7 Moves Dell Must Make Now

Feb 07, 2013 (07:02 AM EST)

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By going private, Dell has extricated itself from Wall Street's fickle grasp. No longer beholden to quarterly earnings reports and fluctuation in shareholder loyalties, the company is now free to invest for the long term, even -- as Michael Dell has said in the past -- if it means suffering some temporary losses along the way.

This flexibility is all well and good -- but what should Dell do to capitalize on it? Even before the buyout, the Round Rock, Texas-based company faced pressure from all sides. Poor PC sales have attracted the bulk of attention, but even Dell's stronger businesses face challenges that require agile and responsive leadership. Software-defined networking, virtualization and converged data center infrastructures are encroaching on traditional server and storage markets, for example, and though Dell has been active in keeping pace with these advances, so, too, have its competitors. InformationWeek breaks down seven actions Dell can take to successfully reinvent itself as a private company.

1. Rebrand Itself

Though Dell's Nasdaq departure will allow the company to work outside public scrutiny, the company nonetheless needs to focus on its corporate branding. Dell has spent the last few years building a broad software and services portfolio but has been unable to shake its reputation as a PC-oriented company.

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In an interview, Gartner analyst Nik Simpson said the problem isn't that Dell's enterprise offerings don't deliver; it's that "people still associate Dell with going to a website and buying a cheap PC." To succeed, he said, Dell needs to effectively communicate that they're more than just a low-cost solution by emphasizing the support and integration that large organizations demand.

2. Become More Cohesive

Ironically, Dell's proactive efforts to expand its portfolio have contributed to the company's struggle to forge a new identity. Forrester analyst David Johnson wrote in a blog post that acquisitions have made the company too complex, and that its reorganization as a private company should focus on streamlining its businesses. In an interview, he said that over the last few years, "Most people really couldn't put a finger on what Dell was living for," adding, "Dell was lacking focus." He pointed out that private companies "lose the drag of all the regulatory compliance stuff they go through when they combine companies," meaning that Dell's buyout should allow the company to begin realigning business objectives relatively quickly and efficiently.

3. Push The Innovation Envelope

As mentioned, Dell faces competition from all angles -- not only within its traditional PC business but also within its newer software offerings. To succeed, the company needs to bring cohesion to its portfolio, as well as differentiate its offerings in terms of not only product and support features but also pricing models.

Cindy Shaw, managing director at investment analytics firm Discern, asserted in an investors' note that a "private Dell is likely to more aggressively cut costs" but warned that "merely restructuring only postpones the inevitable." Shaw noted that virtualization is poised to shrink the storage market, meaning that another of Dell's hardware-based revenue streams is poised for a shakeup. She suggested Dell could reinvent itself by not only focusing on innovative technologies but also selling them at lower margins in order to gain market share.

Gartner analyst Mark Margevicius noted in an interview that Michael Dell "really does like to innovate and to differentiate," and said the company could focus on "really cool devices that appeal to audiences beyond the PC space," asking, "Who's to say they can't be the next Samsung?"

Leslie Fiering, also a Gartner analyst, remarked during a phone conversation that Dell could change its public image by pursuing cloud infrastructure opportunities. She said such moves involve a "steep curve" but countered that Michael Dell has faced such challenges before. "When he wanted to go into servers, everybody said, 'What do you know about data centers and servers?'" she stated. "He was able to bring software and automation and things unheard of at the time ... Now, it's laughably simple, but these are the kinds of innovations Dell has been able to bring."

4. Embrace Microsoft Intelligently

Fiering emphasized that Microsoft's participation in the Dell buyout is a "loan, not an investment." Microsoft, in other words, has no seat on the Dell board and no official influence in the company's day-to-day operations. Even so, a deeper relationship could allow the companies to complement one another more effectively while also facilitating the innovation Dell must pursue.

Both companies will have to tread carefully in certain regards; Fiering mentioned that Microsoft's relationship with OEMs has already absorbed some bruising during the Surface "brouhaha," for example. In her note, Cindy Shaw warned that Microsoft's "involvement in the deal [will be] a key influence on the nature and extent of innovation" and cautioned that Dell must maintain an independent vision. Nevertheless, she noted the possibility for personal devices that are more effectively optimized for Windows 8 and for Dell to make strides by hooking into Windows Azure, Microsoft's cloud platform.

Forrester's Johnson likewise noted possibilities in cloud infrastructure, stating, "A lot of good things can happen. I'm bullish."

5. Take Care Of Customers

While Dell will be making aggressive moves behind the scenes, it must make existing customers feel confident that they will be taken care of. In his blog post, Johnson stated that he sees no immediate cause for concern. Fiering similarly stated that Dell "is going to do everything they can to maintain that cash flow. There could be dramatic internal changes but they'll do everything to protect customers."

6. Don't Abandon Devices

Dell's future is in software and services, but that doesn't mean it should dump its struggling PC business. "The PC business is still profitable. It generates a lot of cash," said Fiering, who also remarked that it would be "short-sighted" for Dell to get out. Following item number four in this list, Johnson said Dell can work with Microsoft to offer a better Windows experience. If Dell succeeds on this front, it will do so in spite of past failures to understand consumer preferences. Nevertheless, to make the most out of a closer relationship with Microsoft, and to maintain existing revenue streams as it retools its enterprise services, the company must produce compelling devices. It has demonstrated some foresight lately, such as being the first to make WiGig-ready Ultrabooks, and it will need much more of the same going forward.

7. Remember Its Strengths

Gartner's Simpson pointed out that Dell's Wall Street struggles and image problems have persisted despite the company's strong performance in certain markets, notably severs. "Their server business is one of the healthier bits," he said. Indeed, it's not just that Dell is selling a lot of servers; it's also that the company has remained on the bleeding edge while doing so. Dell already has firm positions in the hyperscale and converged infrastructure business, two areas that should take off in the future. While other aspects of its business work on rebuilding and restructuring, Dell must preserve its strongest revenue streams, which means that rather than resting on its laurels, it must continue to hone these strengths.