Dell has launched a dedicated services organization, appropriately named Dell Services, that will focus on midmarket enterprise customers. The company formed the unit by integrating Perot Systems, purchased Nov. 3 for $3.9 billion, with the enterprise services operation from its own Large Enterprise business unit.
"Dell became an IT leader through highly efficient, built-to-order, hardware solutions. Now we want to do the same thing in services, by reducing complexity and driving out inefficiencies across the service and support lifecycle," said Peter Altabef, who is president of the new organization.
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The combined units are expected to generate approximately $7.5 billion in annual revenue for Dell.
In a set of conference calls with press and analysts, Altabef, formerly president of Perot, said the new organization will concentrate primarily on serving midmarket enterprise customers, those who usually proffer service contracts between $20 million and $50 million in value. This market was the primary customer-base for both organizations before the acquisition.
"Smaller and medium businesses have been under-served by services organizations," Altabef said. Dell plans to offer services on a more cost-effective "plug-n-play" approach than what is offered by the traditional vendors in this space, namely by increasing automation, offering services on a modular basis, executing tasks at remote, inexpensive locations wherever possible, and relying on standards.
"Many of [the midmarket] customers are not interested in doing business with the really big outsourcing firms, because they feel like they will be lost in the noise," added Steve Schuckenbrock, Dell's president for large enterprise operations. "While a lot of outsourcing companies will talk about the big mega deals and the huge billion-dollar opportunities they continue to pursue, the sweet spot for Dell Services is a contract value of up to $50 million, and terms that range from three- to six-year time frames."
Among the services that the organization will provide include warranties and enhanced support, managed IT services, business process services, IT and business consulting, as well as applications development, maintenance and testing.
During the conferences, Dell executives also entertained questions about how well the infrastructure and personnel of Perot Systems, based in Plano, Texas, were being folded into Dell, roughly 200 miles south in Round Rock, Texas. The combined organization will have 42,000 employees.
When the merger agreement between the two companies was signed on Sept. 21, the companies got an early start by forming teams that developed a combined strategy for sales, marketing and delivery of services.
"There wasn't a lot of turf wars or fighting about who is going to report to whom. All that heavy lifting was actually done before Nov. 3," Altabef said. Internally, former Perot Systems employees were given Dell e-mail addresses the day the acquisition was completed.
Dell plans to save about $300 million in annual expenses by combining the two operations. Altabef did not say whether of not any employees from either of the companies would be laid off as part of this streamlining, though he did say some of the employees who previously worked in internal IT support might be reassigned to customer-facing projects.
Overall, Dell plans to take a $120 million to $130 million charge in its fiscal fourth quarter, ending Jan. 29, for costs related to the Perot Systems acquisition, and about $20 million to $25 million per quarter throughout fiscal year 2011.
The biggest areas of customer overlap between the two services organizations have been with the U.S. government and global health care, said Paul Bell, Dell's president of public sector operations. In the government space, the plan is to "expand the range and depth of the services that we can provide to these accounts, many of which we have already had many long range relationships with," Bell said.
Schuckenbrock noted that the account teams on the Dell side already have relationships with "tens of thousands" of Dell customers, though analysts on the call wondered if these relationships were more with end-users, rather than with contract-seeking program managers. Schuckenbrock dismissed these concerns, however. "We have a terrific number of relationships on the enterprise side," he said.