Today's blog on the HP/EDS deal comes from Peter Allen, Partner and Managing Director, TPI.
The marriage of EDS and HP is not about catching IBM, as has been commonly reported, but about staying ahead of Google, Amazon and Dell, while emphasizing services over effort.
Look at the bigger picture: there are only two clear leaders covering the broadest spectrum of outsourcing services. IBM and Accenture cover the gamut of IT and business process services, including many industry-specific processes for airlines, retail, pharmaceuticals, and banking. The nearest pursuers are in India: Infosys, TCS and Wipro.
The combination of EDS and HP is one step short of having the sort of coverage enjoyed by IBM and Accenture, but three steps ahead of everyone else.
HP is a strong player in F&A and procurement, along with infrastructure services and applications. EDS, one of the fore-fathers of infrastructure services and business applications, is known for operational excellence, and has a respectable HRO operation.
With the world heading towards "cloud computing" or "utility computing" the emphasis on services over effort becomes more prominent, and both ends of the spectrum, technological expertise and operational excellence, are required. HP is investing heavily in technological innovation to make computing and communications a more efficient and cost-effective proposition for large corporations. EDS is world class in operations, something that comes with experience and focus.
But many offshore service providers still depend heavily on labor arbitrage, and HP and EDS are directly attacking the labor-oriented business model. Both HP and EDS have reasonable headcount in lower-cost destinations, but the emphasis on services over effort changes the rules of the game, and that will affect the profitability profile of their IT and business processing services.
As for the remaining independent IT service providers like CSC, ACS and Perot, I think these companies may be equally attractive to the emerging providers such as Dell, Google and Amazon, as well as the India-heritage providers that will not stand by to watch this move go forward unchecked.
At the end of the day, we need to let this deal play out to see what comes of the combination and how it will impact the global outsourcing industry.
