CAN THE PC KING EXCEL IN SERVICE ?

[Anonymous]

CAN The PC King Excel In Services?

In recent years, Dell Inc.  has made plenty of headlines for its efforts to
move “beyond the PC” with assaults on markets including printers, storage gear,
MP3 players, and most recently flat-panel televisions. But one of the company’s
least glamorous initiatives is also gaining traction. In its earnings
announcement on May 12, Dell reported that its $1.1 billion computer services
operation grew 30% from the year before — almost double Dell’s 16% overall
growth and almost five times faster than the overall services industry. “Dell
has done a surprisingly good job,” says analyst Laura Conigliaro of Goldman,
Sachs & Co.

That’s bad news for any tech company that relies on service and support to
pay the bills. For the past two decades, Dell’s hyperefficient ways have forced
its hardware rivals to sacrifice profits or surrender market share — and often
both — to compete with the Round Rock (Tex.) company. Now, Dell is looking to
commoditize parts of the services business in the same way it did hardware. It’s
aggressively expanding in basic phone support and repair services, and it’s
promoting a range of newer offerings, from helping businesses load software on
employees’ machines to helping them recycle and replace old models. It’s mundane
stuff compared to the big-think consulting provided by IBM , Electronic Data
Systems Corp. , and others. But if Dell has its typical impact, it could put a
sizeable crack in one of the most reliable profit centers of its rivals. “You
have to take Dell seriously,” says Stan Schatt, senior research director at
research firm Current Analysis.

Still, that’s a big if. For now, Dell is wisely exploiting the easiest
opportunities. It is selling primarily to existing corporate customers,
particularly those that don’t ask it to support products from its rivals. And in
a striking exception for a company built on having a direct, no-middleman
connection to customers, Dell relies heavily on subcontractors that are willing
to take on near-profitless assignments — say, driving to a remote rural account
in North Dakota. But to keep taking share, say skeptics, Dell must ensure its
hired help keeps providing top-notch service, while it further expands its range
of offerings to win over big customers that want a one-stop service shop. “Dell
is going to get sucked into that vortex whether it likes it or not. Otherwise,
it’ll be an also-ran,” predicts Tom Rodenhauser, president of Consulting
Information Services in Keene, N.H.

A Different Mindset That could require daunting changes from the time-tested
approach that has made Dell the king of plain-Jane computers. When hawking
hardware, its focus on efficiency has given customers what they want: low prices
and no-fuss delivery. But computer services is a different game, one that
requires an up-front investment in people and parts. Far from the discipline of
Dell’s just-in-time production lines, computer services is about managing
disorder — whether it’s coffee spilled on a keyboard or a massive hacker
attack.

Dell hasn’t always shone in this regard. In 2003 complaints against the
company piled up, in part because it was routing support calls to India. That
November it discontinued the practice for most corporate customers. And in the
fourth quarter of 2004, Dell fell behind Hewlett-Packard in a customer
satisfaction survey done by research firm Technology Business Research Inc. As
Dell tries to sell even more sophisticated offerings, its lean-and-mean approach
could be sorely tested, says TBR analyst Humberto Andrade. “Services requires a
different culture and approach,” he says “It’s different from, ‘Let’s sell
30,000 PCs.”‘

Whether Dell can make the jump could have huge implications for the company.
That’s because services is a key element of Chief Executive Kevin B. Rollins’
plan to propel the company from $49 billion in revenues in the latest fiscal
year to $80 billion by the end of 2008. Rollins hopes to get about $5 billion of
that $31 billion increase from services.

That’s not to discount Dell’s fast progress of late. Just as it did in PCs
and other markets, the company is attacking a market segment ripe for
commoditization. Back in the 1990s, tech buyers typically inked a slew of deals
with various services companies — one to repair laptops, say, and another to
man a help desk. Now, some 70% of buyers want cheaper bundles of basic services,
says TBR. While Dell isn’t alone in going after this market, its fast-rising
share of the PC business gives it an unrivaled opportunity. Having purchased all
of its PCs from Dell, Atlanta document-management company Recall Corp. will
likely choose the company to manage the machines. “Dell, as the incumbent,
absolutely has an edge,” says Brian Beard, Recall’s chief information
officer.

Rollins thinks Dell also has an edge in how it’s approaching this market. For
starters, the company isn’t trying to do everything — it’s focusing mostly on
jobs that will help it boost hardware sales. The message, says vice-president of
services Gary Cotshott, is that “to take advantage of the full value of Dell,
you ought to combine our technology with services.” Plus, Dell is keeping tight
control of costs. It’s using its market clout to get great deals from
subcontractors such as Getronics and Unisys Corp. (NYSE:UIS – News) to handle
the workaday tasks. Its own staff is much leaner than its peers: Dell has 10,000
people providing hardware support, vs. roughly 40,000 for Hewlett-Packard Co.
(NYSE:HPQ – News) The result: Dell generates $254,000 in revenues for each
services employee, compared with an industry average of $151,000, according to
TBR. “They are going to be a dominant player,” predicts Paul D. Jameson,
Getronics’ vice-president of marketing. “They used to not be invited to bid for
projects. Now they are invited to the show every time.”

What Dell Doesn’T Do But only certain kinds of shows — at least so far. Dell
doesn’t address some of the biggest segments, such as taking over the operation
of customers’ technology shops or providing consulting to help them find new
ways to use tech gear to improve their businesses. Indeed, the markets where
Dell now plays total just $86 billion of the $635 billion services industry,
according to Gartner Inc. And in other markets, such as helping companies manage
their software programs and configure their servers, Dell remains a bit player.
“Dell is doing a good job of getting a lot of press,” says Dan Socci,
vice-president of marketing for HP’s technology services unit. “But their
portfolio is nothing like the broad portfolio we have.”

But Dell may someday be forced to move out of its comfort zone to maintain
its services growth. For starters, there are only a limited number of customers
that have only Dell gear. Even Austin Peay State University in Clarksville,
Tenn., is debating whether to give Dell a $100,000 contract to set up a storage
network — one reason it’s hesitating is that Dell is reluctant to support the
Sun Microsystems Inc. (NasdaqNM:SUNW – News) gear it already owns. And many
large multinationals prefer to hire a soup-to-nuts provider that can help them
apply technology to their business problems — not just help manage the gear
itself.

Dell’s reliance on subcontractors could present another problem. Currently,
companies such as Unisys and Getronics agree to provide their manpower for
little profit, since it gets them in the door to sell higher-margin services,
say analysts. Should Dell go after those opportunities as well, these
subcontractors may refuse to play ball — or at least insist on a little more
profit.

To be sure, no technology company has a better track record of living up to
its promises than Dell. But it may have a tougher time than usual delivering
when it comes to computer services.

[Author]

May 25, 2005 at 12:15 PM