming PCs because that was additive.
The other thing about removing a competing offering is that there is no assurance that the customers would move to Dell’s solution. In all likelihood, the customers, who would not be happy, would black list Dell for a time and thus create a windfall for both EMC’s and Dell’s competitors. I’ll grant you that most firms would do exactly that, but Dell has repeatedly proven that it isn’t like most firms. (I should point out that the amount of value that gets destroyed by firms that follow the more common process drives me completely nuts. You’d think they’d learn.)
Applied to VCE
So if you look at VCE, you have a property that generates billions of dollars, is growing in the double digits, has customer loyalty that is nearly unmatched in the industry, and plays mostly in the very large enterprise where Dell is relatively weak. The reports argue that this is a business that Dell will eliminate, which will likely wipe out several billion in revenue, cut sharply into EMC’s profit and growth rates, and drive some of EMC’s largest, most loyal and most valuable customers to other vendors.
In short, the foundation of such an argument is that suddenly a company known for having the best acquisition process in the segment is going to not only forgo that process, but also do something colossally stupid.
With all due respect to my peers, I just don’t think Michael Dell is going to suddenly turn into an idiot.
Wrapping Up: Start with Process
I think that if a report talks about the outcome of anything, but doesn’t start with a discussion showcasing an understanding of the process, you should throw it out as worthless. I don’t think it matters if we are talking about making a cake or buying a company. If you want to describe what is going to happen, you have to at least consider how the person or company normally does something before you predict the outcome. It is like the old joke where two guys are watching a western and one turns to the other and says, “I bet you $10 the cowboy falls off his horse,” and the other guy says “You’re on.” Then the cowboy falls off the horse and the bettor says, “You know; I can’t take your money because I watched the movie before and knew what was going to happen,” and the other guy pays him the $10, saying, “I did too, I just didn’t think he’d be stupid enough to do it twice.”
A process is a script for doing things and it will detail a course of action. Betting that a firm will deviate from a process that they take as a matter of course—and which has proven very profitable—is foolish unless there is some unique reason for the firm to take a different approach.
In this instance, there is no reason to deviate. This is also a very unusual acquisition because, in effect, Michael Dell is creatively taking Joe Tucci’s place and taking EMC private at the same time. He’ll run the result like he runs Dell and there is substantial evidence that he isn’t an idiot.
Rob Enderle is President and Principal Analyst of the Enderle Group, a forward-looking emerging technology advisory firm. With over 30 years’ experience in emerging technologies, he has provided regional and global companies with guidance in how to better target customer needs; create new business opportunities; anticipate technology changes; select vendors and products; and present their products in the best possible light. Rob covers the technology industry broadly. Before founding the Enderle Group, Rob was the Senior Research Fellow for Forrester Research and the Giga Information Group, and held senior positions at IBM and ROLM. Follow Rob on Twitter @enderle, on Facebook and on Google+