Digital’s tryst with independence

BANGALORE: If one knows Som Mittal well, then one cannot miss his name written all over Digital Globalsoft’s announcement of combining HP ISO’s operations.

The turnaround of Digital Equipment India Ltd in the mid — 90s and its resurrection in a software avatar after Compaq took over Digital Equipment Corporation and then retaining its identity and independence after HP’s take-over of Compaq speaks volume of Mittal.

The markets were expecting the merger but had not the idea of such a sweeping move. HP has not only agreed to merge its software entity into a publicly listed company and hike its stake from 50.6 per cent to 73.2 per cent in the merged company but has also allowed it to continue as a listed company under the same brand Digital Globalsoft.

"I have not come across such a cultural match between two merging companies in my career where I have seen three to four failed mergers because of cultural issues," said Bala Mahadevan of Digital Globalsoft. "75 per cent of the words they and we use to describe our work and life are the same. To go back, the 40-year legacy of the HP Way and Digital Way is very similar."

HR Impact

Any merging companies have two issues to wrestle with foremost. One is cultural integration and the second is cost structure alignment. While Mahadevan sees a 25 per cent gap in cultural difference, which his tone indicates is easy to fix, cost structure is where Digital Globalsoft will require to work harder.

A principled stand the company seems to have taken is "cost structure will get averaged into the growth." In other words if there are differences in employee compensation, say, in Digital and HP ISO then the combined entity will have to come to a middle ground.

What is also being stated is "in order to offset higher cost structures we will seek out higher valued work and higher revenue realization." This means that there is a possibility of a higher cost -structure island to exist within the broader framework of the company.

Though the true effects of the new order will take some time to percolate down into the system, the 950 employees or HP ISO and the 2500 of Digital should get prepared for finding middle grounds in areas where discrepancies arise.

Business Match

HP ISO is said to have 65 per cent business coming to it from third-party (non-HP work). It was part of the HP Services’ business and was looked not as a profit center but as a cost center. Now, this reality will change, as a combined Digital will operate as a profit center.

The win for HP here is that it will have access to a 3,500 strong software services and system integration organization which can lead HP Services’ advent into the market.

Perhaps, for the first time, in the Indian corporate history a company has seen as checkered past as has Digital. The changing of ownership has been dramatic. The only constants over all these take-over have been the ‘Digital’ brand and Som Mittal.