HP And EDS: A Tale Of Two Cultures

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Did Hewlett-Packard CEO Meg Whitman and the HP board of directors explore the possibility of selling the company's Electronic Data Systems (EDS) outsourcing unit? HP denies that is the case, but sources tell CRN that the EDS unit was shopped around.

It makes sense given the cultural clash that has been a 24-hour-a-day, seven-day-a-week nightmare for the EDS workforce since HP paid $13.9 billion for the outsourcing business in 2008. One sign of the cultural clash: HP's decision to trash the EDS name, a one-time gold standard for outsourcing services, in favor of an HP Enterprise Services moniker.

Buying EDS was like taking a trip to the moon for HP. The PC and printer kingpin never had a clue about what it takes to sell and execute the complex IT outsourcing deals that IBM has made a fortune on through IBM Global Services.

Not getting the IT services business and what it takes to grow that business is one thing. But worse than that, HP has proceeded to gut that outsourcing business year in and year out since it acquired EDS, cutting salaries and leaving a once thriving business to wither.

HP admitted as much by taking an $8 billion accounting charge related to the EDS acquisition in the most recent fiscal quarter. That leaves HP with a business valued at $6 billion. If HP did shop the business around, it almost certainly found the business is worth far less than $6 billion. My bet is HP would be lucky to get $2.5 billion for the EDS business.

When HP acquired EDS, then-CEO Mark Hurd predicted that the "combination of HP and EDS will create a leading force in global IT services." But Hurd and company never did the hard work to make sure that HP got a return on its EDS investment. It's easy to make big deals. It's hard to make them work. It's been proven time and time again that far more of these big deals fail than succeed. The HP EDS acquisition is just one more example of that maxim.

So where does HP go from here with EDS? There are no easy answers. HP CEO Whitman has said as much by proclaiming there is no quick fix pointing to the cost cutting and the global economic slowdown that has hit the EDS outsourcing services business hard.
The problem with EDS is those big outsourcing deals that at one time made it the envy of the IT services world are dead and buried - never to return.

Cloud computing services and buy-by-the-drink IT models have made those big deals an anachronism. HP needs to reinvent EDS or get rid of it.

Reinventing a business, however, requires investing heavily in that business, something HP is not likely to do given its balance sheet issues.

EDS had 170,000 employees when HP acquired the business. The EDS business now has around 140,000 employees. And what do those 140,000 employees have to look forward to? More layoffs and cutbacks. The EDS unit is expected to shed another 10,000 to 15,000 jobs by the end of 2014. Call it just more cultural clash for a one-time great IT outsourcing services business.

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