BPM in the Real World 

Tony Baer: HP Buys EDS

By Tony Baer, President, onStrategies , 05/14/2008

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Only leaked on Monday, HP confirmed yesterday that it would acquire EDS for north of $12 billion. The obvious driver, as colleague Dana Gardner noted, is that with the IBM and its global services colossus and the growth of outsourced, cloud, or on demand computing, that enterprise customers were going to demand a viable alternative – an Avis to IBM’s Hertz so to speak.

Of course the deal brings back memories of when Mark Hurd’s predecessor left off, which was the attempted purchase of PwC consulting for $18 billion back in 2000. Barely a couple years later, IBM swooped up PwC up for roughly a fifth of the cost. Besides the ridiculous price tag (these were pre-inflated dollars) was the question of culture clash. HP’s techie culture seemed a poor fit for PwC’s suit-and-tie atmosphere; as we maintained, IBM and PwC were a much better fit.

And while $12 billion still sounds like a lot of money, that’s probably about half of what HP would have paid back in 2000 with pre-deflated dollars.

But what a difference a few years and a more-focused senior management team make. Not only has Hurd rationalized the Compaq acquisition, but for the first time his team actually cultivated HP Software as more than an oxymoron, and has bulked it up with some shrewd acquisitions. Admittedly, success at HP Software doesn’t automatically portend similar results with EDS, which has been through the acquisition game before. More importantly, comparing Hurd to Fiorina, he exercises the far more hands-on management style that will be necessary to pulling such a transformative deal off.

Among the challenges are reorienting EDS away from IBM to promote HP infrastructure. Given that EDS is stronger in infrastructure outsourcing rather than mainstream systems integration, that might be a smoother shift, but it will require an internal migration of expertise. EDS is already part way down the transformation road, having been slimmed down by CEO Ronald Rittenmeyer (he stays on as business unit head), and before that, Michael Jordon (no, not the Air Jordans guy).

Significantly, HP will preserve EDS’s identity and autonomy, handing over some of Ann Livermore’s services operations. With more engaged management, HP stands a better chance this time of making such an acquisition work.

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