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Electronic Data Systems Corporation

Electronic Data Systems Corporation

5400 Legacy Drive
Plano, Texas 75024-3199
U.S.A.
(800) 474-2323
(972) 604-6000
Fax: (972) 605-2643
Web site: http://www.eds.com

Public Company
Incorporated
: 1962
Employees : 110,000
Sales : $16.9 billion (1998)
Stock Exchanges : New York London
Ticker Symbol : EDS
NAIC : 51421 Data Processing Services; 541512 Computer Systems Design Services; 541513 Computer Facilities Management Services; 51121 Software Publishers

Electronic Data Systems Corporation (EDS) is a recognized leader in the management of information technology. The company designs, installs, and operates data processing systems for customers in the automotive, communications, energy, financial, government, healthcare, insurance, retail distribution, transportation, utilities, and manufacturing industries. An innovator in facilities management, EDS originated the concept of long-term fixed-price contracts for this industry. EDS owns the largest private digital telecommunications network in the world and conducts business in all 50 states and in 27 countries.

The Ross Perot Years, 1962-86

This multibillion-dollar corporation sprang from modest beginnings. At the age of 19, a young Texan named H. Ross Perot received a much desired appointment to the U.S. Naval Academy. Although he valued his time in the military, he found it too restrictive and decided against building a career in the Navy. In 1952, while still in the Navy, he was recruited to be a salesman by International Business Machines (IBM). Initially he found their business style comfortable, but became frustrated after a time.

In January 1962, Perot had already fulfilled his entire annual sales quota because of a recent change in IBMs commission structure. Not satisfied with the administrative job then offered him by IBM, he recognized an unmet need among IBMs many computer customers. Most companies had few knowledgeable personnel to operate their new computer equipment. Perot wanted to offer skilled electronic data processing management services to these companies. He presented his ideas to IBM executives, but they were not interested.

Perot left the company and, on June 27, 1962his 32nd birthdayincorporated Electronic Data Systems in Dallas. EDS developed a business concept later termed facilities management. Companies would concentrate their energies on what they did best, leaving the computing and data processing tasks to EDS, who could do them more efficiently and economically.

Perot spent the first five months with his new business canvassing the East Coast and Midwest to find a first customer for his computer services company. He had bought wholesale computer time on an IBM 7070 computer installed at Southwestern Life Insurance in Dallas during the latter companys idle hours (EDS would not acquire its own computer until 1965). Once he sold this time at retail, he was in business. Collins Radio in Cedar Rapids, Iowa, became EDSs first customer, and launched a new industry called information services. In November, with money from that first sale, Perot hired IBM salesmen Milledge A. Mitch Hart and Thomas Marquez.

As EDS grew, Perot modeled employee behavior on the high standards of IBM. He demanded conservative dress, honesty with customers, and no alcohol consumption during business hours. He expected employees to stay sharply focused and highly disciplined. Although he ran the company with almost military precision, Perot established a management that listened to employee suggestions and ideas. According to an April 1969 article in the trade journal Datamation, Perots goals were to create a climate of complete intolerance to company politics, to provide the finest personal and financial advantages for employees, to make EDS an exciting place to work... to promote from within.... He believed in loyalty, but held duty at an even higher level. A motto over his office door read, Every Good and Excellent Thing Stands Moment by Moment on the Razors Edge of Danger and Must be Fought for. Perot expected employees to fight for their ideas.

In 1963 EDS signed its first long-term commercial facilities management contract with Herman Lay of Frito-Lay. While other services companies offered short-term contracts of 60 or 90 days at hourly rates, EDS wrote five-year fixed-price contracts. EDS set up a customers data processing system, provided the staff to run it, and, once the system was running smoothly, removed some personnel and reassigned them to new projects. Because EDS could cut expenses over the life of the contract by decreasing personnel costs, its profits increased. The customers benefited because they could budget long-term electronic data processing costs. The longer contracts also gave EDS stability.

The passage of Medicare legislation in 1965 gave EDS the opportunity to enter another lucrative market. Government agencies involved were about to take on a new mountain of paperwork. EDS organized Medicare and Medicaid claims processing systems in many states. By 1968, Medicare and Medicaid contracts provided about 25 percent of EDS revenues, and, by 1977, healthcare claims processing accounted for nearly 40 percent of EDSs sales.

