The Dell finally tolls – but is this the right fit?

So Dell finally made its major play into the IT services enterprise arena announcing a $3.9bn deal for the Texas-based Perot Systems.  Unlike the HP/EDS mega-merger of last year, there is a lot less overlap between the merging entities, however, you have to assume this is more of a play by Dell to transform its commodity hardware business by refocusing its future strategy on services-led engagements.

However, while there isn't much overlap, there also isn't a lot of synergy.  Why should Perot customers want to buy Dell equipment all of a sudden?  Most CIOs today are looking to move away from hardware-centric IT delivery models, and onto more on-demand cloud computing models.  If anything, it's more of a play for Perot to push services onto Dell's customer-base.  It also opens up the lucrative healthcare IT market to the newly-merged entity.

While I applaud a bold move by Dell to transform its business model, work has yet to be done to elevate Perot's IT/BPO services business to the top echelon of service providers at a global level.  Namely, Perot hasn't  yet fully exploited its presence in healthcare to position leading edge IT/BPO offerings in that space, especially with the market ripe for exploitation in light of the new government initiatives, namely ICD-10 compliance and digitization of patient records.  If Dell can quickly leverage this merger to make a further strategic acquisition in this space, then you can see a new player emerging.  However, if they spend a whole year trying to restructure these firms and take their eye off the ball with regards to broadening the service offerings, this could present a window for several of Perot's services competitors in the healthcare space to step in…

You also have to wonder whether the largely US-dominated vendors are going to continue to consolidate in light of fierce competition from the Indian-dominated global providers.  ACS-CSC anyone?

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4 Comments

  1. B. Patel
    Posted September 21, 2009 at 9:24 pm | Permalink

    Synergy or not, Michael Dell should take a look at a chapter from the history books…… Merger of Ross Perot’s EDS and GM and figure out the real cost, down the road, of having Mr. Perot on the board of Dell. Mr. Perot’s board seat on GM cost GM an extra $700M in just 2 years from the date they acquired EDS for $2.5B in 1984 dollars.

    The real question is not how much Dell can leverage on Perot System’s clients. It is how much can Mr. Perot help (or hurt) Dell’s hardware business!

  2. Subir Dhar
    Posted September 25, 2009 at 6:23 am | Permalink

    Hi,

    At a first glance, it may appear that there are few synergies for the acquisition. On a closer look I find that there are some areas where it will make significant impact.

    1. Large IT Outsourcing Deals: Many of the large deals involve a combination of ADM and Infrastructure component. In such cases, the combined entity will have a better play. Till now, we had only IBM and HP with such power, but now we will see Dell too.

    2. Emerging Cloud Computing space: Dell will be in a better position to combine the hardware capabilities with the Perot’s Business domain capabilities to come up with integrated offerings which will appeal to a large spectrum of business – especially the SMB business.

    On the whole, there will be impact in Healthcare industry to start with. But this is possibly just the beginning – and in the next 3-5 years, Dell is likely to buy some more firms to create a bigger eco system to become a more formidable player.

    Regards

    Subir Dhar

  3. Posted September 25, 2009 at 9:53 am | Permalink

    Subir – thanks for your comments.

    I agree with your last point regarding healthcare. If Dell can broaden and strengthen Perot’s IT/BPO services in that vertical, they have a good growth opportunity there, but they already face incrasingly fierce competition from aggressive firms such as Cognizant and IBM in this space as they broaden their offerings across the entire healthcare value chain. I just struggle to see Michael Dell getting excited about business service-focused delivery at this point, and my fear is they focus too much on pushing commodity ADM services.

    Your comments about large IT outsourcing deals are wide of the mark. Buyers don’t care about hardware provision these days, and while it’s refreshing to have another enterprise infrastructure player in there, it’s a commodity business and most the large client deals are already parsed out. It’s the remote infrastructure areas where we’re seeing more opportunity, and I don’t see Perot as a market leader there.

    Re cloud, yes, there is an opporutnity, like there is for every service provider. However, the winners will be those which can develop unique software IP than supports quality business services on a one-many basis. Whomever hosts it on, and on whatever hardware, is largely irrelevant, as long as they meet certain standards,

    PF

  4. Khader
    Posted October 1, 2009 at 2:37 am | Permalink

    Man, you were right on the button here! Well its not ACS-CSC… but ACS-Xerox should do nicely!! This is another healthcare BPO related play… do you see healthcare hotting up already? Or is it a case of two gusts of wind do not make a typhoon? Love reading your blog, thanks!

3 Trackbacks

  1. [...] the acquisition was announced, it was obvious that Xerox saw Dell’s Perot acquisition and HP’s EDS acquisition as examples of technology manufacturers entering the services business. [...]

  2. [...] it’s nice to be pleasantly surprised by one which is clearly on the right path, because when Dell acquired Perot Systems in 2009, many of us were skeptical as to whether a product-centric firm, such as Dell, could make a genuine [...]

  3. [...] it’s nice to be pleasantly surprised by one which is clearly on the right path, because when Dell acquired Perot Systems in 2009, many of us were skeptical as to whether a product-centric firm, such as Dell, could make a genuine [...]

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