The Dell-EMC Deal: Anatomy of a “Merger of Equals”
Mergers and the attendant Day One integration issues are among the most difficult challenges CFOs face, from the pressure to achieve the expected synergies to the complexities of integrating systems, processes, people, brands and corporate cultures. The merger of #Dell and #EMC in September 2016 to form @DellTechnologies not only resulted in a company with $74 billion in annual revenue and 140,000 employees worldwide, but also a case study on how to meld two global high-tech organizations into a single entity. The two executives who co-led the Value Creation Integration Office (VCIO), @RoryRead, chief integration officer for Dell and chief operating officer, Dell EMC, and @HowardElias, president, Dell EMC Services and IT, talk about what it takes to achieve a true “merger of equals.” They also discuss the role that finance played in the process and lessons learned, with John Powers, principal, Deloitte Consulting LLP, and Deloitte’s Global Corporate Development leader, and Lukas Hoebarth, also a principal with Deloitte Consulting LLP. John Powers: What were the guiding principles that influenced the integration of Dell and EMC? ￼ Rory Read Rory Read: Our approach was based on the concept of building the next major technology company level by level. The senior leaders in each organization formed the Integration Leadership Team, which worked to define the operating model: How were we going to structure revenue, what was our go-to-market strategy, our approach to compensation, culture and so on. But since there were thousands of decisions to be made, we tried to push 80% of those down to the proper level. Some were made by the leaders of various workstreams—we had about 12 functional workstreams and four or five that were cross-functional—and some went down a level or two below them, or further down, to the departmental level. ￼ Howard Elias Howard Elias: One reason for taking this approach was to allow the business owners to focus on running the business and supporting their customers. And from a financial standpoint, Tom Sweet, who had been CFO of Dell before the merger and who is CFO of the new company, wanted to make sure that we were doing the integration in the most efficient way to keep focused on driving cash management, delivering margin dollars and achieving synergies both on the cost and revenue sides. So in many functions, including finance, the vast majority of people devoted the lion’s share of their attention to the day-to-day business. Very few were assigned to integration-only activities, but 60% to 80% of people touched some aspect of integration over the life of the process, with that percentage increasing as we got closer to Day One. Lukas Hoebarth: How did Day One play out, and what was finance’s role? Rory Read: Day One, September 7, 2016, was pretty flawless. The finance organization was able to start reporting the business as a whole, and multiple systems, including ERP, sales and other financial systems, all worked. Even though the systems weren’t combined, we had put in a lot of manual effort to achieve a single reporting capability. Our philosophy was to have only one way to measure and report this business with one single source of the truth. We’ve all seen horror stories when that’s not the case, but we made it happen. Tom and his team were integral to putting in place a systemized methodology for making decisions based on facts and alternatives and then committing to investing and delivering on those activities. That approach, put in place two to three years before the merger, came from finance and the strategy team, and it was a big driver of the merger execution. Howard Elias: Tom and his finance organization also were supportive in how the entire VCIO construct came together, and Tom was laser-focused on how cost synergies and revenue synergies impacted the business plan. He was also very keen on accountability, to the point where instead of creating a separate workstream, which we had considered, we kept it with Tom; he made sure the entire VCIO was accountable for results. He developed a completely separate and segregated integration budget for the integration team, and also for the IT organization. The separate, multi-year integration budget acknowledges that there are a lot of moving parts that will have to be funded as we continue to integrate. John Powers: What was the vision for the combined finance team and steps taken to integrate the two groups? Howard Elias: The vision was two-fold. One was to determine what the combined finance organization was going to look like: the operating model, the structure, the people, the cost synergies and so on. Tom had a clear view of expectations from the start. The other key part was to focus on how we would measure and report, and put the financial processes and disciplines in place to do that. That said, you can’t underestimate the importance of leadership. Systems, processes and tools are important, but it comes down to leaders having a clear vision of what they’re trying to accomplish. In addition, we were fortunate in that there had been a partnership between Dell and EMC, spanning 2001-2010, during which the two finance teams got to know each other pretty well. Rory Read: With regard to people, we also took high-performers from both Dell and EMC and put them ‘two in a box’ to address specific aspects of the finance workstream. We placed finance team members in many other workstreams as well, because it was important to have finance represented in the various facets of the integration, and then their work was coordinated by people on the finance workstream, which rolled up to Tom. Lukas Hoebarth: Given Dell’s and EMC’s focus on customers, has the finance team been charged with providing a new level of analysis and insight in the new organization? Rory Read: Tom is a customer-focused CFO and is often out in the field with customers and in our briefing center. That said, we made a decision to create a dedicated Customer Care Office under Karen Quintos, reporting directly to Michael Dell, so that is the center of our customer data analytics efforts. Finance does have a new role to play on a related issue, and that is to learn how to work across the organization as customers increasingly require a converged infrastructure built on products and services that span our entire organization. A lot of work and investment goes into combining various innovations and technologies to meet customers’ evolving needs, and it’s important for finance to keep pace with those and ensure there is adequate funding and other support to facilitate those kinds of arrangements. John Powers: As Dell Technologies further integrates operations, what big-picture perspective are you left with? Howard Elias: No process is perfect, but I think we did a pretty good job: strategy first, then operating model, then structure, then roles, then assessing which candidates were right for a given role based on skills and experience. Granted, that talent piece is a lot easier said than done, even in normal times let alone during a merger. Also, our approach to integration helped break down the barriers or silos often found in organizations because the VCIO was a microcosm of the entire combined organization, working to solve for the larger end goal. Several hundred people got to know each other very well, and got to know how each other’s functions and businesses work. The VCIO became an army of change agents who could evangelize the messaging around why the merger makes sense. That entire effort was helped in part by having finance serve as one of the cross-functional groups that helped drive consistency. Rory Read: This was a very different model than what we’ve used before, in that we took this concept of level-by-level line ownership to a much deeper level. We had to keep building the next levels of talent within the organization because we knew that we wanted ownership for each decision to reside with the people who were going to execute it. That was important in order to run as a single entity on Day One. And, it has enabled us to create an engine that can learn and adjust on its own, which is what we intentionally designed the integration structure to achieve. It enhances coordination and gives us an ambidextrous way of executing. Editor’s note: This article is part of an ongoing series of interviews with CEOs, CFOs and other executives. Participation by Rory Read and Howard Elias in this article is solely for educational purposes based on their knowledge of the subject, and the views expressed by them are solely their own. This article should not be deemed or construed to be for the purpose of soliciting business for Dell Technologies Inc., nor does Deloitte advocate or endorse the services or products provided by Dell Technologies.