Consider the Source

EDS to HP: A Rose By Any Other Name…

By: Mark Mayo, Partner & President, Global Resources Management, TPI

Today’s big news is that the EDS brand is finally going away.  The pioneering technology services company acquired last year by HP is officially becoming HP Enterprise Services.

The change is very symbolic.  HP is trading the legacy of EDS, which founded the information technology outsourcing industry 47 years ago, for the strength of its own brand.

HP is betting that enterprise customers will be drawn by the HP brand – even as they seek the kinds of legacy outsourcing services EDS has offered for years.  Moreover, the company is betting that it can retain the intellectual capital that made EDS such a leader in the outsourcing industry.

We hope it can.  Since the acquisition, more and more HP executives have taken on key leadership positions in the resulting organization.  HP has also restructured the EDS unit, reduced staff, changed compensation plans and generally is aligning processes and practices with those long in place at HP.
 
The changes don’t seem to have affected EDS operations or engagements, but we need to carefully monitor the long-term effects.  While we believe HP Enterprise Services has enormous potential and skill to help companies worldwide, success will demand that the company deliver consistently high-quality service.  That can only happen if the organization retains its most talented people.

Dell’s Acquisition of Perot Systems: Big News for Services Sector

By: Mark Mayo, Partner & President, Global Resources Management, TPI

The big business news of the day came in our own backyard: The $3.9 billion acquisition of Perot Systems by Dell. For Perot, the benefits are increased global reach, access to capital, cross-selling opportunities with Dell’s client base, and of course the obvious: the $30-per-share purchase price valued the company at a 68% premium. For Dell, it will help it diversify its hardware-heavy revenue stream at a time of slowing computer sales.

But for the market as a whole, this is not a game-changer. Dell and Perot had a combined $16 billion in enterprise hardware and IT services over the last four quarters, a far cry from rivals such as HP-EDS and IBM.

What does this mean for clients? The biggest challenge to watch will be integration. During a conference call today, the two companies stressed how much they have in common, particularly a focus on relationships, and noted that they have partnered on selling services for the past two years. But mergers

between product companies and professional services firms have historically been very tricky to pull off, and Dell hasn’t made many acquisitions during its history. To that end, we were pleased to see that Perot CEO Peter Altabef will remain at the helm, reporting directly to Dell founder, chairman and CEO Michael Dell, and the top Perot management team has pledged to stick around, too. Their job will be to retain the necessary components of a service company’s culture, far different from that of a product company. 

We at TPI have great respect for Altabef, as well as for Dell services head Steve Schuckenbrock. The latter’s hiring in 2006 was a sure sign that the PC giant was dead serious about the services business. Still, most of the services work it has done over the years has been closely linked to its products, especially end-user computing. Whether Dell can capitalize on Perot’s client base and strength in health-care and government, two areas poised for growth in the current political climate, remains to be seen.

What’s not in doubt is the future of consolidation in this industry. Outsourcing is only getting more competitive and there’s still more rationalizing to do. But for today, the headlines belong to a couple of titans from Texas. This will be a deal to keep your eye on.

ExcellerateHRO departing multi-process HRO; not as simple as it sounds...

By Jeff Croyle, Partner, TPI

By now, you’ve probably heard that EHRO and Cardinal Health are terminating their HRO deal and that EHRO is getting out of the “utility-based, multi-process HR” business.  It is important to understand that EDS/HP is not exiting the HRO space; instead they will continue to pursue customized HRO solutions. And EHRO will still be in the benefits administration business.  Following are my thoughts on the announcement.

EHRO started as a joint venture between EDS and Towers Perrin in 2005; 3 months ago Towers Perrin sold their 15% stake and EDS is now the sole owner of EHRO.  (EDS itself was purchased last year and now is a wholly owned subsidiary of HP.)  Separate from EHRO, EDS has a few HRO and payroll clients yet there was never an effort to integrate EDS and EHRO clients onto the same platform, leverage investments or share best practices.  Many of EDS’ HR clients were “lift and shift” operations whereas EHRO tried to build their client base leveraging the platform built to support Cardinal Health.  It is safe to say that neither approach was very successful for either EDS or EHRO.  EDS has decided that going forward they will only support customized solutions, leveraging EDS’ core strength in technology buildouts (and doing it under the EDS brand instead of EHRO).  This approach is contrary to the direction taken by most other HRO providers that are interested in leveraging their investments by building a “one-to-many” platform. 

Taken by itself I don’t see the EHRO announcement as having much impact.  EHRO has never had the scale or track record to have an impact on the HRO market and we don’t see there being much of a demand from buyers interested in totally customized solutions with large upfront investments.  But coupling this news with Fidelity’s recent announcement that they are also getting out of the HRO market, it’s clear that firms are still struggling to make money in the multi-process HRO space.  Luckily for buyers, the India-heritage BPO firms are more than willing to step in and fill the competition void with EHRO and Fidelity’s departure from this space.”