Experiences

Impact of M&A on CX and Go-to-Market Strategy

Let’s face it, Mergers and Acquisitions are a fact of business. In 2020 alone, over 30,000 M&As totaling $3.6T (yes trillion!) were closed. Given this volume, it is no wonder we have all seen examples of M&A deals that didn’t work out. AOL –Time Warner, Daimler-Benz – Chrysler, HP-Compaq, Google – Motorola — these are just a few of the big ones. An Ernst and Young analysis of 2,500 such deals shows that more than 60% of M&As destroy shareholder value.

The more common reasons for these failures include overestimating synergies, misunderstanding the target company, poor cultural fit, insufficient due diligence, etc. But what precisely does that mean? The root of these symptoms boils down to two of the most overlooked elements of M&A; evaluating the post-acquisition Customer Experience and Go-to-market strategy. Synergy may explain the “what” and “why” of M&A; however, unlocking value requires focus on “how” the resulting organization will operate.

And this is where Customer Experience and Go-to-Market come in.

Apple and Beats

When Apple announced that they were acquiring Beats Electronics for an astounding $3.2 billion, making it the most expensive acquisition Apple has ever made, the first question that came to most M&A pundits’ minds was “why?”.

Didn’t Apple already make headphones?

And Apple’s own $500M valuation of Beats placed the acquisition at 6X for a headphone company. Sure Beats Electronics was founded by two influential figures in the music industry; Jimmy Iovine, co-founder of Interscope Records, and Dr. Dre, one of the most iconic rappers in history…but 6X?!

When an M&A does not make sense on paper, I first look for clarity within the post-acquisition go-to-market (GTM). However, when Apple first bought Beats, there was no integrated go-to-market strategy. Beats sold (and still sells) headphones via its own website beatsbydre.com and under its independent branding with hardly a reference on apple.com.

CASE STUDY
Go To Market
AUTHOR
Mike Carter
DATE
December 2017

When M&A doesn't make sense on paper, I look for clarity in the CX and Go-To-Market synergies

Okay, so what’s the strategy? It’s not as if Apple gained unique technology or a chance to enter a radical new market (it was already there). The only Apple-esque synergy with Beats was that it gained is a company that dominated a market the way Apple iPod dominated MP3. Come on, even with a dominant market share, Beats headphones and speakers could have easily (and less expensively) been offered in Apple stores via a basic OEM agreement.

Now, after six years since acquiring Beats, recent Go-to-Market changes have illuminated the real M&A strategy. Apple has finally made a branding change in sunsetting the Beats Music brand and collapsing it under Apple Music. At the time of the Beats acquisition, Spotify’s popularity was multiplying worldwide, and iTunes was starting to show signs of decline. Then Apple began acquisition negotiations with Beats just four months after their Beats Music service debuted.

Jimmy Iovine and Dr. Dre

Overshadowed by iconic founders and cool headphones, Beats quietly launched a streaming service in 2014, called Beats Music.

Overshadowed by its iconic founders and cool headphones, Beats Electronics launched a music streaming service in 2014, called Beats Music. They tried differentiating themselves from other services like Spotify by claiming to offer the freedom of an on-demand subscription service with “features that would give you that feeling only music that moves you can give.”

Beats had a design goal of creating a music service that combined songs in unique playlists, and it was that approach to streaming music that aligned perfectly with Apple’s design approach. Now the Apple-Beats M&A synergy makes sense!

In hindsight, Apple’s rebranding of Beat’s music service isn’t unfamiliar; it’s the same way they created iTunes. Apple bought a software company called SoundJam and had its creators join Apple to develop the technology even further until it eventually became iTunes. The critical point is that the software looked and behaved quite differently after Apple aided in its development.

Now the same can be said for Beats Music. Apple didn’t simply slap its name and logo on it; they spent years adding features and improving the UI to create the best streaming service possible.

Apple Music didn’t start out great and was met with a pretty cold reception. The app was riddled with bugs, the interface was considered unappealing and difficult to navigate, and listeners were frustrated by a lack of music discovery features. Unfortunately, all qualities that happened to be Spotify’s strengths.

