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HP's Next CEO Should Throw Back EDS

Mark Hurd landed a big fish when he acquired the Texas-based outsourcer, but under HP the prized catch is gasping for air.
But beyond anything Hurd could have done (other than passing on EDS to begin with), the deal's biggest drawback—one that will remain when the new CEO takes charge--is that it stripped EDS of its biggest advantage against its largest competitor—IBM.

Just like there are singing hobos and stabbing hobos (according to The Simpsons), CIO's generally fall into two camps—the one-stop shoppers and the best-of-breeders. The former tend to favor Big Blue and its broad, integrated portfolio. The latter usually went with EDS, formerly the largest pure-play outsourcer in the business.

As an independent, EDS could draw on a range of suppliers to assemble bespoke systems tailored to customer request. Under HP, EDS (rebranded last year as HP Enterprise Services) can no longer promise vendor neutrality when it hauls in servers and other gear on behalf of a customer. Odds are there's a ProLiant somewhere on the back of that truck.

All the same, HP-EDS is no IBM Global Services. IGS has been managing strategic outsourcing engagements for some of the world's biggest companies for more than a decade. At IBM, services is now the big dog wagging a long tail of R&D, product design and engineering, consulting, sales, and marketing. Indeed, IBM has become a services company that also sells enterprise hardware and software.

HP, even with EDS, is a PC, server, slate, phone, camera, scanner, monitor, printer, and ink company that also sells services. To whom would you rather hand off your multi-billion dollar, global IT operations?

That, more than anything, is why buying EDS did little to help HP establish itself as a real player in the strategic ITO game. Since 2003, the company has spotlighted its $3 billion mega-contract with Procter & Gamble as proof that other breakthrough deals were on the horizon. Two years after the EDS deal closed, HP can still only point to P&G as its prized reference account.

Most of the major services deals HP has won of late, like a $2 billion pact, disclosed last month, to support vehicle and design production at General Motors, are deals EDS would have secured on its own. EDS's strongholds were in the auto industry, airlines, and state and local governments. The vast majority of engagements HP has announced since gobbling up EDS have been in those same sectors.

That shouldn't be surprising, but Hurd promised synergies that would make the company a contender for megadeals in other markets—those dominated by IBM and, to a lesser extent, CSC and Accenture. It didn't happen---and for all the reasons above it isn't likely to regardless of who replaces Hurd.

The next incumbent's first job, therefore, should be to spin the EDS services organization back into an independent company. That, as Hurd was fond of saying, would unlock some real shareholder value.

For Further Reading

Should HP's Next CEO Buy More Software?

Global CIO: Burying Mark Hurd: Hewlett-Packard And Its Future

In Cutting Off Hurd, Is HP Spiting Its Face?

HP CEO Mark Hurd Resigns

Ellison Slams HP Over Hurd Ouster