So HP’s .9Bn acquisition of EDS became official this week – the largest-ever merger between two IT and business services providers.  The merged services entity resembles a reverse-takeover of the combined services business, with all the management positions remaining in Plano, with the exception of application services.

Overall, there were few surprises in the deal-finalization announcement. However, the fact that there seems to be no initial definitive plans to integrate the businesses at a service/product level beyond the newly-outlined organization structure, gives me some cause for concern, especially considering the fact that HP/EDS has already had three months to draw up a merger-strategy.  We're operating in a market where crafting and developing a global delivery strategy quickly is critical.  We've seen far too many failures in recent years from services providers that have sat on their traditional revenue streams, while others have pushed aggressive services agendas to win over clients looking for vendors with new thinking and focus on driving innovation into engagements.

From a BPO perspective, there are no plans announced to go-to-market with broader IT-BPO bundled offerings across finance, HR and other vertical-specific functions.  In addition, the fact that EDS’s “ExcellerateHRO” service line has been absent from the announcement is notable, especially when you consider the massive investments EDS had previously made in developing that offering.  A lack of continued investment and management focus on ExcellerateHRO could well be a missed opportunity (which we discussed here) when you look at the major strides Infosys, TCS, and Wipro have made to enter this market in the last couple of years, not to mention the determination of Accenture, Capgemini and IBM to lead this bundled IT-BPO market, which many of us see as the future of IT-BPO.  HP needs to work swiftly to integrate these service lines more effectively, or risk slipping behind the competition.

I'll be commenting more on the ramifications of this merger over the next few days… stay tuned.  And feel free to chip in with your views – it's a huge sea-change in the competitive landscape and the next few months are critical for the newly merged entity.

The software industry has – for decades – dealt with the whole "best of breed" versus "integrated application suite (ERP)" quagmire, the scenario centered on whether clients are better off trying to manage a whole variety of individual products themselves, via-à-vis having a ready-made integrated suite of applications.  These arguments are surprisingly similar to the debates raging in the outsourcing industry today.

While a best-of-breed (b-o-b) approach can provide the client added quality (or functionality) and control over its suppliers, the prohibitive cost of managing multiple service providers (or applications), combined with the increased need for unique skillsets to integrate them into the business, favor the multisourcing (integrated-suite) route.  And, while many enterprises have persisted with a b-o-b software strategy, both Oracle and SAP have been vacuuming up many of the niche application products, whereby presenting the client with the integrated-suite strategy, whether they initially wanted it or not.  While outsourcing providers are generally not as acquisitive as software providers for a number of reasons, their need to add process depth, industry expertise, technology enablement and scale to their global services offerings naturally narrows down the playing field over time, as outsourcing engagements become more global and complex.

The crux of the b-o-b versus integrated-suite debate isn't centered on the client receiving the best technology, or the best functionality, it lies in its skills to integrate the applications into the business and create a training ground for its staff to continually optimizethe platform to help the company keep costs at a minimum, streamline processes to eliminate efficiencies on an ongoing basis, and operate in a global economy.  It's alarmingly similar when we examine clients' outsourcing strategies.  While in the ERP world, everything centered on the capabilities of IT to support the business direction with the optimal IT backbone, in the sourcing environment, a similar onus is being placed on all the operational leaders with an optimal global sourcing backbone.

While many companies have gone down the path of selecting one "b-o-b" vendor for applications development and maintenance, another for HR BPO, another for F&A BPO, another for procurement BPO etc., an increasing number are now looking to narrow the playing field, realizing that where synergies exist on the vendor side across applications and processes (often termed as "bundling"), deliberately driving breakages between these synergies creates an extra layer of governance to piece these together.  And while the client may have more control and contractual leverage over its vendors in these situations, it is often adding increased inefficiency to the overall process, in addition to the incremental cost of having a larger governance team to manage it.  Moreover, acquiring and developing those governance skills is a tall order for most companies today.

