IS HP GOING TO SPEND $ 13 Billion ON OUTSOURCING ……..?

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IS HP GOING TO SPEND $ 13 Billion ON OUTSOURCING ……..?

 user 2008-08-07 at 11:14:39 am Views: 62
  • #20121
    http://blogs.wsj.com/biztech/2008/08/07/h-p-and-the-challenges-of-outsourcing/
    H-P and the Challenges of Outsourcing
    H-P
    moved to buy a bunch of new outsourcing business this spring when it
    agreed to pay more than $13 billion for services giant Electronic Data
    Systems, a deal set to close August 18. Meanwhile, the computer giant
    has learned that holding on to outsourcing customers isn’t always easy.

    Deutsche
    Post–the parent company of DHL–appears to have had second thoughts
    about a big outsourcing agreement that H-P announced in January.
    Information Week reported last week that Deutsche cancelled the deal
    because it wouldn’t provide adequate cost savings.Cost savings are a
    big point of outsourcing deals. When H-P’s deal with Deutsche Post was
    announced, H-P said in a press release that it would save Deutsche Post
    “at least 1 billion euros over the next seven years by driving down
    overall IT costs and better leveraging IT,” and that H-P would hire
    about 2,500 employees who currently provide tech services for Deutsche
    Post.

    An H-P spokeswoman provided a brief emailed statement
    about the Deutsche Post affair. “Given the strong relationship between
    both companies, and the information gathered through this exercise, it
    was jointly agreed to revisit the situation if and when appropriate at
    a future point in time,” she wrote.Another issue is whether the H-P-EDS
    merger impacts the pricing strategy of General Motors, a major EDS
    client. GM has sought to drive outsourcing prices down by splitting its
    IT services between several vendors. In 2006, when the company
    finalized a number of new outsourcing contracts, GM (which owned EDS
    from 1984 to 1996) awarded the biggest chunk to EDS. At the time, EDS
    said it would get $1.2 billion to $1.4 billion a year from the deal. GM
    gave smaller pieces of its IT business to other companies, including
    H-P, which at the time said it would get about $700 million from GM.

    Bob
    Djurdjevic, an analyst with Annex Research who follows the IT services
    industry, said GM has tried to use a number of providers to create
    pricing competition. “GM’s unhappiness with putting all its eggs in one
    basket goes back five years,” he said, adding that GM “cannot be happy”
    that two key providers have merged.But in the long term, he has high
    hopes for H-P’s services department in the future, and he says the
    company should have acquired EDS years ago. Indeed, he said, he told
    then-CEO Carly Fiorina to buy EDS in 2004. “I saw it to be very
    complementary,” he said.A GM spokesman did not immediately respond to
    requests for comment.