In 1963, EDS executed its first insurance company contract with Mercantile Security Life and, by 1990, was the largest insurance data processor in the country. In 1968, it signed a Dallas bank as its first financial institution customer and later became the worlds largest provider of data processing services to banks and savings and loans associations. Beginning with eight credit unions in 1974, EDS serviced more than 3,000 in 1990. While in 1978 EDS had only three employees in its Washington, D.C. office, in 1990, 6,000 people worked in EDSs government arena.

In 1968, prompted by an employees question about the worth of the companys stock, Perot began to investigate the advisability of a public stock offering. He made the initial release small: 325,000 of his own shares and 325,000 new EDS sharesabout seven percent of the company. The offering met with phenomenal success, opening at $16.50 per share and closing at $22. Perot and EDS each received approximately $5 million. The stock traded over the counter until 1971, when the company was listed on the New York Stock Exchange. The shares climbed to a high of $160 in 1970; by April 1971, they had dropped to about $66, and in 1973, with a sharp decline in the stock market, EDS stock plummeted to $15 a share. But the companys revenues doubled almost every year between 1964 and 1970. Revenue increase slowed to 22 percent in 1971, with total revenues topping $100 million by the end of 1973, seven years ahead of the original goal set when the company was founded. Revenue growth slowed again in 1977 to 13 percent.

Perot served as president from the companys inception in 1962 until he appointed Hart to that position in 1970. Hart was president until his resignation in 1977. Perot stayed on as CEO and chairman of the board and resumed the presidency from 197779.

Pioneering Distributed Processing: The 1970s

EDS pioneered the concept of distributed processing, by which systems and terminals communicate with each other from remote locations. It developed computer systems set up to serve a specific industry. These systems could then be modified according to each customers needs. In the 1970s, EDS developed Regional Data Centers, where customers could transmit their work to be handled by EDSs data processing equipment and personnel.

In the early 1970s, EDS bought Wall Street Leasing, a computer services subsidiary of DuPont Glore Forgan, Inc., one of the countrys leading retail stockbrokers. Perot charged EDS Vice-President Morton H. Meyerson with the task of attempting to rescue the financially troubled firm. With encouragement from the Nixon Administration, which feared a financial disaster on Wall Street, Perot had begun by investing $10 million in DuPont. By 1973 he had invested further funds in Walston and Company, another retail brokerage house, and had proposed a merger between DuPont and Walston. By early 1974, Perot was defeated by the losses at DuPont and Walston and left Wall Street some $60 million poorer.

A lawsuit filed in 1976 by F. & M. Schaefer Corporation and F. & M. Schaefer Brewing Company, for whom EDS operated a data processing facility, contributed to the slowdown of revenue growth in the mid-1970s. Schaefer claimed that the EDS data processing system was inaccurate and deficient, resulting in inadequate and misleading information. EDS maintained that Schaefer filed the suit to avoid payment of more than $1.2 million owed to EDS. In the 1978 out-of-court settlement, EDS paid Schaefer Corporation $2.3 million and retained $1.3 million already paid by Schaefer. These kinds of lawsuits would continue to plague EDS to the end of the 20th century.

Company Perspectives

A sharp eye sees beyond what is and envisions what can be. Bringing that vision to life requires a wealth of insight, talent and resources. For clients around the world, Electronic Data Systems Corporation (EDS) is the bridge between vision and reality. We help clients see new ways to redefine their businesses or industries. Then we harness the power of information and technology to expand the horizons of innovation, productivity and service our clients deliver to their customers. The results we achieve speak to the value of a company that sees what the future can hold while helping its clients hold that future in their hands. That company is EDS.

In 1975 the company began to aggressively pursue overseas business. Early the following year, EDS entered the international market by signing a contract with King Abdulazziz University in Saudi Arabia. Later that same year, EDS signed a three-year, $41 million contract with the government of Iran to provide computer services for their social security division and training for Iranian personnel. In December 1978, EDS suspended all operations because Iran was six months behind in payments. The scope of the Khomeini Revolution grew in Iran and, after the jailing of Iranian officials with whom EDS worked, Perot ordered EDS employees and their families home. A few employees remained, hoping the chaos would be resolved. The situation worsened with the arrest of EDS executives Bill Gaylord and Paul Chiapparone, with bail set at $12 million. Since diplomatic channels seemed closed, Perot took direct action. In early 1979, he organized a rescue team headed by Green Beret Colonel Arthur D. Bull Simons, whom Perot had previously hired to make private forays into Vietnam looking for servicemen missing in action. Although Gaylord and Chiapparone actually left the prison on their own when a rioting mob released all the inmates, they needed the EDS team to get them out of the country.

