Recurring Revenue Authors: Yeshim Deniz, Liz McMillan, Xenia von Wedel, Carmen Gonzalez, Elizabeth White

Blog Feed Post

Will HP Survive until 2018? – HP's EDS acquisition First Take

In a previous post I asked the same question about Microsoft and predicted that the probability that at least three of the four leading SOA Echo Systems vendors, including Microsoft, will survive in the next ten years is high. I planed additional posts on other potential Long Term survival candidates.

HP's intend to acquire EDS changed my plan, so this post topic is HP's EDS acquisition. I would have predicted before the intended acquisition, that the probability that HP will survive until 2018 is high due to its dominance of the high volume Printers market and its position in other hardware markets (Servers, Storage, and PCs) and Network and System Management (HP OpenView).

For a long time HP tried to expand its business lines beyond hardware. Acquisition of a J2EE Application Server company resulted in BEA WebLogic as the preferred Application Server used by HP. It failed to acquire Price Waterhouse Coopers and few years afterwards acquired Mercury and few other software companies. Mercury acquisition enriched HP's software portfolio with Testing and Business Performance tools as well as leading SOA products, originated by Systinet which was acquired by Mercury.

As far as size is concerned Compaq acquisition by HP on 2002, is the most similar acquisition to the proposed EDS acquisition. HP's revenues in 2007 were more than 100 milliard USDs and EDS's revenues more than 22 milliard USDs. HP has about 170,000 employees and EDS 137,000 according to AP Associates Press . It was not easy to merge two competing companies (HP and Compaq): PCs, Servers Storage and UNIX operating Systems were overlapping Products Lines.

Issues in HP-Compaq merge

  • Overlapping products lines

As far as overlapping products lines were concerned, the key problems were:

Which product line will be the leading or strategic line?

Which Brand will be the leading Brand and last but not least who will manage the product line?

  • Organizational Culture

Organizational cultures of different companies are not the same. Usually the culture of the merged company is more similar to the culture of the acquiring company, in this case HP. It should be noted that Compaq acquired DEC and Tandem few years before being acquired by HP, so the process of stabilizing its organizational culture was not completed.

  • Overhead

Other functions such as Financial Departments were redundant so as result of the merge some people were fired and others changed their role.

Some of the redundant roles are executives. For example there was no need for two CIOs or two CFOs in the merged company.

Reason for HP's EDS acquisition

EDS is mostly an Outsourcing company competing with that market leader IBM Global Services. Other major player in this market is Accenture. HP is a player in that market and by this intended EDS acquisition aspires to become a leader in that market, challenging IBM.

The optimistic View

HP-EDS combination will be a Co-Leader of the Outsourcing market together with IBM. The customers will benefit from competition between two equal sized giants commercially and technically.

First Take

Sorry, but the optimistic view seems to me less realistic than other scenarios.

Let's look at the dark side and not only at the bright side. Under the assumption that the acquisition will take place, the unified company needs to address the following challenges:

  • Internal Competition in Outsourcing

HP is a player in the Outsourcing market and not a small one, therefore in a lesser extent the company will have to address conflicts resembling in a way the conflicts cited above about HP-Compaq overlapping Products Lines. EDS Outsourcing is roughly twice than HP's Outsourcing business. Both companies strength is in Infrastructure and Technical Services Outsourcing. According to Cnet news Blog EDS Outsourcing revenues on fiscal 2007 were $38 milliard while HP's revenues on the same fiscal year were $16.6 milliard. EDS Outsourcing is roughly twice than HP's Outsourcing business.

The company should select one of the following three Long Term strategies:

Strategy 1: EDS remains as an independent unit keeping its brand

The main concern is HP's own Outsourcing business:

Is it possible that two units of the same company operate efficiently on the same field? Which unit will be the flagship? Should HP Outsourcing compete with EDS or focus on a specific Niche?

IBM Global Services size advantage over both HP's Outsourcing divisions is another concern.

Strategy 2: Merging the two Outsourcing units using EDS as the prime unit and brnad name

This strategy addresses size issues, but requires a long and costly process of merging the two Outsourcing businesses. Organizational Culture changes in HP outsourcing unit and layoffs are expected as part of that strategy.

Strategy 3: Merging the two Outsourcing units using HP Outsourcing as the prime unit and brnad name

This strategy is a mirror of the second strategy. Similar challenges to those cited for the second strategy are expected, but in larger magnitude because the challenges are applicable to the bigger unit instead of the smaller one.

Another possible undesired effect could be loosing customers due to abandoning EDS strong brand name.

  • Can EDS keep its current Hardware & Software strategy?

EDS strategy and IGS strategy are totally different. IGS solutions are based on IBM's large portfolio of hardware and Software. IGS synergy and knowledge of internal products is incomparable to third party knowledge and synergy. The strategy is based upon integration between products of the same vendor.

