Market Update: Mitel on Board with BlackBerry PlayBook

Rob Enderle

I had an opportunity to chat with Michael Dell last week and it was a fascinating conversation. I'm a big fan of founder-run companies because the more traditional, outside-sourced CEO tends to be very tactically focused. That can give you extremes like Mark Hurd, who effectively maximized his own comp plan by stripping HP to the bone. Hurd at HP, in my mind, represents what is wrong with the common CEO comp plan in that it both focuses the CEO on very tactical decisions that, over time, drain the firm's assets and creates executives who appear to take ethics rules as suggestions - both have weakened the ability for U.S. companies to compete.


A founder tends to put his or her company first, particularly if the firm bears his or her name. While that can have adverse short-term financial aspects, it tends to assure company success in the long term. Founders can also stay on too long and may lose track of the market as we saw with RIM because firms need to reinvent themselves. Dell is in the midst of a major - and nearly too late - reinvention, but is currently on track to leapfrog its competitors.

 

Let's discuss Dell's future and some best practices today.


Tablets and Smartphones


If you look at the financial and sales performance of the companies in this space you have Apple, which is just rolling in cash and owns the tablet market. And then you have a bunch of firms that mostly use Android on vastly slimmer margins on smartphones and are mostly bouncing off the tablet segment. Michael Dell was very clear that the tablet market, until Windows 8 ships, is an iPad market and that the smartphone segment just isn't very interesting financially.


What he realized was that the money in smartphones was increasingly in the backend services and not on devices. As I chatted with him there seemed to be an implied recommendation that RIM consider getting out of the hardware business and focus on putting its services on iPhones and Android phones in order to hold the increasingly more lucrative services revenue.

 

Today's Wall Street Journal story on the lone RIM store was a sad reminder that such advice for that company might be timely. Dell's core point was if Palm, Nokia and RIM couldn't do well in this hardware segment, then Dell was likely to be less successful and would be better off focusing on providing services to the entire class of products rather than building any one.



So, for tablets, it'll wait now for Windows 8 to make any push, and on smartphones it'll look to add services, mostly business services, which can fill holes that the phone builders, including Apple, aren't good at. Recall that the one big failure Apple had last decade was with the Apple server and servers are one of Dell's strengths and you see the best practice of positioning strength against a weakness and, possibly given Apple isn't that interested in business services yet, avoiding a fight with Apple all together. Heck, it might even partner at some point, but I wouldn't hold my breath.


Acquisitions


One of the most interesting things about Dell is its acquisition success. This is particularly noticeable against HP, which has had what likely is the biggest short-term acquisition failure - Palm - in a decade. Dell looks at up to 250 small companies a year against a strategic roadmap of what it needs and then picks the 5 to 8 small firms that fill gaps. This is instead of doing a lot of R&D because it has found that the Darwinian nature of the market tends to be a forcing function and that only the most successful solutions get vetted by the market. In addition, given these products fill line holes, there isn't the corporate tendency to play homicidal politics where the existing lines are protected against their more advanced acquired alternatives. This allows Dell to move much more quickly and this process should allow the company to leapfrog competitors in key areas.


Dell's acquisition strategy, in terms of execution, is designed to protect and hold the value it has acquired. In most cases, that means it leaves the company alone and wraps it with Dell sales, service and financial resources. Over time, there are minor adjustments to refine the model but the executives keep their titles and responsibilities and Dell doesn't muck with what it has acquired. This is in sharp contrast to the more typical integration mergers that most other companies do that force key executives and unique engineering talent to leave, and more typically (estimated 90 percent failure rate) has disastrous outcomes.


One difference is Dell's initial acquisition of EqualLogic, which became a massive success. It hired a leading acquisition specialist, Dave Johnson (like me, an ex-IBMer), who turned this into a repeatable process and the rest is history. More typically, a firm may do something exceedingly well but will generally not institutionalize the process. Apple is the other exception and it has made the practice of doing something well and both repeating and refining it a foundation of its decade-long success. On acquisitions, Dell is executing a similar process at a similar level.


Wrapping Up: Building a True Legacy


I firmly believe that companies should be designed to be immortal. I also believe they can only get this way if they develop best practices, institutionalize them, and are willing to change from time to time. Dell is undergoing a massive change and it is largely successful because it has learned, institutionally, how best to acquire the technology it needs for this change and has learned to compete with its strengths and not try to mirror a competitor.


Dell's analyst meeting is next week; I imagine my peers will be surprised that Dell has grown up to become a very different company than they remember and this is actually a good thing. Dell's future is bright largely due to the power of a founder who can think strategically and doesn't milk his company for personal gain. In the current environment that is a unique and powerful advantage.



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