In the mid-1970s, EDS began a shift away from facilities management, since many companies were becoming interested in running their own data processing systems. In 1979 Meyerson became president, while Perot continued as chairman of the company. Under Meyerson, EDS diversified its business interests through acquisitions of turnkey systems for hospitals, small banks, and the small business field. With the purchase of Potomac Leasing in 1979, EDS moved into federal government contract work. The bulk of EDS business still remained in facilities management, with processing of healthcare claims a large percentage of the business through the 1970s and into the 1980s.

Always moving with the times, EDS became a systems integrator, sending in teams of experts to connect and coordinate a companys entire computer system, software, and telecommunications. In 1982 EDS celebrated its 20-year anniversary by winning a $656 million, ten-year contract for Project Viable, to streamline and update the U.S. Armys computerized administrative facilities and to build a network connecting 47 bases across the United States. The biggest contract in the information services industry at the time, the landmark agreement signified the start of the large systems integration market.

Under General Motors, 1984-96

On June 27, 1984, although the company never had a contract with an automobile manufacturer, EDS became a wholly owned subsidiary of General Motors Corporation (GM). GM needed EDS to coordinate and manage its huge, unwieldy data processing system and to cut its $6 billion annual data processing costs. Roger B. Smith, GMs chairman of the board, thought Perots management style would be an asset to his giant corporation. The $2.5 billion purchase price was the largest ever paid for a computer services business. GM agreed to maintain EDS as a separate entity, keep key personnel, and issue a special class of common stock, called Class E, which would be tied to EDSs performance, not GMs. Perot would retain managerial control of EDS and serve on GMs board of directors.

Problems surfaced within a year when the differences in management style between Perot and Smith became evident. The August 1984 issue of Wards Auto World suggested Mr. Perot is a self-made man and iconoclast used to calling his own shots ... Roger B. Smith [is] a product of the GM consensus-by-committee school of management, never an entrepreneur.

EDS saw revenue increases as the result of the GM purchase. In 1985, the first full year after the acquisition, EDS revenues tripled to $3.4 billion. By 1986, personnel had grown to 44,000, almost triple the number from 1984. EDS also branched out into telecommunications and factory automation. Although EDS revenues increased substantially, profit margins fell to 5.5 percent in 1985. GM preferred contracts which stipulated a certain percentage for profit; EDS, on the other hand, wanted to continue the fixed-price contracts it had been using since inception. Additional problems arose as the result of the differing company cultures.

In 1986 GM management bought out Perot for more than $700 million and, for the first time in the 24 years since he started the company, Ross Perot was no longer in charge of EDS. Meyerson also resigned.

At that time, Lester M. Alberthal, Jr., became president and CEO. He had joined EDS as a systems engineer trainee in 1968. In June 1989, he was named chairman of EDS. Under Alberthals leadership, EDS broadened its customer base and reduced its dependence on GM-generated revenues from 70 percent in 1986 to 55 percent in 1989. Revenues climbed to new highs. The company diversified, moving into energy, transportation, communications, manufacturing, and other new areas of business. Diversification included further expansion of international business. Administration of the company was reorganized through a leadership council, to spread responsibility and authority for daily operations to lower levels of the EDS hierarchy and allow the top executives to focus attention on development of long-range strategy.

Within the GM alliance, EDS developed the worlds largest private digital telecommunications network: EDSNET. Consolidating the networks of both GM and EDS took three years, a staff of 2,000 people, and a cost of over $ 1 billion. In 1989 EDS opened its Information Management Center in Piano, Texas. The 153,000-square-foot facility served as the heart of EDSs extensive worldwide communications network and information processing centers where voice, data, and video transmissions travel to their destinations via state-of-the-art media. The center was the hub of operations for 15 North American and six international Information Processing Centers, allowing EDS to respond immediately to the needs of its thousands of customers, who were then able to take advantage of the leading edge of information technology.