Today Apple has since updated Apple Music several times to address those issues and is now a much better music service to do battle with Spotify. Along with a $1B in headphone sales, the decision to buy Beats ultimately worked out in Apple’s favor.

My M&A Experience at Dell

Before Dell’s successful partnership with Silver Lake that created Dell Technologies, the old Dell Inc. pursued M&A as a means to diversify its portfolio, deliver customer value, and ignite growth. In fact, between 2009 and 2012 alone, Dell completed 17 acquisitions totaling $13B. In those pre-EMC days, Dell’s acquisition “strategy” primarily focused on the notion of synergy. 

Business Unit Deal Value Close Date
Total $13B
Equal Logic Storage $1.4B Jan 2009
Perot Systems Services $3.9B Nov 2009
SecureWorks Services $600M Feb 2011
Compellent Storage $800M Feb 2011
Force 10 Networking $660M Aug 2011
SonicWall Services $1.2B May 2012
WYSE Servers $1.0B May 2012
Quest Software Software $2.4B Sept 2012
Others Various $1.3B

Before Dell’s successful partnership with Silver Lake that created Dell Technologies, the old Dell Inc. pursued M&A as a means to diversify its portfolio, deliver customer value, and ignite growth. In fact, between 2009 and 2012 alone, Dell completed 17 acquisitions totaling $13B. In those pre-EMC days, Dell’s acquisition “strategy” primarily focused on the notion of synergy. 

With Perot Systems being the most significant M&A on a dollar basis, Dell believed that Dell and Perot would grow faster combined. “We will leverage Perot’s services capability across Dell’s customer base,” said Michael Dell. “This acquisition makes great sense.”

Only it didn’t.

The core idea was that Perot could enhance Dell’s ability to bring next-generation data center and virtualization capabilities to customers. And the synergy of the deal was that it created a significant cross-selling proposition. Dell could leverage Perot’s healthcare and government customers to sell more hardware. Perot, which only had 27 percent of its revenue tied to commercial accounts, would get Dell’s enterprise heft.

To be fair, unlike Apple. Dell was very transparent in its rationale and post-acquisition go-to-market strategy. And the Perot acquisition was reminiscent of the era and very similar to the other big computer companies of the day. In 2008 Hewlett-Packard had purchased EDS for $13.2 billion, and IBM ultimately moved entirely into services selling its PC business to Lenovo in 2005.

Post deal closure, I was recruited to lead and execute an integrated portfolio and go-to-market strategy.

Portfolio Integration Kickoff

The Mission

Shortly after the deal closed, I assumed leadership of a global product team that was chartered to build and execute an integrated portfolio and go-to-market strategy. In other words my job was to figure out “how” this was going work.

Dell’s legacy services and Perot Systems shared several vital products, services, and structure characteristics. Our services approach was similarly robust, relationship-based business cultures and employees in both organizations recognized for helping customers thrive by using IT for greater effectiveness and productivity. My portfolio integration strategy needed to provide compelling opportunities for improved efficiency and customer benefit.

The M&A synergy was that Dell’s global commercial customer base, which spanned large corporations, government agencies, healthcare providers, educational institutions, etc., could benefit and expand through Perot’s broad services capabilities. Assuming we could transform Perot’s extensive existing capabilities into modular services and sell as an attached service, we could operationalize those synergies.

The solution:

Let’s face it; IT Services never get the glory they deserve. Even though most large organizations would quickly grind to a halt without proactive management of networks, applications, and infrastructure, these services were not the sort of products that would get Dell’s hardware-oriented sales teams excited to pitch. Especially given the wide assortment of enterprise hardware, software, consulting, and cloud solutions already in their tool bag. We set out to create a compelling scalable solution that addressed common customer pain points, was efficiently priced (PxQ), and was differentiated. Plus, accelerate quota attainment.

