Dell has finally gotten onto the services bandwagon (well, besides just talking about it). The move is an interesting, albeit risky one. The company's fortunes have flagged recently. It turned out that Dell wasn't the one driving commoditization, but rather Microsoft and Intel were and Dell had a great operating model that took advantage of this. Now, if you spend a little time with Dell's suppliers you would realize the operating model wasn't quite as good as Dell claimed and rather Dell was using its power to take profits from elsewhere in the supply chain, but that's irrelevant for this post.
So in offering to acquire Perot Systems Dell not only makes a big service play, but does it in two industries (Government and Healthcare) that have quite a bit going on. While large services acquisitions have a low rate of success Dell will be looking to IBM's acquisition of PWC and HP's acquisition of EDS (to a lesser degree) for lessons. At Dell it is not just the operating model that is low cost, the whole culture is. We shall see if Dell can make the necessary adjustments to incorporate a true services business. All in all, a risky but necessary move on their part.
Dell offers to acquire Perot Systems
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Dell's model worked brilliantly when component costs were high and customers payed more attention to what they were paying for, driving demand for numerous configurations across many models. Once acceptable performance was achieved at that "magical" price point the market was willing to pay, Dell began to lose its edge. Apple has seized on those price points while selling an attractive product and maintaining margins, while Dell has been stuck further in the commodity corner.
ReplyDeleteI think the top tier computer manufacturers are making a mistake by chasing the lower end just to maintain market share. They should concentrate more on product design and services and find their more lucrative market's price points and not go below them. Dell, at least, is expanding their services with the acquisition, but I don't think their culture bodes well for services and consulting.
That's a great point. The rules of competition switched from low price to design and Dell's operating model was no longer enough to cover up their limitation in that area. They haven't made much progress in design and certainly not enough progress to separate themselves from HP let alone Apple.
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