Business Policy

Case Study: HP buys EDS

EMBA
Section A

Submitted by
Mansoor Tariq

Submitted to
Prof. Fareedy

Lahore School of Economics

Quantitative Statements:

HP is to purchase EDS at $25/share with the total estimated value of the deal amounting

to $13.9 billion.
The business deal would increase HPs revenues by more than double at $38 billion.
IBM currently controls more than 7% market share of total $748 billion market for

services.
EDS is the No. 2 vendor in IT services (behind IBM), reporting $22.7 billion in revenue

for fiscal 2007.

EDS will add some 139,000 employees to HP's 172,000-person workforce.

Qualitative Statements:

EDS main business rivals are IBM and Indian tech companies offering services at sharply

lower prices.
The best service companies had a large, low cost workforce with tightly integrated

operations so that employees with diverse skills could collaborate smoothly.

HPs competitor DELL offered products that were low tech and low cost, IBM offered
high tech and high cost products while HP was stuck in between. They wanted to offer

high tech and low cost products by improving the companys marketing.
HPs acquisition of Compaq was not successful due to problems with integrating

Compaqs middle market orientation with HPs top end orientation.

Founders of HP had worked hard to create a strong corporate culture known as the HP
Way.

Important Exhibits
No exhibits available in the case.

Issues/Problems in the case

Cheap alternate services offered by Indian companies.

Unsuccessful integration of Compaq by HP which resulted in the resignation of previous

CEO.
Organizational culture differences between HP and EDS.
Acquisition of EDS by HP may result in cultural clash.
Dropping profit margins in HPs core printer business.

Core Issue
WILL EDS BE ABLE TO INTEGRATE INTO THE HP CULTURE?

Justification of core issue

BOTH COMPANIES HAS QUITE DIFFERENT IDEOLOGIES AND
ORGANIZATIONAL CULTURES. HP IS KNOWN FOR ITS GENTLE AND
COLLEGIATE HP WAY WHILE EDS HAS MORE OF A STRICT ARMY LIKE
CULTURE.

Conclusion
Despite having several large acquisitions under its belt, Compaq noted as the largest, HP will run
into issues integrating the two companies. HP might say that it knows how to do such large
integration based on its Compaq experience but companies do tend to lose their way when they
are challenged to integrate companies and cultures with a deal of this size. For one, this is a
sizeable IT services deal. It's considerably larger than IBM's $3.5 billion acquisition of
consulting firm PricewaterhouseCoopers in 2002, but of less monetary value than HP's $23
billion Compaq buy. They will have to work hard to put the two organizational charts together in
a meaningful way and really prove they have learned the secret of big-money acquisitions.