by Tim Sheedy
HP today announced that they plan to acquire EDS for US$13.9 billion. The company plans to integrate HP’s outsourcing capability into EDS — but at this stage no one is certain what will happen for the consulting and systems integration capabilities.

While it is still very early — the deal needs approval —it is expected to go through and should close in H2 2008. What we can predict with absolute confidence is that there will be a lot written about this over the next six months and there are still a lot of uncertainties.

Make no mistake: this is a BIG acquisition for HP. The companies’ collective services businesses, as of the end of each company’s 2007 fiscal year, had annual revenues of more than $38 billion, 210,000 employees, and were conducting business in more than 80 countries. This merger will distract both companies for the next two years as they determine the best way to merge their businesses. In terms of capabilities, there is a huge amount of overlap — and while the deal will bring the company scale — it will also add a huge amount of complexity. For example — in every process that the businesses undertake for managing a desktop, a decision will have to be made whether to take the HP process or the EDS process. Then there will be the massive amount of retraining required — and on top of that, decisions will have to be made about how current clients are managed (i.e. whether to change the processes with them, keep the existing ones, etc.).

So if you are considering EDS or HP now for a project or an outsourcing engagement, should you continue to consider them? YES. But, proceed with caution. This acquisition could be considered a huge leveraging point for you to help bring down the HP or EDS price. In the end, the salespeople will have quotas that they have to hit, and you can use this as leverage in the deal. However, make sure you manage the process tightly. Ask to have terms and conditions inserted into the contract about how the acquisition will affect your deal (will the team remain the same, will the service levels be affected, etc.). While managing vendors through tight contractual terms and conditions is never a recommended best practice, in this situation it may be necessary. But don’t forget that the two companies should go out of their way to ensure that their deal does not impact your deal.

And if you are thinking longer term but had not previously considered HP or EDS specifically for a project, should you include them now? If it is a large outsourcing project — YES — definitely. Even if for no other reason to give you more leverage with IBM, CSC, Accenture, etc. But the reality is this decision will come down to your own personal dealings with these organizations in the past and their status and capabilities in your particular geography. Will the service they offer get any worse? Unlikely. Will it get any better? Watch this space…