Olivetti's emphasis on PCs, services, and telecommunications provide short-term relief and may drive a turnaround: long-term challenges remain

Computer Industry Report, March 25, 1994

Vertical Markets, Services, and SI: Olivetti's Future

Olivetti's services businesses are increasingly important. They accounted for 30% of revenue in 1993 and will in management's view be instrumental in the drive to break even in 1994.

At the center of Olivetti's services strategy is the decision to drive a higher level of value-add through the services infrastructure. That means harvesting the break/repair business while investing in new personnel with new skills.

Olivetti sells services through both the systems group and the services organization. The systems group is responsible for solution selling in Olivetti's three key vertical markets. The services organization sells professional and outsourcing services to any and all customers. This leads to some overlap and may lead to some conflict in the future as well.

The increasing emphasis placed on overall services revenue will most likely exacerbate these tensions. Most of Olivetti's services competitors are already organized along customer lines. Olivetti may feel competitive pressure to extend the vertical market orientation of its systems group to the services group. If (more likely when) that happens, the company will need to rethink its entire vertical market organizational structure.

New Markets

Olivetti's current mix of businesses may not be enough to return it to profitability. Margins for PCs and servers are small and getting smaller. Olivetti will likely never capture the volumes necessary to drive overall profitability to acceptable levels. Software and services margins are certainly higher, but they remain a relatively small part of Olivetti's income. In addition, Olivetti's access to software and services markets outside Italy is limited.

However, Olivetti is addressing this problem. It is investing in a variety of new products that have the potential to provide significant new revenue streams. Olivetti's investments in Italy's second cellular license should boost its confidence. In addition, the company has a range of development efforts, including personal communicators and small mobile computers that challenge the current notion of information technology.

Olivetti has some particular advantages here. Research and development of impressive new designs and technologies have, in fact, never been a problem at Olivetti. For example, it has been a leader in producing subnotebook PC designs. Its first PCs were widely regarded as design leaders.

Management expects that a host of new investments will pay off in the multimedia future to drive a new era of prosperity in Ivrea. Some of the new technologies are indeed impressive. On their own, they are solid accomplishments.

However, to obtain the best return on these investments, Olivetti faces a familiar problem: Can they be sold to a worldwide, or at least European-wide, market? That has been the traditional stumbling block for some of Olivetti's impressive designs in the past. It remains so for the newest of the new and exciting technologies under development at Olivetti. If Olivetti can learn from these lessons, and more effectively partner with other international players, it may have a great opportunity. Its relationship with AT&T (and with AT&T's multimedia partners) for personal communicator products is encouraging.