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Friday, July 29, 2011

Essay on Hewlitt-Packard - Merger between HP and EDS

In August 2008, HP announced that it has completed its acquisition of the Electronic Data Systems Corporation (EDS).  With this acquisition, HP now boasts of having the broadest portfolios in the technology industry which can offer clients opportunity to “accelerate growth, mitigate risks and lower costs” (“HP Completes $13.9 Billion Acquisition of EDS,” 2008, p.1).

 This deal which was worth $13.9 billion is considered its second largest deal since HP’s acquisition of Compaq early in the 21st Century.   The acquisition will help boost the company’s presence as a market leader in outsourcing services providers.

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From the business standpoint, it seems that the acquisition of EDS is the most logical thing to do as it has given HP the size and scale necessary to compete with IBM.  One of the significant concerns however is that companies are now changing the way their acquire technology from IT vendors (Jeffrey M. Kaplan, 2008, p.1).  In the past years, corporations have been disappointed with the poor performance of traditional IT outsourcing companies, as a result, they have started to look for new ways of improving their technology and make them less dependent on traditional data centers.  These outsourcing companies will however not go out of style within the near future as companies want to avoid the complications of managing their own IT operations.  Thus, one of the recommendations for this acquisition to be a success is to ensure that the acquisition will not only make both companies bigger but also better.  It must ensure that in the delivery of its services which includes data center services networking services and managed security, business process outsourcing, customer relationship management, it must be able to help customers manage and transform their technology.

Business experts say that the acquisition by HP of EDS is merely a continuation of the strategy that Carleton Fiorina started seven years ago.  It would seem that there is a consensus among experts that the HP-Compaq merger was a good move.  (“Compaq-HP Merger was Right After All According to Stanford Business School Research,” 2007, p.1)  Carleton (Carly) Fiorina spearheaded the merger between HP and Compaq, a move which was against some of the wishes of its shareholder and board members.  She was later on fired by the board after she failed in its execution.  There are a number of reasons why Fiorina failed in the execution of the merger between HP and Compaq causing the company to lose its revenues and market share.  The first is that Carly Fiorina has no technical expertise in fusing these two companies together as her expertise is on marketing.  Secondly, Compaq which at the time of its merger had recently acquired DEC, was still coming to grips with its diverse products and services.  Thirdly, she had difficulties merging and integrating the operations of both companies. 

On the other hand, while the deal between HP and Compaq and HP and EDS are essentially the same, this acquisition by HP of EDS is met with much more positive attitude compared to the time of Fiorina.  The difference lies with the person spearheading the acquisition.  Hurd is perceived as an excellent strategist who is capable of educating HP manger and employees on how to realize the cost and operational efficiencies and translate the same into higher margins for each business. (“Compaq-HP Merger was Right After All According to Stanford Business School Research,” 2007, p.1) 

With the acquisition of EDS, HP can now directly compete with IBM in its outsourcing and consulting business.  The synergy between the two companies will help bolster its services and make the company more competitive globally.  It will also help reduce the cost of operation between the two companies.  The trick however is how to accomplish the task of integrating two companies which have essentially different businesses and different philosophies. By nature, HP wants to standardize its processes while EDS has a unique method with every client.  One recommendation for the current CEO is to look into the strengths of both companies and find out if any of these strengths can be acquired by either company without necessarily changing the individuality of either company. 

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