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Most of the big successful technology firms have departments they don’t talk about much but that are critical to the firm’s future. These departments are the ones that look for acquisitions and investments that address their companies’ tactical and strategic needs by driving programs that either fill anticipated technology or service gaps, or help develop markets that will consume the firm’s products in the future.
One of the concerns I’ve had with the Dell/EMC merger was that Dell’s uniquely powerful acquisition process and Joe Tucci’s uniquely powerful investment organizations would be put at risk but Scott Darling, who now runs the combined unit (he is president of the unit) quickly put my mind at ease. A key reason: he came out of Intel Capital, one of the historically strongest investment arms of any company, so he immediately saw the advantages both firms had and moved to assure they weren’t lost in the transition.
Let’s talk about Dell Technologies Capital this week.
Now what made the Dell acquisition process unique in the industry and worth protecting was that it is the only process at scale I know of that is focused like a laser to the identification and protection of the key human, IP, and physical assets in an acquired company.
Most acquisition processes focus on trying to merge the acquired company into the acquiring company and destroy the acquired company in the process. This is because key people leave, new managers often don’t know enough about the new products and markets to make informed decisions so they punt badly, and the magical dynamic that make the company worth acquiring is destroyed. Michael Dell saw a far better process that had been developed in IBM, emulated and improved it, to create what Dell had. And his was the only firm that repeatedly showcased that they could take an acquisition, and rather than destroy it, actually increase its value by only mucking with the parts Dell could improve.
Two things have always bothered me about this process: Why everyone doesn’t do it, and the fear that a new executive would come in, not understand it, and destroy it by accident. Apparently, that isn’t the case this time.
Every company must invest in its future or it won’t have one. R&D is one part of that investment but often the really interesting stuff is developed outside of the firm. In some cases, being able to locate and fund that technology until it can be brought inside the firm, using the process above, is the preferred path. But even more often the investment is made to get on the front end of assuring there is a market for the firm’s future products or to create a partner that can independently fill a gap that would otherwise limit a market.
This requires an amazing amount of creativity and foresight because you generally have to anticipate problems no one else in the firm yet sees. You have to overcome objections to internal groups that might see the firm being invested in as potentially competitive (particularly if the internal project isn’t working out well), and you have to prioritize the choices because you can’t invest in everything and you have to know just how much to invest to assure the success of the investment.
One additional problem with groups like this is that they can lose track of the company goals and start investing in opportunities that provide good returns but have no strategic value to the investing company. I ran into one such investment in another firm a while back where it had invested in an Indian Taxi company that provided a massive return on the investment but had no strategic or tactical value to the investing firm.
If you think about it, this is a pretty amazing mix of skills, part futurist, part investment banker, part technologist, and part gambler with all of the parts in balance, or something bad happens.
Looking at unsung departments, I think we should look at the Capital Investment arms of the firms we use and invest in more closely because they really are a critical part of the firm’s ability to compete long term. One of the biggest problems in any industry is the tendency to be excessively tactical in decisions and these capital units are one of the few places you’ll see significant push back.
Some of the firms Dell Technologies is investing in are frankly amazing, but sadly, because of the secretive nature of these operations I’m unable to share them with you. One in particular could have a massive and unanticipated impact on the technology market. Dell’s future will largely depend on the efforts of Scott Darling’s organization and, after chatting with him (and sharing some chuckles about old war stories we both experienced) I can attest the group is in good hands.