How IT outsourcing customers should prepare for HPE-CSC

How IT outsourcing customers should prepare for HPE-CSC

The merger between HPE’s enterprise services business and CSC may or may not help solve those providers’ problems, but there are steps customers can take to make sure the huge ‘spin-merger’ works out in their favor.

How the recently announced “spin-merger” between HPE’s spun-off enterprise services unit and CSC to create a $26 billion global services giant (the third largest in the U.S) will actually shake out once its completed next spring is uncertain. What is clear is that the two service businesses had been struggling for some time.

[ Related: HPE to spin out its huge services business, merge it with CSC ]

“Both these companies have had a torrid time in IT services the last five years,” says Jamie Snowden, executive vice president of research operations for outsourcing analyst and consulting firm HfS Research, noting that CSC’s revenues had plummeted from $16 billion in 2010 to $12 billion in 2015. “Both firms outsourcing order books were targeted by offshore companies; they lost a number of deals and were wrong-footed as clients wanted to move to more asset-light outsourcing and cloud.”

Those challenges may have pushed the two together. Part of this is about scale to more effectively compete. The Indian providers have taken some market share based on aggressive market pursuits and because they’ve been able to offer more compelling price propositions,” says David Rutchik, executive managing director of outsourcing consultancy Pace Harmon.“The combination of HPE and CSC should help them gain the requisite leverage across people and assets to modify their cost structure to be more competitive, consolidate lower cost delivery locations, develop higher margin product sets, and offer an overall more compelling value proposition.”

But bigger may not be better. “While the merger will produce a larger firm, scale is not necessarily what the market needs at present,” says Jeff Augustin, managing director with outsourcing consultancy Alsbridge. “Rather, agility, a focus on vertical expertise and the ability to work through complex relationships are key.” Without its industry-leading government services unit, Augustin says CSC will have limited ability to drive the kind of innovation today’s market requires. And neither company has a significant automation platform—“an area that is rapidly changing the services market,” Augustin adds. “If they simply put the two entities side by side without optimizing their cost structure, delivery model, and go-to-market strategy then it likely will not fulfill the intended promise,” says Rutchik.

What’s more this will be a complex merger in an industry not known for easy tie-ups (HP-EDS, Xerox-ACS, Dell-Perot), which could sap management attention during the integration phase. “Both providers have recent experience with this scale of change, with HP’s split of HP Inc. and HPE and CSC’s split to CSRA, Rutchik says. “They have a strong team on paper with each company retaining some of its best leaders, but there are always challenges.”

The near term impact on existing HPE and CSC customers should be limited. There is only about 15 percent overlap in customers between the two firms, says Rutchik. And it should be business as usual until the deal is done next March. If history is any indication, the delivery and account teams will continue to operate independently for a period of time post-merger as well. Still, there are some steps customers should take to protect their interests:

  • Ask about the plan. “Clients should demand that the integration plan be shared by the provider or providers, and assess the impacts of the integration on services provided,” says Augustin. Rutchik advises that customers “take meetings with senior HPE and CSC leadership to understand plans for positive changes, but also be on the lookout for potential merger distractions.”
  • Expect more sales calls. “We [expect] additional services to be cross-sold into each other’s legacy accounts—areas such as HPE managed security and CSC innovative cloud offerings would be good examples” says Rutchik.
  • Make people provisions. “Clients should ensure that the providers adhere to existing contract provisions,” advises Augstin, “especially related to key personnel.”

Seize the opportunity for change. Rutchik says customers should review their existing deals, looking for any areas of dissatisfaction “especially since change of control provisions may provide them with greater flexibility.” If there is overlap in services, adds Austin, “clients should consider how to rationalize and market test contract provisions to leverage the efficiencies of service consolidation.”

Follow Us

Join the newsletter!


Sign up to gain exclusive access to email subscriptions, event invitations, competitions, giveaways, and much more.

Membership is free, and your security and privacy remain protected. View our privacy policy before signing up.

Error: Please check your email address.
Show Comments