Reported Dell Layoffs Good for the Channel

Dell is reportedly gearing up to layoff as much as 20 percent of its global workforce. The contraction will make Dell more dependent on indirect sales to drive revenue and growth, making solution providers more important to the company’s future than ever.

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Dell founder and CEO Michael Dell delivers his keynote address at Oracle Open World in San FranciscoWater-cooler talk about how Dell’s rumored mass layoffs and their effect on the channel will start heating up now that the media has jumped all over reports that as much as 20 percent of the company’s global workforce could be cut loose in coming months. Don’t get caught in this negative gravity well; a smaller Dell is actually a good thing for its solution providers.

While no one wants to see approximately 22,000 people lose their livelihood – as reported by The Register – but the reality is a mass Dell downsizing will solidify a shift by the company to become more channel-centric rather than its current status of channel-friendly.

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At Dell World last month, the company announced it would be shifting as many as 200,000 accounts currently held by direct sales teams to channel partners. Ostensibly, the move is part of a coordinated effort to enable Dell’s global community of more than 100,000 reseller and solution provider partners to achieve growth and profitability.

The account transfer news came with reports that Dell, which went private last fall through a $24 billion leveraged buyout, was already engaged in a “volunteer” resignation program, in which it was paying severance packages to workers who quit so their positions could be eliminated and consolidated through attrition.

The volunteer program and the channel account shift signaled that Dell was finally ready to reduce costs and leverage the power of the channel to drive sales and revenue. It goes without saying, the reason the channel exists is to reduce the cost of sales by extending product sales and customer relationships through autonomous third-parties.

Since coming into the channel in 2007, Dell has made numerous claims to appreciating the channel value proposition. However, much of Dell’s channel build out and partner interaction has been one of conflict. Dell, a company built on direct sales, refused to give up the mantra that made it great, and gave customers choices to buy direct or through partners. The result was often disappointment to solution providers, as customers could often find the same products and services for less by going to their direct account manager.

Dell defended its bifurcated sales model, saying customers should have the choice to buy from whom they want. Despite the conflicts and the mistrust they created, Dell managed to build out one of the largest channel networks in the business and now generates as much as one-third its revenue through indirect sales.

Dell isn’t commenting specifically on the layoff reports. In statements, Dell said, “Dell continuously evaluates and implements opportunities to improve our operational effectiveness and allocate our resources. When necessary, we’ll continue to make tough decisions to help ensure our long-term success – some of these decisions may affect our workforce. Meanwhile, we are committed to building upon our multi-channel approach to serving customers – channel, online and direct – and are investing in sales coverage and training. We won’t comment further on rumor or speculation.”

The most interesting part of Dell’s statement is that it clearly states its intent to build out channel resources and sales capacity. A smaller Dell, reduced by as much as one-fifth, would be far more dependent on outside resources to support its current operations and growth. That reliance will put solution providers is a much better position with the company in terms of extracting support and value.

While a smaller Dell means a stronger Dell channel, it does come with caveats. Dell says it’s investing in channel resources and support. Already Dell is making moves to build out its cloud, software and professional services resources. Solution providers will likely have access to more products and services. However, solution providers should question how much support will be available to them and what it will take to get access? The contracted Dell also means greater focus on top performing partners.

No word on if or when the Dell layoffs will happen. As a private company, Dell has no quarterly or annual financial disclosures with which to align notice. And, as some reports indicate, Dell could avoid advance notice as required by federal law, if it makes all the job cuts at once. Dell’s fiscal year ends January 31, which could prove the trigger point.

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