New Dell-Perot Services

Our answer was Remote Infrastructure Management Operation Services

Remote Infrastructure Management Operation Services, or RIMO leveraged Perot’s vast ITO capability to manage servers, storage, and networks; and bundled them into a fixed-scope and SKU’d price offering that could be attached to Dell and multi-vendor Hardware. Moreover, the RIMO service picked up where Dell’s legacy deployment and support services ended. Meaning Dell’s existing ProSupport service detected and resolved issues from the Hardware to the Bios proactively. The Dell-Perot RIMO service would proactively manage the Operating System, Applications, and Capacity management stack.

We launched the new portfolio with much fan fare, not to mention beta customer testimonials and sales ready leads. The project came in below budget, and launched Globally on the exact date of our roadmap targets. The offer was full on (GA) general availability, inclusive of all core operation features, despite an early plan which did not include application management.  Incredibly we were even approved for a much coveted quota multiplier and Inside Sales Rep SPIFF.

Despite these accomplishments, the RIMO portfolio flat did not sell. Dell sellers continued selling Hardware with attached warranty and support services; and Perot teams continued to pursue custom outsourcing agreements.

After one year, and about $100M in sales – sounds like a lot, but no where sufficient to drive ROI on a $3.9B / $2 per share acquisition – the portfolio was EOL’d (end of life).

Where did things go wrong?

Although the overall portfolio integration plan was solid, there were simply to many customer experience and cultural barriers that prevented the our team from being successful.

For starters, many Perot mid-level managers believed that Dell would provide a deep wallet of funding to build and scale whatever outsourcing capability and capacity was needed. The obvious problem being the that whole premise of the acquisition was to leverage Perot’s existing breadth of services capability and capacity, not to build it. Next Perot, was an IT Outsourcing provider which built custom IT solutions and business process optimizations for organizations. Therefore the process of building SKU’d standard service offerings was a foreign concept to Perot sellers and customers. There was also a fundamental lack of understanding of the Dell go-to-market machine which created the expectation that Dell sellers would automatically sell packaged Perot IT Services and that Perot sellers would exclusive position Dell Hardware.

And finally, when examining both companies from a Customer Experience lens, it is clear the M&A made little sense from a brand and customer experience perspective.

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Purpose Promise Product Price Proof
Removing cost and complexity to buy, maintain, and operate x86 compute infrastructure. Affordable access to quality x86 Computer Hardware and services, avoiding retail and distribution steps, that offer no customer value Extensive array of Dell x86 Hardware, system management, services, and solution stacks Comparatively affordable PCs, servers, networking, and attached support services. Tactical: Better quality, capacity, and cost when compared to competitor systems with similar features.
Keep pace with rapid change of technology and reduce the increasing cost of IT operations. High integrity and excellent reputation building bespoke Technology Services outsourcing solutions Services for heterogeneous data centers, including planning, data center, and software management Variable solution architecture and pricing models, usually scoped over multi-year outsource contracts. Variable: Comparative analysis Actuals vs. Customer pro-forma Opex / Capex.

The Perot acquisition did not align from an experience model perspective.

The net was Dell’s 5-P, while aligned, no longer drove growth. In examining the 5-P of both organizations, key questions arise. How does this acquisition help Dell solve its core hardware business problems? Do the potential portfolio and GTM synergies pay for the deal? And most importantly, will Dell’s customers be better served by the New Dell? Will Perot’s customers be better served with Dell computers? Were Perot customers thinking, “I wish we had integrated access to Dell PC and Servers”? Were Dell customers really expecting Dell to manage their IT data centers, including competitors’ systems?

Summary & Lessons Learned

1. Strategic moves like acquisitions of a new business do not help to rejuvenate a dated or poor customer experience model.

2. Instead of leveraging M&A for diversifying, consider examining the core experience competencies you have and look if you can apply them to the acquisition of products and services that your current customers value.

3. Customer Experience innovation is not a position you can rest on. Competitors will replicate or circumvent your competitive advantage with new experience model innovations.

4. Once the experience innovator is No. 1 in a saturated market, the growth potential is equal to the market growth. So there can be no hyper-growth business forever.

5. The solution to improve your customer experience model is not to follow your competitors. Also, avoid building a Customer Success operation to improve an already wrong or outdated experience model.