Dell Buys Its Way Into Service Business
On November 14, Dell Computer announced its intention to acquire Scottish-based ACS in a deal which signifies that Dell is serious about expanding its business beyond hardware into services.
Headquartered in Glasgow, ACS was founded in 1990 and now has operations in Edinburgh, London, Paris and India. The privately-held company generated pre-tax profit of $3.7 million on revenues of $21.88 million in 2005. It boasts a staff of 200 and is the largest Microsoft partner in Scotland.
Dell has been increasingly pressured to match IBM and HP’s substantial service offerings in order to compete for corporate business. Historically, Dell has preferred to depend on third-parties, such as Unisys, to deliver its on-site services so it can stick with its low-cost product strategy. The acquisition of ACS represents an incremental step in the direction of delivering more in the way of services as customers demand greater support from their strategic suppliers.
As someone who suffered through an acquisition of a service company by a product vendor, I can tell you that the integration process isn’t easy. Service and product companies approach the market entirely differently. They are built around differing business processes. They foster differing corporate cultures. And, they measure themselves on differing business metrics.
I was a part of Lucent’s failed attempt to integrate International Network Services (INS) into its product-centric culture. I also watched IBM take nearly a decade to convert itself from a product-centric to a services-oriented business model.
Dell has wisely chosen to acquire a relatively small company which should be easy to assimilate into its operations. I suspect that it will make similar acquisitions in other parts of the world and focused on other segments of the service business to flesh out its support capabilities.
However, I don’t think Dell will try to replicate IBM and HP’s full service model. This would fundamentally disrupt Dell’s corporate structure and would turn its service partners into competitors.
