HP and EDS – Challenges Ahead

HP and EDS – Challenges Ahead

First, let me disclose that I am still an EDS contractor / vendor of software services (though technically not working on any active EDS engagements at the moment). My most recent engagement with EDS was the development of software to design and configure (at last count) 100,000 VoIP phones in an engagement with the Bank of America (where I have been similarly engaged since 1998 in the development of enterprise scale network engineering software).

EDS, like any large enterprise, has a personality and culture all its own. They are not particularly known for innovation, but are known for strict process management and for placing a large number of behinds in a large number of seats for services revenues. They also have a large core business of infrastructure management.

In my experience, what makes EDS such a strong competitor in the infrastructure world (strict adherence to practice and methodology and valuing methodology over innovation) is a bit of a drawback in the changing world of software services.

In many cases, companies like EDS cannot move nimbly enough to changing business models in a short enough period of time to act upon fleeting market opportunities – many times because an opportunity may not fall within a high margin area or because they just don’t have the expertise to capitalize on the opportunity. It’s extremely challenging to keep your people up to date and on the cutting edge of new tech when they are working on singe engagements spanning multiple years.

In all honesty, star performers within companies like EDS either focus on moving up – or moving out. The rest are so busy trying to execute on the vision or the project or the engagement – with their skins and sanity intact – that innovation when it happens is entirely accidental or acquired from outside.

When your business is predicated upon engaging as much head count for as long as possible on as many projects as possible, it is not surprising at all that what you wind up with as an organization focused more on process than product.

If this sounds like a big knock on EDS, it really isn’t meant to be. They are very good at what they do. Some of the smartest people I have ever worked with are now EDS employees.

But I think that merger of the cultures of HP and EDS will benefit the M&A people with a vested interest in making this marriage happen much more than it will the current and prospective customers of this new company.

The software services sector is changing at a rate that I’m afraid is leaving companies like EDS behind. More and more they are retreating to businesses and processes that are pro forma rather than innovative. This works, until your pro forma businesses are commoditized to point of being disintermediated by the newest low cost service provider in the market, or until you have outsourced so much of what you claim to be your core competency that your customers begin to ask what the value add is exactly that you bring to the table.

These are the challenges that EDS would have faced as an ongoing independent entity, but are even more pressing now that you add the need to quickly integrate this huge services organization with HP for the purpose of growing new business.

In short, I think that the only way ongoing that this will turn out to be a big plus for both HP and EDS is for HP to show EDS that performance is as important as process. Unless that happens, I think all anyone will see is a slowly shrinking business as usual services business waiting for the next disruptive turn in the business cycle.

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