This blog is a brief overview of the findings of my new report  in which I interpret and detail HP’s enterprise services and industry-based go-to-market plans. My next blog will provide a similar overview of how these initiatives will change the company’s talent recruitment and development efforts.

Eighteen months ago, IT hardware giant Hewlett-Packard announced its plans to acquire IT services giant EDS in a transaction valued at $13.9 billion. For EDS, it was something of a distress sale. One may look at Hewlett-Packard’s motivation for acquiring EDS in one of three very different ways, it viewed it either:

1. Opportunistically, as a depleted and undervalued asset that HP could resuscitate and convert into a strong revenue and profit engine;
2. Tactically, as a relatively separately managed vehicle for supporting and generating additional revenue streams from HP’s product business; or
3. Strategically, as the engine for transforming an IT products company into a business solutions company.

The real motivation was certainly a combination of all three.  As I discussed in my March 28 blog “The Services-Led Verticalization of the IT industry”, it is becoming increasingly apparent that HP has big plans for the acquisition. It sees it as creating a beachhead for evolving HP’s Enterprise Business Group:

• From a horizontally-focused, engineering-centric IT products and solutions company;
• Toward an increasingly consultative, industry-focused solutions company that helps customers envision and apply IT as a solution to pressing business needs.

Leveraging Capabilities Into Strengths

Although both companies have long had their own individual industry focuses, neither exactly dominated their respective companies. HP’s product line and the vast majority of its services capabilities were intentionally horizontal. The company’s primary goal had always been to create standardized, high-volume hardware that could be used in any industry, and to use its services organization to adapt that hardware to the needs of IT organizations and, especially, to support the products that were already in place. Its industry focuses were generally pretty limited.

Although HP did have particularly strong capabilities, and even proprietary intellectual property in Communications, Media and Entertainment (CME), and more limited capabilities in some aspects of Financial Services, Manufacturing. Energy and Public Sector, these were an exception to the company’s overwhelmingly horizontal activities.

EDS’s value proposition, meanwhile, was largely horizontal due to its history and because about two-thirds of its revenues were attributable to IT infrastructure outsourcing. This said, however, the company also had a significant application development and outsourcing business and some pockets of strength in business processing outsourcing. These translated into relatively strong industry capabilities in sectors including healthcare, insurance, transportation and defense.

EDS, meanwhile, by definition, had a services-led sales model, since its entire value proposition was based on the value its services capabilities could provide to the customer. HP’s services portfolio, in contrast, was dominated by maintenance and support services (which still account for more than 40% of HP/EDS’s combined services revenues). These and many of the company’s infrastructure consulting services were used primarily to enable and add value to the company’s product sales. The exception were some of the company’s industry consulting (as in CME and Financial Services) and application modernization capabilities, which were more likely to lead sales efforts.

The combined company’s goal is to integrate and gradually expand its industry-specific capabilities in a way that will enhance the value it can deliver to individual companies and more effectively appeal to business executives, who control growing shares of their company’s discretionary IT budgets. It is training more of its sales representatives on– and dedicating them to–specific industries and has tapped a disproportionately large number of EDS account executives to manage relations with the combined company’s 200 or so largest, most strategic enterprise accounts.

Steady as She Goes

Given the scale of the combined companies, these transformations will be a massive effort. And if not handled properly, will be incredibly disruptive to the organization and demoralizing to many of the employees who had thrived in HP’s traditional engineering-based culture.

The transformation, therefore, will be gradual and only partial. The EDS business, which has been integrated directly into the Enterprise Business unit, will initially serve as the hub of HP’s services-led sales activities and of much of the combined companies’ growing industry-specific business solutions marketing efforts. These efforts, however, will be gradually filtered into the rest of the TSG business, as through integration of a more services-led, solutions-based approach to sales, a growing integration of both HP’s and EDS’s legacy vertical marketing efforts and the creation of more industry-based intellectual property.

This leads to the next question. Where will all of HP’s industry-focused, services-based solutions talent come from? How will recruiting priorities, training efforts and career paths change? What impact will it have on both companies’ traditional corporate cultures? These questions are addressed in my next blog and report, “Addressing HP’s Industry Solutions Talent Gap.”