Throughout the years, EDS contributed to the community and the nation as part of its company policy. In May 1989, and again in 1990, EDS supported Project JASON, which enabled 225,000 children around the country to witness live the undersea exploration of the Mediterranean Sea, led by Dr. Robert D. Ballard, the scientist who discovered the wreck of the Titanic in 1985. EDS provided satellite links and solved technological problems to ensure the success of the undertaking, created an Education Outreach Program for the communities where the company was located, and adopted several public schools and worked with teachers to help improve the quality of education.

In the early 1990s, the company won a string of big computer services contracts with regional and super-regional institutions in the banking industry. In 1992 total revenue reached $8.2 billion, with net income at $636 million; the following year, revenue climbed to $8.6 billion, with a net income of $724 million.

In June 1994, the company signed a landmark $3.2 billion, ten-year outsourcing contract with Xerox Corporation. The company also discussed a merger with Sprint Telecommunications, and though nothing came of the talks, they were prescient of the convergence that occurred between telecommunications and computing over the next few years. Total revenue for 1994 reached $9.96 billion, with a net income of $821.9 million.

In January 1995, EDS signed a $350 million outsourcing agreement with American Express Bank Ltd. of New York and acquired A.T. Kearney, a global management consulting firm located in Chicago, for approximately $600 million. In addition, the company began working with Hong Kong-based CargoNet, a company which provided a comprehensive trade and transportation communication network designed to handle millions of trade-related documents each year, beginning a total transformation of the traditional trade cycle, using electronic commerce and logistics services to support Hong Kong trade and transport companies.

Also that year, the company created EDS Digital Studios and acquired Varitel Video, a midsized film-to-video transfer company. Two years later, the company spent $12 million to buy eight Quantel Dominos (of 15 existing on the West Coast at that time), high-resolution drawing pads and computer monitors used for film restoration, compositing, and creating digital special effects. Some of the subsidiarys products included Post Paint (an application which reduced paint crawling, an animation problem which occurred when restoring animated films that were more than 20 years old in which the paint on individually painted frames tended to smear), Post Camera (which simulated a camera move after film had been shot), and Post Rez (which improved film resolution and produced a sharpness to the picture). New business consisted of 83 deals totaling more than $10.1 billion. Total revenue for the year reached $12.42 billion, with a net income of $938.9 million.

Self-Governing Again: 1996 Forward

In June 1996, the company was spun off from GM and became an independent company once again, triggering two years of restructuring, including related costs. The company struggled with a string of disappointing quarterly performances for a time, and the stock dropped to nearly half of what it had been trading at a year previously before bouncing back. In addition to a division pursuing multinational banking contracts, headed by Stephen R. Bova, the reorganization also spawned three other divisionscommunity banking, U.S. banking, and global securities services, headed by Louis Ivey, Michael Lit-tell, and Michael T. Reddy, respectively. The company continued to do business with GM, after renegotiating their contracts, and ended up with $4.31 billion and $4.17 billion worth of business in 1997 and 1998, respectively, from the auto giant, in a ten-year $40 million agreement under which EDS would continue to be GMs principal provider of information technology (IT) services.

Early in the year, Rolls-Royce, one of the worlds leading providers of aircraft and helicopter engines, engaged EDS and its management consulting firm, Kearney, and charged them with three goals: improve customer service, increase quality, and achieve significant business improvements. EDS created a CoSourcing relationship and improved many of Rolls-Royces core business processes, including external purchasing, project management, product development and manufacturing, and information-handling and support systems. Rolls-Royces U.S.-based subsidiary, The Allison Engine Company, later joined the agreement to improve global business process integration. Later that year, the relationship with EDS/Kearney was extended to Rolls-Royces industrial power businesses, which provided systems in the naval power, oil and gas, electricity generation, transmission and distribution, and materials-handling market sectors encompassing Rolls-Royces manufacturing capacity and support functions in Canada, Europe, Africa, and the Pacific Rim. Integration Management ranked the alliance as one of Ten Deals That Shook the Globe and praised both Rolls-Royce and EDS for a nontraditional approach in making the relationship work.