EDS's strategy is Best of Breed strategy. As a company which is not a software or Hardware vendor it emphasized partnerships with vendors with no significant services capabilities creating a Win-Win partnership. Like EDS these vendors are competing with IBM. EDS is an excellent partner due to its vendor neutrality, Size and Ability to Execute and sometimes even its participation in the Software or hardware vendor R&D activities.

In every hardware and software topic EDS employee acquired knowledge and experience in its partner's products. Usually there are few partners in each area and in some cases one of them is the preferred partner (e.g. EMC Storage, CA its Texas neighbor in Network and System Management and SeeBeyond, which was acquired by Sun because of its SOA products, in Integration).

Even if HP will stick to one of the first two strategies cited above, some of EDS's partnerships will no longer be Win-Win partnerships.

Some of EDS's partners are HP competitors: EMC, Sun, Dell, CA. Will they continue their partnerships with EDS? I doubt if these partnerships will endure. I am almost sure that if these partnerships will continue they will be changed to tactical partnerships

On the other hand partnerships with Microsoft, Oracle & BEA (HP's partners as well as EDS partners) could be extended. I see no reason for changes in partnerships with Cisco, Tibco, Borland or other vendors, which are not HP's competitors.

  • Will the Outsourcing be biased towards HP hardware and software products?

Probably HP Outsourcing strategy, including EDS, will be based on its own Software and Hardware products, similar to IBM's strategy and HP's Outsourcing strategy prior the acquisition. However, HP's software portfolio is not as complete as IBM's, so partnerships with other vendors will be required.

  • Outsourcing as a subset of Services

Another challenge to HP Services Organization is to combine a huge Outsourcing activity with other Services.

In Summary

I am quiet skeptic about HP- EDS ability to address properly the complicated challenges if the acquisition will take place at all. If it will fail, than IBM and other Outsourcing vendors, such as Accenture and the Indian Outsourcers (TCS, Infosys and Wipro) will benefit from this acquisition.

HP's high survival probability will become higher if EDS acquisition will be a success. In case of a partial success or a failure the probability will not be as high as it is.

Read the original blog entry...

More Stories By Avi Rosenthal

Ari has over 30 years of experience in IT across a wide variety of technology platforms, including application development, technology selection, application and infrastructure strategies, system design, middleware and transaction management technologies and security.

Positions held include CTO for one of the largest software houses in Israel as well as the CTO position for one of the largest ministries of the Israeli government.

