With a Little Help from Its Friends

By surrounding itself with IT giants, EDS hopes to win a new audience.

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While the adage holds that any port in a storm will do, when technology companies encounter rough seas, the port of choice is the consortium. The CEOs of the member companies are trotted out en masse, either in person or in press releases, and presented as the high-tech version of the Fantastic Four or the Justice League of America. They enthusiastically pledge to work together to rid the world of various ills (many of which can be traced to their previous reluctance to acknowledge one another’s existence) while invariably claiming that their collective commitment to the cause du jour will change life as we know it. The project then vanishes faster than a Ben Affleck movie.

So when EDS, the troubled outsourcer whose bond rating was reduced to junk status earlier this year, unveiled its Agility Alliance last month, the move could have been written off as an example of what critic John Simon called “gilt by association”; in this case, a troubled company looking to restore its luster by aligning itself with a cadre of companies with undeniable marquee value, including Microsoft, Dell, Cisco, EMC, Sun, and Xerox.

But this alliance might actually prove useful. Even if it fails to rejuvenate EDS, it could bring some badly needed clarity to the outsourcing market and the emerging realm of utility computing. EDS executives say that by establishing this alliance they’ve drawn the proverbial line in the sand: instead of being technology-agnostic, they’ve forged strong ties with a group of best-of-breed companies. Robb Rasmussen, vice president of alliances at EDS, says his company is not “trying to pick a fight with IBM or HP”—which leaves open the question of just who is on the other side of that line—but is reacting to client demand for simplified integration of various vendors’ offerings. “Most outsourcing clients feel that if they peek under the covers of an IBM or HP deal,” says Rasmussen, “they’ll see that those companies use their own technology whenever they can. With us they’ll see a coordinated effort of many companies, backed by an enormous collective R&D budget.”

Any move that simplifies the integration of various companies’ technologies is good. Part of the EDS plan calls for a global network of joint development centers staffed by employees of the member companies. That would seem to set the stage for a move away from the current outsourcing practice in which at least part of a client’s workforce is “ingested” by the outsourcer, but Rasmussen says that won’t be the case, at least initially. Job cuts are a sensitive topic, of course—in fact, just a few weeks before announcing this new alliance EDS said it would cut 15,000 to 20,000 jobs of its own during the next two years. But if efficiency is the name of the game, then finding a way to provide better service with fewer people is essential.

The alliance partners aren’t prohibited from working with IBM and HP, but they do seem committed to genuine collaboration under the EDS umbrella. This may allow them to offer customers the pay-as-you-go pricing of utility computing without having to overhaul their own licensing schemes, something many vendors are loath to do because they fear it will drive their stock prices down. With EDS as both a middleman and an organizing force, the utility-pricing model could gain momentum. But first, EDS will have to regain customers’ confidence, and that is ultimately a solo act.

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