Also in 1996, the company began moving away from pursuing huge regional contracts in favor of smaller, more profitable ones with community banks (although in June the company signed a $250 million contract to manage desktop computer systems for Citigroup). As a result, in one larger deal EDS lost out in May to competitor Computer Sciences Corp. for part of a $2 billion, seven-year outsourcing contract with J.P. Morgan & Co., but signed 147 outsourcing contracts for a total value of $8.4 billion, including a ten-year, $75 million technology outsourcing agreement with Credito Emiliano, a private bank in Italy with 180 branches and 2,000 employees, EDSs first such contract with an Italian bank. Total revenue for the year reached $14.44 billion, but the companys profits declined for the first time since 1976, with a net income of $431.5 million, which included $895 million of restructuring charges, asset write-downs, and other related charges, as well as $45.5 million of one-time split-off costs, all before income taxes. On the up side that year, the companys stock began trading on the London Stock Exchange, and EDS became the first company to earn more than £1 billion in the U.K. computer services and software market.

By 1997 over 70 percent of the automated teller machines (ATMs) in the United States were manufactured by the company, making EDS the nations leading designer and supplier of such. That year the company signed a record level of new business valued at more than $16.3 billion, including two mega-deals worth a combined $5.9 billionone with The Commonwealth Bank of Australia Ltd.; the other with BellSouth in Atlanta, Georgia. Kearneys gross fees surpassed $1 billion for the first time, and new clients included market leaders such as British Airways, Chevron, and Mobil.

In June, the company merged its banking and securities unit with the credit services division, and the following month acquired all remaining outstanding equity interests in Neodata Corporation, a Colorado-based integrated marketing communications services company, for $61.7 million. The companys total revenue kept climbing, to $15.24 billion, with a net income of $730.6 million, outstripping the combined total revenue of its closest three competitors, Computer Sciences ($5.24 billion), First Data ($4.94 billion), and Vanstar ($2.01 billion).

Early in 1998, the company began working with Italys Ministry of Education to help update their information technology infrastructure and help decentralize power and responsibilities from central government to peripheral offices. EDS allied with Ferrovie dello Stato (FS), the Italian State Railways, combining EDSs information technology expertise with FSs logistics know-how and existing infrastructure covering all of Italy. A distributed client/server system with 30,000 computers to link 14,000 institutions, from primary through high schools, with the Ministrys regional education offices throughout Italy, was designed.

In December 1998, Richard H. Dick Brown, former CEO of Vienna, Virginia-based Cable & Wireless, became the companys third CEO, replacing outgoing Alberthal, who also stepped down as chairman. During Alberthals tenure, net sales grew from $4 billion to $16.9 billion, with a 1998 net income of $743.4 million. Also at the end of December, Vice-Chairman Gary Fernandes, a veteran EDS executive, retired, leaving industry analysts concerned about turnovers at the top of the company.

In January 1999, the company announced a joint venture with NCR Corporation, part of EDSs newly unveiled Business Intelligence Services (BIS) group. The arrangement would couple EDSs industry knowledge and consulting expertise with NCRs data warehousing capabilities. Together, EDS and NCR would help companies open up data warehouses linking employees, vendors, and business partners, a roughly $100 billion market. Such deals, coupled with a continuing emphasis on employee training and customer service, virtually guaranteed EDSs prominence within the information technology industry.

Principal Subsidiaries

A.T. Kearney Inc.; Bancsystems Association Inc.; Cummins Cash and Information Services Inc.; EDS Australia (65%); EDS Personal Communications Corp.; EDS Unigraphics; Energy Management Associates; Neodata Corp.; Scicon.

Principal Divisions

Credit Union Services; Health Care; Information Systems; Maintenance Systems Integration; Military Systems; Technical Products; People Systems.

Further Reading

Avery, Susan, New Integrated Supply Raises Concerns, Purchasing, November 7, 1996, p. 71.

Black, George, and Toby Poston, EDSs Global Reach to Win BP Deal, Computer Weekly, August 20, 1998, p. 2.

Callaway, Erin, Xerox, EDS Try to Keep Spark in Outsource Deal, PC Week, September 9, 1996, p. 1.

Davey, Tom, The Grass-Roots 6x86 Movement; Cyrixs EDS Deal Is Rooted in Desktop PCs, PC Week, March 18, 1996, p. 31.