@ThingsExpo Stories
The best way to leverage your Cloud Expo presence as a sponsor and exhibitor is to plan your news announcements around our events. The press covering Cloud Expo and @ThingsExpo will have access to these releases and will amplify your news announcements. More than two dozen Cloud companies either set deals at our shows or have announced their mergers and acquisitions at Cloud Expo. Product announcements during our show provide your company with the most reach through our targeted audiences.
DevOpsSummit New York 2018, colocated with CloudEXPO | DXWorldEXPO New York 2018 will be held November 11-13, 2018, in New York City. Digital Transformation (DX) is a major focus with the introduction of DXWorldEXPO within the program. Successful transformation requires a laser focus on being data-driven and on using all the tools available that enable transformation if they plan to survive over the long term. A total of 88% of Fortune 500 companies from a generation ago are now out of bus...
With 10 simultaneous tracks, keynotes, general sessions and targeted breakout classes, @CloudEXPO and DXWorldEXPO are two of the most important technology events of the year. Since its launch over eight years ago, @CloudEXPO and DXWorldEXPO have presented a rock star faculty as well as showcased hundreds of sponsors and exhibitors! In this blog post, we provide 7 tips on how, as part of our world-class faculty, you can deliver one of the most popular sessions at our events. But before reading...
DXWordEXPO New York 2018, colocated with CloudEXPO New York 2018 will be held November 11-13, 2018, in New York City and will bring together Cloud Computing, FinTech and Blockchain, Digital Transformation, Big Data, Internet of Things, DevOps, AI, Machine Learning and WebRTC to one location.
DXWorldEXPO LLC announced today that ICOHOLDER named "Media Sponsor" of Miami Blockchain Event by FinTechEXPO. ICOHOLDER give you detailed information and help the community to invest in the trusty projects. Miami Blockchain Event by FinTechEXPO has opened its Call for Papers. The two-day event will present 20 top Blockchain experts. All speaking inquiries which covers the following information can be submitted by email to [email protected] Miami Blockchain Event by FinTechEXPO also offers s...
DXWorldEXPO | CloudEXPO are the world's most influential, independent events where Cloud Computing was coined and where technology buyers and vendors meet to experience and discuss the big picture of Digital Transformation and all of the strategies, tactics, and tools they need to realize their goals. Sponsors of DXWorldEXPO | CloudEXPO benefit from unmatched branding, profile building and lead generation opportunities.
Dion Hinchcliffe is an internationally recognized digital expert, bestselling book author, frequent keynote speaker, analyst, futurist, and transformation expert based in Washington, DC. He is currently Chief Strategy Officer at the industry-leading digital strategy and online community solutions firm, 7Summits.
Digital Transformation and Disruption, Amazon Style - What You Can Learn. Chris Kocher is a co-founder of Grey Heron, a management and strategic marketing consulting firm. He has 25+ years in both strategic and hands-on operating experience helping executives and investors build revenues and shareholder value. He has consulted with over 130 companies on innovating with new business models, product strategies and monetization. Chris has held management positions at HP and Symantec in addition to ...
Cloud-enabled transformation has evolved from cost saving measure to business innovation strategy -- one that combines the cloud with cognitive capabilities to drive market disruption. Learn how you can achieve the insight and agility you need to gain a competitive advantage. Industry-acclaimed CTO and cloud expert, Shankar Kalyana presents. Only the most exceptional IBMers are appointed with the rare distinction of IBM Fellow, the highest technical honor in the company. Shankar has also receive...
Enterprises have taken advantage of IoT to achieve important revenue and cost advantages. What is less apparent is how incumbent enterprises operating at scale have, following success with IoT, built analytic, operations management and software development capabilities - ranging from autonomous vehicles to manageable robotics installations. They have embraced these capabilities as if they were Silicon Valley startups.
The standardization of container runtimes and images has sparked the creation of an almost overwhelming number of new open source projects that build on and otherwise work with these specifications. Of course, there's Kubernetes, which orchestrates and manages collections of containers. It was one of the first and best-known examples of projects that make containers truly useful for production use. However, more recently, the container ecosystem has truly exploded. A service mesh like Istio addr...
Poor data quality and analytics drive down business value. In fact, Gartner estimated that the average financial impact of poor data quality on organizations is $9.7 million per year. But bad data is much more than a cost center. By eroding trust in information, analytics and the business decisions based on these, it is a serious impediment to digital transformation.
Predicting the future has never been more challenging - not because of the lack of data but because of the flood of ungoverned and risk laden information. Microsoft states that 2.5 exabytes of data are created every day. Expectations and reliance on data are being pushed to the limits, as demands around hybrid options continue to grow.
Business professionals no longer wonder if they'll migrate to the cloud; it's now a matter of when. The cloud environment has proved to be a major force in transitioning to an agile business model that enables quick decisions and fast implementation that solidify customer relationships. And when the cloud is combined with the power of cognitive computing, it drives innovation and transformation that achieves astounding competitive advantage.
As IoT continues to increase momentum, so does the associated risk. Secure Device Lifecycle Management (DLM) is ranked as one of the most important technology areas of IoT. Driving this trend is the realization that secure support for IoT devices provides companies the ability to deliver high-quality, reliable, secure offerings faster, create new revenue streams, and reduce support costs, all while building a competitive advantage in their markets. In this session, we will use customer use cases...
Digital Transformation: Preparing Cloud & IoT Security for the Age of Artificial Intelligence. As automation and artificial intelligence (AI) power solution development and delivery, many businesses need to build backend cloud capabilities. Well-poised organizations, marketing smart devices with AI and BlockChain capabilities prepare to refine compliance and regulatory capabilities in 2018. Volumes of health, financial, technical and privacy data, along with tightening compliance requirements by...
The IoT Will Grow: In what might be the most obvious prediction of the decade, the IoT will continue to expand next year, with more and more devices coming online every single day. What isn’t so obvious about this prediction: where that growth will occur. The retail, healthcare, and industrial/supply chain industries will likely see the greatest growth. Forrester Research has predicted the IoT will become “the backbone” of customer value as it continues to grow. It is no surprise that retail is ...
Andrew Keys is Co-Founder of ConsenSys Enterprise. He comes to ConsenSys Enterprise with capital markets, technology and entrepreneurial experience. Previously, he worked for UBS investment bank in equities analysis. Later, he was responsible for the creation and distribution of life settlement products to hedge funds and investment banks. After, he co-founded a revenue cycle management company where he learned about Bitcoin and eventually Ethereal. Andrew's role at ConsenSys Enterprise is a mul...
DXWorldEXPO LLC announced today that "Miami Blockchain Event by FinTechEXPO" has announced that its Call for Papers is now open. The two-day event will present 20 top Blockchain experts. All speaking inquiries which covers the following information can be submitted by email to [email protected] Financial enterprises in New York City, London, Singapore, and other world financial capitals are embracing a new generation of smart, automated FinTech that eliminates many cumbersome, slow, and expe...
Cloud Expo | DXWorld Expo have announced the conference tracks for Cloud Expo 2018. Cloud Expo will be held June 5-7, 2018, at the Javits Center in New York City, and November 6-8, 2018, at the Santa Clara Convention Center, Santa Clara, CA. Digital Transformation (DX) is a major focus with the introduction of DX Expo within the program. Successful transformation requires a laser focus on being data-driven and on using all the tools available that enable transformation if they plan to survive ov...