Why never mix product with project sales: DELL / Perot

Many companies start out as a project business and over time they start to make products or start to resell products. This is a very slow process from one-off projects that needs follow-up step by step for invoicing to products that get invoices the moment they get shipped out.

A limited number of companies have made the transition from a product company to a project company.
During the end of the product life-cycle when price pressure becomes the fieriest then the project business (that uses your products) is becoming tempting as the margins are higher. Achieving the switch successfully is a huge management undertaking.

The Product company:
- Selling tangible goods.
- Invoices are directly booked (recognized) as revenue.
- Commission can be paid as soon as the invoice is printed or the customer pays.
- Relatively short sales cycle: more effort, more people: more sales.
- Even shorter sales cycle if online sales.
- Raw materials, components or products need to be ordered involving the ERP (Enterprise Resource Planning).
- Products need to the manufactured before shipping and invoicing.
- ERP system needs to keep track of purchasing, logistics, manufacturing, after sales .
- Sales manager can make budget on many items sold in many regions.

The Project company:
- Selling intangible services.
- Invoices although paid can only be recognized (booked) when parts of the projects have been accepted.
- Commissions can only be paid when the project is finished or partly accepted.
- The long complex sale: don’t hurry – don’t push.
- Projects get mostly done at the customer’s site;
- ERP system needs to keep track of project progress and delays.
- Sales manager has to budget based on the current pipeline / funnel.

If you ever have worked in both a project company and a product company then you know there is a huge difference in the daily business: from marketing, to sales, to operations, to management.

DELL acquiring Perot Systems

On September 21, 2009 DELL declared to have the intention to acquire Perot Systems.

The main thing both founders have in common is their modest beginnings:
- DELL from his dorm room as a freshman at the university in 1984.
- Perot from his kitchen table in 1988.
That’s where it ends.

DELL:
- Targets small, medium and large companies
- Short sales cycles (even online) of PC’s.
- Selling on price and quality.
- Selling even to consumers!
- PC’s are exchangeable goods for CEO’s: PC’s won’t matter in the bottom line.
- PC come in through the ‘back door’ of a company.
- Fierce price competition from all PC manufacturers
- Company culture is: design, build, market, sell, deliver, invoice – all clearly measurable

Perot Systems:
- Targets large corporations, health-care and governments.
- Long complex sale of projects
- Selling on skills and service
- Selling solely to corporations, health-care and governments.
- IT projects do bother the CEO as the service is not easy exchanged by another supplier
- IT projects enter through the front door of any organization
- Stiff competition from IBM/PWC and HP/EDS having more skills in the house
- Company culture is: excellence – not really measurable

DELL wants to compete with HP having acquired EDS and IBM with PWC Consulting. However both other companies have had since long a foothold in the high priced consulting business and the high priced systems business, whereas DELL has mainly been selling desktops and portables.

Managing Sales and Marketing of a fast moving product company is completely different from the slow moving consulting and systems integration business.

Just compare these commercials:

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