In speedy fashion, HP has closed the biggest outsourcing deal in recent memory, its $13.9 billion acquisition of EDS. As I wrote this spring (and I wasn't the only one), the impetus for the deal was HP's desire to compete with IBM in the lucrative tech consulting and outsourced services space and also to capitalize on the burgeoning interest in cloud computing.
Since I offered my initial take on the acquisition, details of how the companies will merge their businesses have begun to trickle out. A number of the nitty gritty details are covered in an Ovum analysis of the deal.
Among them: HP's outsourcing organization will move to EDS and become HP's fourth business group. EDS CEO Ron Rittenmeyer will lead the group from Plano, Texas, and many of EDS' senior executives will remain with the company. Portions of HP's Consulting & Integrating (C&I) business involving other vendors' products will shift to the new EDS group, while those involving HP products and services will remain within C&I for now. The combined business will offer infrastructure technology outsourcing, application services and business process outsourcing for eight vertical industries, including financial services, health care and government/defense.
Ovum analysts John Madden and Dave Mitchell note that little of this news is new and say HP and EDS could go a long way toward reassuring customers if they cough up more details on the issues of most immediate concern, such as staff reductions. They write:
Some of the most critical questions on headcount reduction and improving EDS's cost structure - which will be accomplished, no doubt, by leveraging HP software, tools and best practices - are still to come. There's also the important matters of how acquiring EDS will alter HP's go-to-market model, sales structure (both in outsourcing and in the company as a whole) and services delivery organization. Confirming the timetable of when these key decisions will be taken and implemented would build additional confidence and give the community milestones to monitor. In essence this is about opening up some of the major milestones in the 30- 60- and 90-day period.
Customers can be reassured, perhaps, by the fact that HP has acquired 26 companies since Mark Hurd became CEO in 2005. According to a MercuryNews.com report, a team of 500 HP and EDS staffers are working on integration efforts. More news on planned staff and cost cuts will likely come during a Sept. 15 call with financial analysts, notes the report.
Some tantalizing hints are contained in a Wall Street Journal blog post, which mentions that HP hopes to make good use of automation software produced by three companies it has purchased over the past few years: Peregrine Systems, Mercury Interactive and Opsware. Hurd, whose focus on the bottom line has earned him legions of fans among financial analysts, mentions employing such tools to displace costly manual labor.