Standalone EDS would have 'struggled'

Outsourcer had a "stagnant" business that would find it hard to cope with global slump and currency swings, says marketing head of HP-owned company.
Written by Vivian Yeo, Contributor

IT services giant EDS would "really have struggled" as a standalone company, in the face of the global recession and fluctuation in currencies, an executive has revealed.

Prior to the acquisition by Hewlett-Packard, EDS had a "stagnant business" with a "low single-digit" in operating margin, David Gee, EDS' vice president of worldwide marketing, told ZDNet Asia in a phone interview.

"From a profitability standpoint, there was a gap between what EDS was executing at, versus what major competitors were--IBM, Accenture and the like."

HP ownership brought about greater financial stability, especially with EDS' U.K. business that was affected by the fluctuation of the pound and "other issues on the balance sheet that we've been able to absorb and subsume all of that without missing a beat", he said.

EDS, however, also brought a lot to the new services business, said Gee, formerly vice president of marketing for software at HP. HP's services business was "necessary but not efficient in terms of size and scale"; EDS on the other hand, had a reputation for going the extra mile, and a focus on service quality, excellence and delivery.

"The relationship EDS' clients have with EDS is far deeper and more intimate and more widespread than HP has had with its large corporate clients for the most part," he explained. "[The integration has] given HP access to that level of relationship which up to this point in time, in some accounts, we've never had."

Gee added: "At end of the day when [clients] hand over [their] crown jewels to a third party, [they] want to make sure that the quality of the service [they're] getting is materially better than what [they] would been able to do as a standalone organization."

Two-thirds into integration
According to Gee, the HP-EDS integration is about two-thirds completed. As of the second quarter, services formed the largest revenue segment in HP's income statement. Prior to the integration, income from services made up only 10 percent to 12 percent of HP's business.

Now that the "heavy-lifting" is more than halfway through, the new services business is poised to focus outward and win market share, he said. EDS will target net new business wins from close competitors such as IBM, such as with its recent Telstra deal.

The company has also set its sights on claiming some of the 70 percent of the global market that is currently not addressed by the five big players--HP, Accenture, CapGemini, CSC and IBM.

"We believe that with the global presence that HP has combined with EDS, there is a ripe opportunity to take share and be differentiated in the service that we offer--from an IT standpoint, from a delivery standpoint," said Gee. "There's a lot of stuff to do."

Innovation will be a key competitive differentiator of the integrated company, as EDS now has the ability to tap the resources of HP's R&D labs, he added. "Most clients when [they undertake] an outsourcing transaction are looking for a level of innovation that we can now provide in ways that we hadn't done before--whether it's dealing with information explosion, the opportunities and challenges around providing more environmentally-conscious IT compute resources, [or] the cloud.

"We've got some great minds who are building prototypes and technologies that EDS will be able to put as part of the service offering," said Gee.

Compressed ROI
Market shifts such as CIOs' demand for shorter return on investment, Gee pointed out, are also opportunities for EDS to focus its business. "Six months is the new 12--no question about that.

"The ROI compression has happened and increasingly happened, so if you want to get to ROI in that space of time, what you need to do is pick a number of small wins that would give you that level of ROI which in turn expand the footprint and capability that you're going to offer over time," he said.

For example, application services including consolidation, modernization and testing, typically have shorter ROI and impact to the business can be seen faster.

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