Subba’s Serendipitous moments

May 13, 2008

HP acquiring EDS — Mark’s new challenges

Filed under: Business,Competition,Model,Strategy — Subbaraman Iyer @ 2:19 pm
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Just saw the news that Hewlett Packard is in talks to acquire EDS. The announcement is here.

This may be Mark Hurd’s biggest and risky bet to carve out a bigger space in the IT services market. As anyone can see, Mark will face 2 key challenges with this acquisition. Unlike the earlier acquisitions, this one is a big move and hence there is the imminent integration challenge between these 2 companies with different cultures. Given that EDS has a higher market share and also been in the IT services business longer than HP, they are unlikely to submit to the HP model easily. Till date HP has shown distinct conservatism in the services market, by just managing the infrastructure around its own product platforms where as EDS has been more of a risk taker given its background and history. It also has done more higher-end work like complex application design. So, who would call the shots — HP as the acquirer or as EDS with a big client list and a track record of delivering higher value services? We just have to see how this unfolds.

Second, Mark has to transition the combined entity to the right cost structure by shifting significant resources to a low cost countries like India. At least in India both EDS and HP have operations and their merger may not create much problems.

I believe the only way to amount the challenge to IBM would be to set this up as an independent business operation and go after the high margin business. It is only then that the acquisition makes sense. Whether IBM gets affected or not, I can see this impacting Accenture, Cap Gemini and a few others feeling the pressure.

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4 Comments »

  1. Hewlett-Packard Eyes On EDS To Challenge IBM…

    Hewlett-Packard, one of the worlds largest IT companies is acquiring Electronic Data Systems Corp. for between $12 billion and $13 billion.
    This move is to compete with its rival IBM and after the acquisition, Hewlett-Packard will become world’s se….

    Trackback by Technology Update — May 13, 2008 @ 6:48 pm | Reply

  2. […] HP acquiring EDS — Mark’s new challenges5 hours ago by Subbaraman Iyer Given that EDS has a higher market share and also been in the IT services business longer than HP, they are unlikely to submit to the HP fiat easily. Till date HP has shown distinct conservatism in the services market, by just managing … […]

    Pingback by hp eds | Today Trends — May 13, 2008 @ 7:30 pm | Reply

  3. I see it as evolving in one of two ways–(1) simple economies-of-scale game (anchored in the USA or (2) using the combined entity to create a new global service delivery model. The first game is not really interesting; Wall Street sees HP as pursuing this and hence its stock punished. The second game is more fuzzy–the rules are just evolving; no one has truly defined the rules of competition and value delivery. I am not saying that HP has (or even that it could). But, if Mark Hurd is smart and strategic, he should use this acquisition (and perhaps a select few others) to reframe HP to lead and innovate to create the new service model. He has the cash, he has earned his credibility to show performance in the core business areas. Will he transform HP to be a global services company? Can he do it? — Those are open questions.

    Comment by N. Venkatraman — May 13, 2008 @ 11:34 pm | Reply

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