HP Completes EDS Integration, But Major Challenges Remain

When HP acquired EDS in May 2008 it was clear that in the short term the company would have to manage significant integration challenges before the medium and long term benefits of the acquisition would come to bear. Now, 18 months later, HP claims that the acquisition has been completed and so it is time to take a closer look at what has been achieved so far. 

Clearly the speed with which HP tackled this rather complex integration has been impressive. The EDS brand was retired in September 2009 and the combined HP/ EDS organization has been streamlined significantly (which included staff reduction by approx. 19,000 people). But all these measures came at the expense of strong discontent amongst the global employee base (in particular across Europe) and the confusion amongst clients regarding the switch to the HP brand and changing account management responsibilities. Nevertheless, from an operational perspective HP can rightly claim success as it managed to achieve:

  • A solid revenue stream showing no signs of major client defections.  HP recently reported a solid services revenue stream resulting in US$ 34.7 billion in annual services revenues during its fiscal year 2009. While a direct comparison to the previous year is hard to make, the indication is that HP lost approximately 10 percent of services revenues since the acquisition. Considering the tough market environment in 2009 which saw many services competitors posting similar revenue decreases, a decline of 10 percent in spite of a massive organizational integration seems not a bad achievement.
  • A strong margin performance as a result of a rigid focus on profitability.  HP also announced that the operating margin for its services business was 14.5% for the full year 2009 which points to the fact that HP has used almost every method possible to drive more profitability out of its services units. While all of these measures naturally caused great personal pains amongst the employee base, the result is that HP now maintains a much leaner and more flexible workforce. Under such volatile market conditions like today this clearly represents a competitive advantage.

Although HP has clearly planted the seeds for market leadership in the services space, a definite strategy linking the now much broader services portfolio together and articulating a clear and consistent value proposition for customers and partners of HP has yet to emerge. In particular HP needs yet to:

  • Evolve its sales strategy and industry portfolio to build more business relationships.  Historically both HP and EDS, have lacked the C-level relationships as well as the portfolio elements that would be needed to drive more visibility and relevancy with business leaders. HP still needs to evolve its sales strategy and portfolio to build more trusted C-level client relationships or otherwise it will leave more than sufficient room for competitors like IBM or Accenture to out-maneuver HP on that score.
  • Articulate a differentiated proposition for its systems integration offerings. Both HP and EDS have been developing their SI capabilities over the past few years — but neither has been able to build a significant, credible global consulting/integration business despite numerous attempts. While the integration of EDS provides HP with a strong opportunity to emerge as the much-needed alternative to the IBM/ Accenture duopoly HP still needs to develop and articulate its approach to project based work.
  • Leverage its alliances more to become the leading service aggregator. While HP continues to leverage the EDS Agility Alliance program for the now integrated services business many alliance partners tell us that the program has lost its momentum and appeal following the integration into HP. The key concern of HP’s partners pertains to a lack of coherence with other partnership programs of HP and the fact that cross-partner collaboration is not as strong as it used to be. HP would be well advised to openly address such partner concerns to avoid spoiling the value of any of the key alliances currently in place.