I’m becoming more and more convinced that technology companies need to be led by subject matter experts. There is a belief in the market that almost any CEO can run almost any company but my observations suggest that just isn’t so. Certainly, we saw that Louis Gerstner, who came from Nabisco, was able to keep IBM from failing but it wasn’t until Sam Palmisano, a subject matter expert, took over that the firm really started to make headway again. With Microsoft we saw Steve Ballmer, who had helped found the company but wasn’t a programmer, struggle mightily only to get kicked to the curb by Apple, which had been failing against Bill Gates, and Google which didn’t even exist when Ballmer started his run as CEO.
Last week at Dell World 2014 it was clear that the firm has a number of advantages in their run against rivals like HP, starting with a CEO who is a subject matter expert and ending with Dell being a private company not continually distracted by “activist investors” anymore.
Subject Matter Expert CEO
As noted above a subject matter expert as a CEO is a huge advantage. We’ve seen this with Satya Nadella at Microsoft. The expert CEO knows how stuff is supposed to work, they can talk to customers and understand their questions, and they have a far deeper connection to the customer’s problems because of this understanding. It isn’t that a generic CEO doesn’t want to help but they’ll naturally gravitate to problems they understand which are consistent with what they know or financially managing the company’s assets.
As a result of this difference, Dell has a clear and succinct strategy while HP appears more focused on constant cost reduction exercises like layoffs, divestitures, or other equity manipulation. Ironically, the result has been that Dell appears to be outperforming HP financially but that goes back to the working theory that companies that focus on customers and product first do better than firms that focus on financial performance, largely because satisfied customers are a critical advantage to achieving profitability.
Mergers and acquisitions (M&A) is another area where Dell does extremely well. In fact, its only real challenger is EMC and even they haven’t completed as many successful acquisitions as Dell has over the past five years. HP’s M&A results have ranged from troubled to outright disasters and are, unfortunately, far more consistent with most other M&A that we have seen in the segment.
A fundamental difference between how HP and Dell execute an acquisition is that Dell focuses on the identification and protection of the core assets they acquired while HP’s process appears more focused on making the acquired company conform to its management model. The result has been that virtually all of Dell’s acquisitions starting from Alienware have returned positive financial results almost from the start while HP’s have been marred by systemic problems like Autonomy and crippled by disasters like Palm.
Ironically on this last effort HP’s stated plan had been to follow a more Dell like process but the company instead fell back on its old bad habits and erased over a billion in value in just a few weeks. Bottom line: Dell has the experience and room to grow to address new opportunities faster and more successfully than HP can.
Private vs. Public
By being a private, Michael Dell is able to avoid the distractions of an increasingly vocal group of “activist investors” who are aggressively trying to force firms to make really bad strategic decisions to prop up securities and ensure their own short term profits. For instance, HP is reportedly attempting to both spin out their PC and printer unit and saddle it with the massive debt that entire company has accumulated.
That will make the Enterprise Unit that Meg Whitman will run more attractive and easier to operate but it will also make it very difficult for HP Ink, the spin out’s name, to function. Plus, even the name is questionable since it connects to something that is the process of becoming obsolete; ink. It appears HP Ink is being set up as a sacrificial company to assure the improved performance of the old parent but this comes at a time when the PC unit is experiencing increased financial performance and the Printing unit is beginning to pivot to 3D printers.
In hindsight this could be incredibly stupid because right at the time HP is about to benefit from holding the company together Whitman appears to be executing a strategy that will slowly kill both units. If that happens, it will make her end game of a more valuable HP unachievable.
Dell, because it is a private company, has not need to break the company up and is reporting even stronger PC growth than HP. In fact, Dell was actually first to market with a 3D printer solution, which while not as advanced as HPs, is also more likely to evolve into something even more interesting because it won’t be saddled with massive debt.
Executive Churn and Trust
The constant downsizing and adjustments at HP have resulted in a massive amount of employee and executive changes. When almost everyone under the CEO has been changed out, some apparently more than once, you start to wonder if the person at the top is the bigger problem. In the end it is more likely that the constant pressure to focus on cost containment rather than innovation and growth is driving a lot of people out of the company.
But with this level of churn a firm is unable to keep its word to customers because the people that gave it are no longer around. HP is a very different company than it was a year ago and that company was different than the firm it was two years before. In fact, the one thing that appears consistent about HP is that it is very inconsistent. This speaks to trust and in the enterprise market trust is a critical asset. If you can’t trust a vendor, you’ll likely avoid it.
Dell, in contrast, has been very stable. Yes, they had a volunteer downsizing after going private but the vast majority of executives that were in place three years ago remain in place today. The firm isn’t being pushed to break its word by “institutional investors” and Michael Dell has a reputation for saying what he means and doing what he says. Recently, Meg Whitman has been compared more to her political background and saying what listeners want to hear but having virtually nothing to do with eventual decisions.
One area that really stands out as an advantage in Dell is marketing. Karen Quintos, Dell’s CMO, has been instrumental in making sure the company’s image held to the highest standard and you can see her active involvement in major events like Dell World. She has been instrumental in closing business with CMOs in customer companies because she understands how tools like analytics can be used to advantage, largely because this is an expertise she herself has developed.
At HP, marketing at a corporate level is nearly non-existent. It doesn’t appear to close business and it can’t seem to drive a consistent HP message. Ironically, given Meg Whitman’s background at eBay and HP’s proximity to Apple you’d think marketing would be a huge asset for the company but instead it looks like it has taken the decade off.
Approaching the end of 2014, Dell has five critical advantages over HP. The firm is run by a technology subject matter expert, it has the best M&A process in its segment, it is private and doesn’t have the distractions of a public company, because of this it is far more stable and thus can better maintain trust, and it has a marketing function that is strategic and a clear asset rather than one that is underfunded and nearly invisible.
If this were a race and one team had a better driver, better tires, a more reliable car, a more powerful engine, and a far more experienced team leader it would kind of be a no brainer that, barring an act of god, that they’d more consistently win. It shouldn’t be a surprise that the same thing can happen in the tech market.