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HP's big splash on EDS all about shrinkage

Hurd 'The Butcher' gets out his knife

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Comment I love this Mark Hurd guy. He's turning cost-cutting into an art form.

When HP and Compaq were joined in matrimony at the gates of Hell, Carly Fiorina celebrated all of the forthcoming "synergies." She promised that the combined companies would teach Spending a lesson it would never forget. But such pledges failed to generate much real excitement because Fiorina mostly meant HP would now buy toilet paper, paper clips and pens from single suppliers, giving HP a chance to bully vendors into lower pricing.

Hurd has done some of that unromantic cost-cutting stuff too in the past. At NCR, he discovered cruel and unusual ways to wring profits out of various business units by cutting jobs, slashing benefits and outsourcing work. That's not the stuff dreams are made of, unless you're really messed up or a consultant.

Once at HP, Hurd applied the same, callous hand, working unnecessary humans out of the organization while eating into the benefits of the remaining plebs. Again, though, where's the flair - the butcher bravado?

That, friends, comes with EDS.

A lot of people have gone to look at the EDS thing and returned confused. The company appears pretty damn bloated. Its financials aren't all that spectacular. HP already has a massive services organization, and, frankly, services are soooo last internet build out.

As Robert Cringely put it,

The goal here seems to be size for the sake of size, because it sure isn't size for the sake of profitability. This is a business segment, remember, that IBM has been carefully and quietly leaving for more than a year now only to have HP jump in with both feet by purchasing a competitor less profitable at this stuff than IBM. The result will be a bigger business for HP that returns lower profit margins, which makes no sense to me.

I wonder what would happen to an outfit like HP Services if the company just decided to forget about acquisitions and simply invest $12+ billion in their current operation? Heck, half the people working right now in HP Services probably worked at some point in their careers for EDS (or IBM). What DNA is HP acquiring here that they don't have already? [Emphasis added]

I happen to believe that Cringely and others have missed the real angle here. EDS will, in fact, fit into one of the most cunning corporate IT plays we've seen in years. It's a play that centers on cost-cutting. And it's a play that - get this - centers on being useful. (Sacrilege in the services game, I know.)

Here's the deal.

Hurd The Butcher

HP has been going on about its data center reduction for awhile. The company wants to shrink 85 data centers, thousands of servers and thousands of applications down to six mega computing facilities with more manageable amounts of stuff. It's pretty damn proud of this operation. See for yourself.

HP's well underway with this program, and will be selling itself as a model of consolidation soon enough. "This is what we learned. Follow us to the promised land."

How much stronger does such a story get after HP digests and then consolidates EDS too?

Good lord, y'all. Can you imagine the synerorgy that takes place when you throw 20,000 or so services people at a mass consolidation and make them fight to keep their jobs by coming up with things that actually work? I'm talking a battle to death around efficient data center design. The loser gets choked with fistfuls of free doughnuts and has scalding hot coffee poured on his groin.

Then the real genius kicks in a couple years down the road when the EDS consolidation is done, and HP can prove that its tortured itself twice. It will claim to know all the ins and outs behind the shrinkage process, and it will have more services people than you can imagine ready to help others with similar efforts. And throughout the whole process, HP learns how to kick out Sun Microsystems, Dell and Cisco gear with as much efficiency as possible.

Cringely wondered how HP buying EDS was better than just throwing $12bn more at HP services. Well, that's how it's better. HP has a pretty damn thorough story to tell - a consolidation tale that involves two of technology's biggest names. From a pure marketing perspective, IBM doesn't have a line to beat that. IBM looks like it's doing the same old thing.

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