Dell’s board of directors approved a $24 billion bid to take the company private this past February 5, with Microsoft providing $2 billion in support. This coincides with Dell’s strategy in recent years of shifting more toward an emphasis on becoming an end-to-end enterprise services provider. Although their IT outsourcing (ITO) has garnered good reviews so far, Dell is still struggling to be considered a top-tier ITO provider outside of niche markets. David Rutchik of InformationWeek asks CIOs to consider three wild cards concerning Dell moving forward:
- The benefits and risks of going private.
- The Microsoft investment and its potential impact on future service offerings.
- Michael Dell (the founder) himself.
While Dell will be able to make longer-term investments now that it does not have to sweat quarterly earnings and market scrutiny, its focus now will inevitably be on appeasing the creditors to whom it now owes roughly $17 billion over satisfying its ITO customers. Microsoft’s investment in the company also opens questions of how obligated Dell will feel from this point on to choose Microsoft products and services in their dealings, which may hurt the integrity of a company known for its intelligent selection of technology. Finally, while Michael Dell has contributed a substantial amount of his own money toward the move to private, there are concerns that his actions are governed more by his hope to build a legacy than toward the longevity of the company. For the CIOs still considering working with Dell, Rutchik further offers seven steps to protect their position:
- Think twice about a long-term relationship.
- Question its dedication to ITO.
- Maximize flexibility while minimizing downside risk.
- Assess their termination options.
- Maintain lines of communication.
- Monitor neutrality.
- Pay special attention to service levels.
Rutchik’s full article makes the importance of each of these steps clear, but of particular consideration is his explanation on the second step:
Depending on cash flow, Dell may be forced to concentrate on meeting its outstanding debt obligations vs. investing its ITO business, corresponding innovation, complementary acquisitions and new corporate customer relationships. Insist on multi-level formal governance provisions in all agreements, as well as upfront meetings with senior executives to gain comfort in Dell's commitment to the ITO space in general, and to you as a customer in particular.
With the shift to privatization, Dell becomes a whole new beast with new strengths and weaknesses to understand. For the discriminating CIO, the ideas expressed in this article should help to decide whether Dell is a beast worth taming or if it is time to run for the hills.