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A Channel Perspective: Dell’s $67 Billion Acquisition of EMC

Dell announced this week the highest-valued tech deal in history, the company’s $67 billion acquisition of EMC (and with it majority ownership of VMware). The industry is buzzing about how the takeover will be another crucial step in Dell’s transformation from build-to-order PC manufacturer to full-service provider of technology solutions that Michael Dell has been orchestrating through a series of acquisitions dating back to when he returned as CEO in 2007.

However, the reality is that portfolio expansion is only half of the story. The other key ingredient to the Dell transformation has been the reworking of its global go-to-market model. In the 1990s, Dell was renowned as the poster child for a tele/web-based direct sales model. Over the past decade, as the organization shifted its focus toward enterprise solutions, Dell’s launch and expansion of its indirect sales model has been as impressive as its shift in product strategy. Dell launched the PartnerDirect program in 2007 and, within an 8-year period, now has more than 150,000 partners globally, with the channel accounting for approximately 40% of its worldwide commercial revenue.

Interestingly, EMC has successfully executed a similar go-to-market transformation, moving from predominately direct sales to a model where about 60% of EMC’s revenue goes through the channel today. VMware is even more channel-centric, with 85% of revenue coming from channel partners.

It is clear that integration of the Dell, VMware and EMC channel ecosystems will be critical to the success of this acquisition.

What does the acquisition mean to Dell and the channel?

The integration of Dell and EMC represents a huge opportunity both for the new Dell-EMC and for its partners. From a Dell-EMC perspective, this will mean that it has a stronger enterprise solution portfolio and a larger channel ecosystem that it can leverage to drive more business. From a partner perspective, the consolidation of two important vendors into a single entity should mean easier access to products needed to deliver integrated solutions to their customers, particularly converged infrastructure solutions that power corporate hybrid and public clouds.

On the flip side, partners will consider the risks involved in the integration and may be concerned about the potential impact to their business. Dell and EMC each have their own respective strong cultures, distinct offering portfolios and established business practices. In order to fully realize the benefits of the acquisition, Dell and EMC will need to align their customer and partner coverage strategies, reestablish clear rules of engagement with the direct and indirect sales teams, integrate their independent partner programs and transition all partners onto a single set of systems and contracts. Each of those elements will require careful navigation in order to minimize the disruption to partners’ businesses.

Executives at key competitors have been quick to point out the challenges of aligning these two tech behemoths. Meg Whitman, CEO of HP Enterprise, proclaimed that “this move is going to cause chaos in the channel.” Cisco CEO Chuck Robbins pointed to past large acquisitions, saying, “We’ve got a lot of historical examples where we can see challenges with big companies coming together in the space."

So what does Dell need to do next to make the acquisition a success?

Dell’s integration with EMC is fraught with complexity that is magnified given their respective reliance on the channel to drive growth in the enterprise market. Based on ZS’s experience of channel-focused change initiatives, here are five lessons learned that Dell and EMC should apply as they prepare for integration.

  1. Overcommunicate: Initially, there will be significant uncertainty in the channel, which could impact deals and may lead to partner defection to competitors. In order to minimize any adverse impact, Dell should communicate early and often with partners regarding any changes in strategy or programs. Partners will need to understand when they should expect changes, what those changes will be and why things are changing.
  2. Collaborate With Partners: Dell should use the integration as an opportunity to engage with partners, gather feedback on what worked well with the legacy organizations’ approaches across each region and jointly develop a partner program that will drive Dell and partner growth. Engaging partners in the design and implementation of changes will help ensure partner buy-in and build loyalty.
  3. Target Some Quick Wins: Dell should first introduce tactical programs and incentives that drive short-term cross-sell opportunities and reward focus on integrated solutions. This will help realize the benefits of the new integrated organization and also provide some success stories to help reinforce the benefits of integration.
  4. Provide Critical Training: Dell should not underestimate the importance of rolling out a comprehensive training program across all the partner-facing teams. Partners will have lots of questions and will need to be supported during this period of change. Everyone who interacts with partners must be an ambassador helping to provide a consistent message to the channel.
  5. Phase in Changes: In the short term, minimize any changes that will impact the partners’ businesses. When determining timelines, the focus should be on giving partners ample time to adapt to any changes in the channel strategy and partner programs, and integrating data to ensure partners have a smooth experience.

 

Time will tell whether Dell’s acquisition of EMC will be the catalyst Michael Dell needs to regain industry prominence, but one thing is certain: Dell’s transformation to becoming an enterprise technology powerhouse is going to be as much a function of its ability to enable and drive the channel as it will be due to Michael Dell’s visionary leadership.

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