Egodigwe, Laura Saunders, EDS Insiders Post Stock Sales of $22.7 Million, Wall Street Journal, May 6, 1998, p. C1(W)/C1(E).

Files, Jennifer, Shares of Electronic Data Systems Increase As Investors Applaud Changes, Knight-Ridder/Tribune Business News, August 9, 1998, p. OKRB9822005C

Gabriele, Michael C, Design Software Can Shorten Product Development Cycle, Modern Plastics, May 1996, p. 37.

Hausman, Tamar, And the Finalists Are? Wall Street Journal, November 24, 1998, p. B 14(E).

Hudson, Richard L., Two EDS Officers in Europe Defect to Philips Affiliate, Wall Street Journal, Europe, June 6, 1996, p. 3.

Jennings, Robert, Card Firm, EDS in Dispute About Letter of Intent for a Marketing Alliance, American Banker, January 16, 1996, p. 16.

Keenan, Charles, EDS Is Testing Commercials on Teller Machines, American Banker, December 12, 1997, p. 11.

La Monica, Paul R., EDS, IBM Promise Ways to Cut Costs, American Banker, May 2, 1997, p. 1.

Machlis, Sharon, Electronic Data Systems Corp., Computerworld, August 17, 1998, p. 1.

Nakamoto, Michiyo, EDS to Take on 600 Yamaichi Staff, Financial Times, December 2, 1997, p. 26.

Oullivan, Orla, Data WarehousingWithout the Warehouse, ABA Banking Journal, December 1996, p. 42.

Palmeri, Christopher, Going It Alone, Forbes, December 16, 1996, p. 86.

Price, Christopher, EDS-Led Group Wins 1.4BN Pounds Sterling Contract for Tube Ticketing, Financial Times, August 14, 1998, p. 16.

Radigan, Joseph, EDS Nabs a Customer at Alltels Expense, US Banker, January 1996, p. 17.

Sabatini, Patricia, Mellon Hires Firm to Improve Banks Software Development Practices, Knight-Ridder/Tribune Business News, September 19, 1997, p. 919B1028.

Talmor, Sharona, Mine for Data, The Banker, April 1996, p. 93.

$3.7B Outsourcing Deal for EDS in Australia, American Banker, August 14, 1997, p. 19.

Tucker, Tracey, Nervous About PCs, Many Banks Go Halfway with Hybrid Systems, American Banker, August 21, 1996, p. 12.

Walton, Christopher, Texas-Based Electronic Data Systems to Insure Its Gay Workers Partners, Knight-Ridder/Tribune Business News, October 25, 1997, p. 1025B0910.

Warner, Melanie, A Tale from the Dark Side of Silicon Valley, Fortune, April 13, 1998, p. 92.

Wighton, David, EDS Among Bidders for Business, Financial Times, December 13, 1996, p. 10.

Wise, Peter, EDS in Portuguese Venture, Financial Times, November 6, 1997, p. 5.

Zellner, Wendy, EDS Is Learning the Price of Freedom, Business Week, May 5, 1997, p. 44.

updated by Daryl F. Mallett

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Electronic Data Systems Corporation

Electronic Data Systems Corporation

7171 Forest Lane
Dallas, Texas 75230
U.S.A.
(214) 604-6000
Fax: (214) 991-8847

Wholly Owned Subsidiary of General Motors Corporation
Incorporated:
1962
Employees: 60,000
Sales: $5.47 billion

Electronic Data Systems Corporation (EDS) is a recognized leader in the management of information technology. The company designs, installs, and operates data processing systems for customers in the automotive, communications, energy, financial, government, health-care, insurance, retail distribution, transportation, utilities, and manufacturing industries. Innovators in facilities management, EDS originated the concept of long-term fixed-price contracts for this industry. It became a wholly owned, independently operated subsidiary of General Motors Corporation (GM) in 1984. EDS owns the largest private digital telecommunications network in the world and conducts business in all 50 states and in 27 countries.

