Strategic CIO // IT Strategy
12:44 PM
David Rutchik
David Rutchik

Dell's Future: 3 Wild Cards CIOs Should Understand

As Dell pursues going private, Microsoft's $2 billion stake isn't the only thing that should give enterprises pause.

Businesses that have an existing service provider relationship with Dell should:

-- Assess their termination options. Whether or not you're unhappy, the limited buyout will trigger termination for change of control provisions that should be part of any well-constructed ITO agreement. Whether termination is a desired -- or even operationally viable -- option aside, simply having the right to terminate with less cost and impact than a termination for convenience will provide the leverage needed to renegotiate unfavorable provisions or force attention on service levels.

-- Maintain lines of communication. As new stakeholders develop and implement strategy, Dell may have a dynamic operating environment. In particular, shifting priorities may impact lines of business and supporting organizations that are important to you. Speak with your relationship manager regularly to discuss how planned changes will affect your agreement and how to mitigate any negative effects. Good governance is critical.

-- Monitor neutrality. With Microsoft as a major investor in the privatization bid, Dell's system designers may be under pressure to incorporate more of Redmond's technology. Watch for any proposed changes to your architecture and raise a flag if Dell replaces previously open-source or other vendor systems or components with Microsoft-oriented technologies.

-- Pay special attention to service levels. Systemic corporate change can wreak havoc on employee focus and stability, with potentially disruptive near-term impacts for customers. Monitor performance metrics and keep in touch with critical Dell contacts especially closely during the transition period to ensure your operations are not negatively impacted.

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User Rank: Apprentice
2/15/2013 | 3:27:43 PM
re: Dell's Future: 3 Wild Cards CIOs Should Understand
I'm surprised that more of the industry Titans haven't made moves to divorce themselves from Wall Street. Will we start seeing a trend here?

If you have enough of your own private capital sources, free cash flow, etc., then who needs Wall Street and their money sucking baggage?

Hooray for Dell having the cajones to decide their own destiny.
User Rank: Apprentice
2/14/2013 | 6:41:14 PM
re: Dell's Future: 3 Wild Cards CIOs Should Understand
As presently constituted, the proposed LBO will utilize Dell's current cash flow that previously was devoted to acquisitions and buying back stock to service the new (and higher) level of debt. Customers should therefore not be worried about whether Dell will be able to meet its commitments to them.
Dr Cube
Dr Cube,
User Rank: Apprentice
2/13/2013 | 11:52:01 PM
re: Dell's Future: 3 Wild Cards CIOs Should Understand
In 1997 Microsoft invested $150M in Apple Computer and committed to a better Mac version of the Microsoft Office Suite. Although the investment was small relative to the recent $2B investment in Dell the deal helped Steve Jobs revitalise the then waning fortunes of Apple. Michael Dell can see the writing on the wall - the PC market is in rapid decline and server computing is moving to the Cloud where the big PaaS and IaaS utilities like Amazon, Microsoft and Verizon can buy servers at 70-80% discounts. Microsoft sees its future in the Cloud with Azure and mobile devices with Surface and smart phones and that's why teaming with Dell and Nokia makes perfect sense. Michael Dell has probably already done a deal to manufacture and sell Microsoft Surface under contract and supply Microsoft with hardware for its massive data centers around the world.
User Rank: Strategist
2/13/2013 | 9:49:17 PM
re: Dell's Future: 3 Wild Cards CIOs Should Understand
This is good advice from Pace Harmon's David Rutchik. Dell has gained valuable experience in next generation data center architecture by providing equipment for Microsoft's Azure data centers and those of various search engines and online service providers. Can its consultants convert that know-how into modern architectures -- virtualized servers, storage and networking -- that fit medium-sized enterprises, which are a natural constituency for Dell? Maybe they can. A possible red flag: "We'll save you money by replacing your VMware with Windows Server and Hyper-V." Charlie Babcock, InformationWeek
User Rank: Author
2/13/2013 | 8:10:14 PM
re: Dell's Future: 3 Wild Cards CIOs Should Understand
The author writes: "However, there's also a real possibility that Dell's actions are motivated more by considerations of his legacy or a determination to double down on the OEM business than by a burning desire to build a legitimate Tier 1 enterprise-class ITO provider. "

The overwhelming reaction in my Twitter stream, and among IT people I know, is that they are rooting for a dramatic next act from Michael Dell. I'm not sure he knows what his legacy will be, but I would bet it is more colorful than battling IBM on services. Mobile, anyone?

Laurianne Mclaughlin
User Rank: Apprentice
2/13/2013 | 2:57:18 PM
re: Dell's Future: 3 Wild Cards CIOs Should Understand
The idea that even existing customers can use the LBO as leverage to renegotiate contracts is a great takeaway. Lorna Garey, IW Reports
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