ARTICLE BY GOWTHAMIn many ways, Dell - the world's
second biggest computer maker
-- is undergoing a shift very
similar to IBM's transformation
from hardware and products to
the lucrative services and
outsourcing business during the
nineties.
At $8 billion, Dell's services
business is a 'start up' that not
only threatens to snatch share
away from established
multinationals likeIBM and HP,
but also poses tough questions
for India's growingoffshoring
firms, scrambling to flesh out the
next model for outsourcing.
In an exclusive interview with
ET's Pankaj Mishra & Shruti
Sabharwal, Brian T Gladden, Dell's
chief financial officer, discusses
the pros and cons of being a
listed company, how
protectionism can harm
America's competitiveness and
says that the US government
plans to tax overseas profits
could discourage investments in
the country.
Would it be easier to change
your bets, transform to newer
businesses if Dell was not a
listed company? Is too much
quarterly scrutiny by
demanding investors slowing
things down for technology
companies?
It is very important that as a
leader you have to balance short-
term orientation and focus with
long-term investments and
strategy. You can't be solely
focused on making earnings per
share every quarter as the
number one priority and I think
there are times when you need
to make sure you are making
longer-term bets and
investments.
And our company has entered a
phase of development where I
think that it is very important
that we make pretty broad
investments and they don't
necessarily help in the short term
and we have to explain that to
our investors and be very clear
that we are changing the
company. There are investments
that may not benefit the firm this
quarter or the next.
And as a leader that has been a
change. As regards quarterly
scrutiny, I think there are positive
elements of that rhythm in
governance and ultimately
providing some level of
performance that can be
benchmarked against peers. We
can measure our performance
quarter by quarter to see how
we are doing versus anHewlett-
Packard or IBM or other
companies.
But that can also be a double
edged sword?
Oh absolutely. You can get overly
focused on that so that's why we
have to keep taking a step back
and say are we making any
investments that are going to
change the company for the
future.
That's a big part of what I do,
making sure that we are trying
to deliver that balance. How to
deliver on results today and
execute on commitments but
also make long term-changes.
And that's an important balance.
With increasing cash piles,
there is also a pressure to
spend it, or reward investors in
some ways. Does more cash
encourage risk taking, or it
makes companies more
conservative?
Michael Dell keeps a healthy
tension around creative new
ideas getting into the system.
And I think part of my role is to
balance that and make sure that
they make sense and that they
return reasonable economic
profit and that there is some risk
management around these
things.
Michael has recently been
spending time talking about how
we need to take more risk with
our teams internally. One of our
priorities is to elevate new ideas
and to try some different things.
We have got good financial
success, we have some great
cash flows, and we have got $15
billion of cash in the company
end of first quarter. So, we can
take some risk, we can take
some swings and try some
different things. But it has to be
within the context of delivering a
return on our overall investment.
How do you balance this risk
taking which is crucial in the
technology industry, with your
goals of not giving up to a rival?
Well, I think you have to start by
realising that not all risk is bad
risk. The goal is not to avoid risk,
but to manage it.
So, it comes back to balancing --
there is that amount of capital
that we are willing to put aside
and say lets take some risk with
it and then there is that core set
of investments that is less risky
and less different, more adjacent
to what we do and we have
some confidence in that.
For instance, we have built a
storage business with
acquisitions that is very
successful. It is a $2 billion
business right now. We feel it
can go to $4-5 billion in the next
three years.
That is the space where we have
proven we can win and that is a
place where we are willing to
make some investments and
make a more aggressive play
because we have had success.
There may be some other areas
where we have less capability
and one area I would like to
highlight and that we keep
working on is building on our
software capability. So less
success there means more risk
and we have to be more careful.
But we should not be afraid of
that, we have to go deal with
that. In a more metered and
balanced way we will go after
that.
Corporate governance is
another area of scrutiny by
investors and experts when it
comes to technology firms. Dell
had to restate its accounts few
years ago because of some
irregularities. What lessons
have you learnt?
I would say simply that if you are
going to grow very fast, you
need to make sure you are
making investments along the
way to provide stable
infrastructure. In many cases if
the company is growing so fast
that you can't build processes to
support it, that's when you get
into trouble.
I think sometimes growth needs
to be deliberately managed and
investments need to be made
along the way, I think those are
fundamental lessons that the
company needed to learn.
There are other things we need
to work on and improve and we
have done all that. We have made
some pretty significant
investments in IT, in talentand
we feel good about where we
are.
How much should we be
reading into the macro
economic worries, what does it
mean for the outsourcing
business?
I think there is a big economic
cloud right now. If you see the
US economy, it's a bit
challenging.
There are plenty of signs that
there are some challenging
dynamics in the US and until they
get clarity on the deficit issues,
put the debt ceiling behind them,
customers in some cases are
being a bit negative around
making investments. But I would
also say there is still good
demand growth.
Even in the federal government,
productivity becomes a primary
initiative. As long as technology
can bring productivity they are
big priorities for governments.
So, we feel good about that, we
are well positioned with
governments to do that.
How much will stubbornly high
unemployment play a role in
regulations around taxes and
immigration?
There is no question that the
recovery around the real estate
market in the US and other parts
of the world and unemployment
are long-term challenges and the
government in the US needs to
make some pretty fundamental
changes to encourage US
competitiveness and
employment.
Some of these things are
happening. But today they are
caught up in this debt ceiling
debate and not addressing these
issues. The corporate tax rate in
the US is way too high and the
government needs to talk about
that and not something silly like
the debt ceiling.
These are not going to change
overnight and you are not going
to see some dramatic decrease in
unemployment. The data I saw
most recently shows to get back
to 5% unemployment is going to
take another 13 years.
Every time there is political
rhetoric the government starts
talking about deferred tax,
overseas profits. What is your
take on that because it gets
linked back to unemployment
etc?
Well I would go back to US
competitiveness. It's a global
business; we have got a large
population of employees in the
US and more people outside the
US. There needs to be stability in
the political regulatory
environment for us to make
more investments in the US.
Japan is taking down their
corporate tax rate this year and
the US will have the highest
corporate tax rate in the world.
That is a disincentive to invest in
the US. I have been active, our
industry has been active in trying
to communicate to the policy
makers that they need to address
the corporate tax policy. Until
they focus energy around that.
There are US competitiveness
issues around tax and there are
labour issues. There are issues
with healthcare costs, issues
with the right incentives around
innovations and research and
development. Unless US
policymakers focus around these
and make them simple and easy
like it is inIndia or Singapore.
There is a challenge there.