In most sourcing instances, one ITO provider may be more accomplished at application development and maintenance than the BPO provider providing the corresponding business processes, or vice-versa. However, if one provider can demonstrate its application staff will be working in tandem with its business process design and operation delivery team in an organized and orchestrated knowledge transfer process, then the odds are the client is better off using that single provider for in a bundled engagement.

As the ERP experience taught us, it's often not the quality of the individual components that deliver the ultimate business value, but more the synergies and integration points between those components.  In outsourcing, those integration points are delivered by a combination of people, technology and processes combined, so why should a client separate these out in instances where these integration points will be made less efficient?

This'll get you thinking

25% of the population of China with the highest IQs…. is greater than the total population of North America

If you took every single job in the US and shipped it to China…. you would still have a labor surplus

In 2002 Nintendo invested 0 million in R&D…. more than double the US Federal government spent on research and innovation in education

There are 2.7 billion google searches per month…. to whom were these questions addressed B.G. (Before Google)?

I'm taking the liberty of taking a week off to go camping in Nova Scotia (am one of those people who cannot face another hotel during my time off).  Happy summer

Outsourcers Hone European Savvy:  Niraj Sheth, of the WSJ, comes up with some compelling examples of how the leading Indian outsourcers are training their staff to understand European business etiquette.  With a weak dollar and tight economy, the offshore leaders are increasing their focus in the high-cost European countries, where expensive currencies, high wages and a challenging economic climate are driving outsourcing to the top of the agenda.  However, it's not quite as simple as adding americanisms to English…

Carl, a German customer, gave Indian programmer Koshal vague instructions to get a report done by the end of the month. Koshal, expecting to receive more details — such as what the report should cover, what method to use in his analysis — and a firmer deadline than "the end of the month," didn't deliver on time.

A programmer attending the class defended Koshal, arguing Carl should have sent out a reminder, as would have been customary in India.

"Why would Carl have to remind anyone?" replied Ms. Ashok. "He doesn't have to. He's German."

China: Low Cost No More: Jason Busch (pictured here) picks up on some recent examples as to why China is no longer a low-cost provider and is rapidly moving up the manufacturing food chain.

Foxconn will be opening new factories in low-cost markets like Hungary and India to reduce the pressure caused by cost increases

(I assure readers that Jason is far more of a corporate hippy than this picture suggests)

(Sarcastic News Flash) Public Sector HR Needs to be More Strategic:  Mark Stelzner offers a hilarious viewpoint on some new research into the woes of public sector HR.  Maybe Lockeed Martin has the answer? (said without a hint of sarcasm).

The Top 10 Problems with Outsourcing Implementation (And How to Overcome them) : Over on the excellent Shared Services and Outsourcing Network (SSON), Shawn McCray of TPI comes up with some spot-on reasons as to why so many outsourcing engagaments hit the skids:

Clients tend to put off making decisions about the retained/governance team for multiple reasons, including:

• All energies and efforts are focused on “the deal” in terms of contract terms, conditions, and pricing, with no time/resources devoted to post-contract issues.
• Clients may postpone making staffing decisions and communicating changes until they are sure about the final outcome of the outsourcing agreement.
• Clients expect that since they are outsourcing the work, the service provider will take care of everything and the client can “wash its hands” of ongoing management responsibilities, resulting in a lack of governance staff.

Shawn – we can bleat these lessons until the cows come home, but will they listen?  But thanks for pounding-out the common sense…

Outsourcing the Offshore Operations : Businessweek's Steve Hamm has become the mainstream business media's authority on outsourcing over the last couple of years and articulates well the movement away from captives in this article. Nothing new to many of us here, but he articulates well to a mainstream audience why it no longer makes a lot of sense for many firms to continue to invest in their own offshore operations:

There has been a steady drumbeat of similar large deals in recent years, but industry executives and analysts say the pace is quickening—driven by currency swings, the increased costs of doing business in India, and the need for some Western financial services to raise cash to handle shortfalls elsewhere.

Steve is currently finishing up a global tour – you can access his travel blog here.  Well worth reading.