This Time It Will Be Different

“When Hewlett-Packard announced its $13.9 billion acquisition of tech services giant Electronic Data Systems on May 13, pundits heralded it as a bold move by HP Chief Executive Mark Hurd. In one stroke, it seemed, he had put HP on a more equal footing with market leader IBM in the fiercely competitive tech services business...

“Yet a closer look at the deal raises questions about Hurd's strategy and choice of dance partner. EDS… was slow to respond in the early 2000s to the threat of nimble Indian rivals offering services at sharply lower prices. Revenues stagnated, and EDS racked up huge losses. Eventually, the company began hiring more overseas, and bought control of an Indian company, MphasiS. But even now MphasiS operates independently, with its own sales force and customer base.

“So this deal won't change the game when it comes to one of the most important factors in tech services. The top-tier services companies need large, low-cost, global work forces, and their operations need to be tightly integrated so employees with diverse skills collaborate smoothly.

“IBM, Accenture, and Indian companies such as Infosys Technologies lead in this effort, while EDS and HP have lagged...

“Sanford C. Bernstein analyst Toni Sacconaghi questioned Hurd's choice of EDS. ‘You could have bought a smaller, faster-growing company with the offshore characteristics.’ … Hurd rejected suggestions that Indian companies such as Cognizant Technology Solutions or Satyam Computer Services might have been a better match. ‘We thought this made sense,’ Hurd said.

“For Hurd, the logic is simple. He prizes EDS's giant outsourcing business because it has a large number of customers producing annuity-style revenues. There isn't much overlap between the companies. And he says there will be considerable cost savings...

“EDS… [CEO Ronald] Rittenmeyer says, ‘We'll look at integrating all of these things over time, and we'll do it efficiently and effectively.’

“Hurd, who excels at cost cutting, had a choice between buying a big racehorse seemingly past its prime or a young colt with lots of potential. He bought the mature horse. Now we'll see if he can whip EDS back into shape.”

(“Can HP Whip EDS into Shape? The much-heralded purchase of Electronic Data Systems by Hewlett-Packard has its critics. But CEO Hurd insists it is the right choice.” Steve Hamm. May 15, 2008)

PHOENIX SYNERGIES -- the dysfunctional are beguiled by a hobbling partner's promises of wedded bliss.

Microsoft & Yahoo, Blockbuster & Circuit City, Sears & K-Mart, Delta & Northwest, WB & UPN, Chrysler & Daimler... Imagine people getting married like this!

But we just have to do something, don't we? The clock is ticking...

No comments: