HP and EDS -- Is it a Win-Win? I Predict a Lose-Lose

My experience with EDS goes back to 1962, not because it was day one for EDS, but instead, to tell you how bad I am at predicting success stories. What I'm good at is predicting failures.I had read in one of the trade journals that a guy in Texas started a new service bureau. If you were in the biz in 1962, you would know that running a service bureau was like running a janitorial service, or a maid service, or a trash disposal company-not very glamorous. Even the #1 payroll processing company (ADP) was steeped in the boredom of "It's payday again." Working for a major computer manufacturer was where the action was. Even though IBM was king, there were several aspirants that felt they had a chance at this new and exciting industry, like Control Data Corp., Sperry Rand, Burroughs, Univac, Philco, RCA, Honeywell, GE, Cray Research, and maybe some other wannabies.

I asked myself, "Why would a guy with a great job and successful track record with IBM leave all that behind to launch a grunt-type company doing what others didn't want to do for themselves?" Well, 46 years later, only one answer would be enough-for a current net worth of about $4.4 billion. It's pretty clear that Ross understands the adage of "Timing is everything." EDS has never been the same since Ross took his check for $7 billion from General Motors. And in recent years, EDS tried all kinds of remedies. This merger looks more like the last straw as EDS gave up and threw in the towel. Do you need proof?

• Several new executive managements have been tried but didn't have the propulsion magic. In my opinion, EDS directors looked to the "has-beens" instead of the "will-bes" for recovery, and they failed because the tech world no longer caters to old paradigms. • EDS replaced starched shirts with turbans at one-sixth the cost of a techie, but apparently the cost of EDS's only revenue producing resource wasn't the only problem. • EDS acquired a boutique consulting firm just to get a few whiz kids to wave the magic wand. Stockholders paid a premium for that; the whiz kids made a killing; the magic wand never showed up. • EDS shed some businesses, but unlike other successful turnaround efforts, EDS never acquired a strong, in-the-groove company to enrich the revenue stream. • Speaking of revenue stream, it languished (2.8 percent increase in the past six years is not what big bucks are paid to execs for), and so did that of the industry. Eleven companies make up the field of "We'll do it for you" tech services companies. IBM Global Services and Accenture are the only two that understand what it takes to succeed. • The current claims of the dealmakers need to be checked. Even after the announcement, EDS stockholders are still in the red. EDS employees will put their personal welfare way ahead of client needs and corporate loyalty. FUD will affect morale. Air travel between SFO and DFW will skyrocket, as well as other expenses to integrate two highly disparate cultures. Don't look for any growth in the next few years. • What the dealmakers are counting on is "biggest," and therein lies their next mistake. What HP/EDS will need is new thinking, and they won't find that in either of the two pieces.

In my opinion, the brain drain of the dealmakers is still what is plaguing the hope that bigger is better. HP and EDS now believe that a $33 billion company is going to give IBM Global Services a run for its money. Add that as the next big mistake EDS will be part of.

Truth in blogging: EDS is included in Automation in Banking - 2008 because I invited the company several years ago, and they continue to provide updates to my annual requests. HP has never been in my report even though I have invited the company to participate. ACS, CSC, IBM-GS, and Unisys are in the report. I have never owned stock in HP or EDS.