Uneasy threesome

Over a month after offering to acquire IT services giant EDS for $13.9 billion, tech giant HP will now begin the difficult task of integrating the operations of these behemoths. A key part of this process is expected to happen in India, where three distinct operations of HP and EDS and MphasiS, which the latter acquired, will need to be combined.

The $100-billion HP, the world’s largest tech company, is an amorphous entity in India, with over a dozen legal entities, covering sales,marketing, IT services, BPO and even labs, its esoteric R&D arm. Then, EDS India is itself a 4,000-person unit, and MphasiS, its subsidiary after the buyout in June 2006, has some 28,000 people (it added 10,000 in the last year alone) and has its own sales and marketing force. Mark Hurd, the reticent CEO of HP, will have his hands full integrating these operations into a single cohesive entity. “Both players were late to the offshore game and are still significantly behind IBM and Accenture as well as the Indian players in terms of their global delivery capabilities,” says Pascal Matzke, from tech analyst firm Gartner.

While IBM jump-started its offshore delivery capability by acquiring BPO vendor Daksh, Accenture has preferred to grow organically to 37,000 this year and plans to grow to 50,000 people in the next 24 months. On the other hand, EDS India was a relatively small outfit, which acquired MphasiS to boost its offshore presence. EDS has been trying to slow down MphasiS’ margin hemorrhage (operating margins sank below 10 per cent in the fourth quarter of last fiscal), even as it continues its rapid employee, revenue and profit growth. In the past 12 months, MphasiS has added some 10,000 employees, and grown the bottom line by around 42 per cent and revenues by 38 per cent. The combined HP-EDS entity is expected to create a $38-billion, 210,000 person entity globally.

Analysts, however, caution that integrating three distinct disparate operations could be a slow and painful operation, including possibly a second crack at de-listing. For example, while HP has its own (mainly captive) BPO operations in India, MphasiS BPO is itself a 13,000-person unit, covering traditional call centre operations, non-voice ops and newer knowledge-based services. “Besides setting up large India-based operations, HP-EDS has some way to go in replicating the lower cost base and efficient delivery capability of Indian vendors,” says Raman Roy, who sold Daksh to IBM and has since founded Quattro BPO. Simultaneously, Hurd and his counterpart at EDS, Ron Rittenmeyer, will need to manage their global operations to ensure that operations in other locations such as the Philippines and Eastern Europe aren’t replicated. “We have plans of going to the Philippines and Eastern Europe,” says Jeya Kumar, MphasiS’ recently-appointed Chief Executive. He’ll need to make sure he’s not stepping on Hurd and Rittenmeyer’s own expansion plans.

—Rahul Sachitanand