HP/EDS: a reverse-takeover to create a services giant, but what’s the game-plan?

So HP’s $13.9Bn acquisition of EDS became official this week – the largest-ever merger between two IT and business services providers.  The merged services entity resembles a reverse-takeover of the combined services business, with all the management positions remaining in Plano, with the exception of application services.

EDS HP LogoOverall, there were few surprises in the deal-finalization announcement. However, the fact that there seems to be no initial definitive plans to integrate the businesses at a service/product level beyond the newly-outlined organization structure, gives me some cause for concern, especially considering the fact that HP/EDS has already had three months to draw up a merger-strategy.  We're operating in a market where crafting and developing a global delivery strategy quickly is critical.  We've seen far too many failures in recent years from services providers that have sat on their traditional revenue streams, while others have pushed aggressive services agendas to win over clients looking for vendors with new thinking and focus on driving innovation into engagements.


From a BPO perspective, there are no plans announced to go-to-market with broader IT-BPO bundled offerings across finance, HR and other vertical-specific functions.  In addition, the fact that EDS’s “ExcellerateHRO” service line has been absent from the announcement is notable, especially when you consider the massive investments EDS had previously made in developing that offering.  A lack of continued investment and management focus on ExcellerateHRO could well be a missed opportunity (which we discussed here) when you look at the major strides Infosys, TCS, and Wipro have made to enter this market in the last couple of years, not to mention the determination of Accenture, Capgemini and IBM to lead this bundled IT-BPO market, which many of us see as the future of IT-BPO.  HP needs to work swiftly to integrate these service lines more effectively, or risk slipping behind the competition.

I'll be commenting more on the ramifications of this merger over the next few days… stay tuned.  And feel free to chip in with your views – it's a huge sea-change in the competitive landscape and the next few months are critical for the newly merged entity.

 

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7 Comments

  1. Alan Benson
    Posted September 2, 2008 at 8:32 am | Permalink

    Good points Phil.

    HP needs to act swiftly and decisively with this merger. This is a lot more than simply selling product: they need to attack the market with a concerted services strategy and cannot afford to rest on their laurels.

    Alan.

  2. MZ
    Posted September 2, 2008 at 5:12 pm | Permalink

    Phil, wait untiil Sept 15, that is when Mark Hurd will address the market

  3. Mark Mayo
    Posted September 2, 2008 at 5:25 pm | Permalink

    Phil,

    You make a number of good points. The lack of specificity on ExcellerateHRO and other service offerings indicate that the EDS/HP leadership team still needs to sort out its go-to-market priorities and investments. However, this doesn’t surprise me. The scope of this reverse integration effort is immense – a $22 billion services company (EDS) integrating an additional $17 billion of services (HP)! It is absolutely unprecedented. While EDS has a significant running start due to the corporate sales, delivery, and organizational infrastructure already in place, it would not be prudent for them to underestimate the effort and care it will take to do this integration correctly. It is important to integrate not only the businesses, but also to capture the hearts and minds of the employees. I think that is why you see them approaching this in a measured way – and I think it makes a lot of sense.

    I don’t think, however, that this will turn out to be as significant a change in the market as it might appear. As further detailed in http://www.considerthesourceblog.com, I believe the combination of EDS and HP will help EDS/HP competitively, and specifically position them more effectively against IBM — but let’s not forget that EDS was already a very strong global player before this acquisition. This transaction won’t fundamentally change the underlying market dynamics. This acquisition is more an indicator of the consolidation required by the global forces driving this industry than an industry changing or leading event.

    Mark

  4. Posted September 2, 2008 at 8:13 pm | Permalink

    Gents:

    Don’t get me wrong – am particularly bullish about the opportunity staring HP/EDS in the face. Perhaps I am being a bit harsh with my comments, but I do believe they can’t afford to dither around with this one, if they truly want to go after IBM. Because while they may be going after IBM, Cognizant, Infosys, TCS, Wipro and several others are going after HP…

    I await Mark Hurd’s 9/15 address with anticipation,

    PF.

  5. Posted September 8, 2008 at 11:29 am | Permalink

    With the tragic failure rate of M&A activity in general, I am a little less bullish, though I think the combination of portfolios and capabilities, in this case, is actually pretty good. So competitively, it could be a winner(if, as Phil correctly points out, integration is done reasonably well)

    Because chasing deals in this space is so expensive, there’s a tremendous savings in cost of sales that should hit the bottom line, so if done right, stockholders should be OK.

    But few people out here in the blogosphere seem to be talking about their (HP’s and EDS’s) customers. Somebody needs to step up and say precisely why this is better for existing and future customers.

    And then there is employees. Not being an insider, I have no idea what they are being told, but from previous provider mergers I have witnessed, people get nervous, they focus (naturally) on their personal situation and not their clients’ problems. Service levels decline. People say things they regret. “Out” clauses are activated.

    I suspect it is at this very tactical level–on the ground inside engagements–that the merger will succeed or fail.

    EH

  6. SC
    Posted September 8, 2008 at 9:13 pm | Permalink

    My expectation is actually that HP doesn’t want anything to do with ExcellerateHRO and that it will be spun quickly. My 2 cents… take it for what it’s worth (which is probably less than 2 cents).

  7. Greg F
    Posted September 9, 2008 at 3:44 pm | Permalink

    Interesting comment on lack of focus on Excellerate…any thoughts that similar lack of focus may be applied to other non-core EDS businesses, particularly Solcorp, and the Ingenium product

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