This multi-billion dollar corporation sprang from modest beginnings on June 27, 1962. A frustrated IBM salesman named H. Ross Perot incorporated EDS on his 32nd birthday. Earlier that year in January, Perot had already fulfilled his entire annual sales quota because of a recent change in IBMs commission structure. Not satisfied with the administrative job then offered him by IBM, he recognized an unmet need among IBMs many computer customers. Most companies had few knowledgeable personnel to operate their new computer equipment. Perot wanted to offer skilled electronic data processing management services to these companies. He presented his ideas to IBM executives, but they were not interested.

At the age of 19 Perot received a much desired appointment to the U.S. Naval Academy. Although he valued his time in the military, he found the military too restrictive to make it his career. In 1952, while still in the navy, he was recruited by IBM. Initially he found their business style comfortable, but left ten years later to found EDS.

EDS developed a business concept later termed facilities management. Companies would concentrate their energies on what they did best, leaving the computing and data processing tasks to EDS, who could do them more efficiently and economically.

Ross Perot spent the first five months of his new business canvassing the east coast and midwest to find a first customer for his computer services company. He had bought wholesale computer time on an IBM 7070 computer installed at Southwestern Life Insurance in Dallas. Once he sold this time at retail, he was in business. Collins Radio in Cedar Rapids, Iowa, became EDSs first customer, and a new industry was born. In November 1962, with money from his first sale, Perot hired IBM salesmen Milledge A. Mitch Hart and Thomas Marquez.

As EDS grew, Perot modeled employee behavior on the high standards of IBM. He demanded conservative dress, honesty with customers, and no alcohol consumption during business hours. He expected employees to stay sharply focused and highly disciplined.

Although he ran the company with almost military precision, Perot established a management that listened to employee suggestions and ideas. According to an April 1969 article in the trade journal Datamation, Perots goals were to create a climate of complete intolerance to company politics, to provide the finest personal and financial advantages for employees, to make EDS an exciting place to work... to promote from within.... He believed in loyalty, but held duty at an even higher level. A motto over his office door read, Every Good and Excellent Thing Stands Moment by Moment on the Razors Edge of Danger and Must be Fought for. Ross Perot expected employees to fight for their ideas.

In 1963 EDS signed its first long-term commercial facilities management contract with Herman Lay of Frito-Lay. While other services companies offered short-term contracts of 60 or 90 days at hourly rates, EDS wrote five-year fixed-price contracts. EDS set up a customers data processing system, provided the staff to run it, and once the system was running smoothly, removed some personnel and reassigned them to new projects. Because EDS could cut expenses over the life of the contract by decreasing personnel costs, its profits increased. The customers benefited because they could budget long-term electronic data processing costs. These longer contracts gave EDS stability.

The passage of Medicare legislation in 1965 gave EDS the opportunity to enter another lucrative market. Government agencies involved were about to take on a mountain of paperwork. EDS organized Medicare and Medicaid claims processing systems in many states. By 1968 Medicare and Medicaid contracts provided about 25% of EDS revenues, and by 1977 health care claims processing accounted for nearly 40% of EDSs sales.

In 1963 EDS executed its first insurance company contract with Mercantile Security Life. By 1990 EDS was the largest insurance data processor in the country. In 1968 it signed a Dallas bank as its first financial institution customer and later became the worlds largest provider of data processing services to banks and savings and loans. Beginning with eight credit unions in 1974, EDS serviced more than 3,000 in 1990. While in 1978 EDS had only three employees in its Washington, D.C., office, in 1990 6,000 people worked in EDSs government arena.

In 1968, prompted by an employees question about the worth of the companys stock, Perot began to investigate the advisability of a public stock offering. He made the initial release small: 325,000 of his own shares and 325,000 new EDS sharesabout 7% of the company. The offering met with phenomenal success, opening at $16.50 per share and closing at $22. Perot and EDS each received $5 million dollars. The shares climbed to a high of $160 in 1970; by April of 1971 they had dropped to about $66, and in 1973, with a sharp decline in the stock market, EDS stock plummeted to $15 a share.

Perot served as president from the companys inception in 1962 until he appointed Hart to that position in 1970. Hart was president until his resignation in 1977. Perot stayed on as CEO and chairman of the board and resumed the presidency from 1977 to 1979.

EDS pioneered the concept of distributed processing, by which systems and terminals communicate with each other from remote locations. It developed computer systems set up to serve a specific industry. These systems could then be modified according to each customers needs. In the 1970s EDS developed Regional Data Centers, where customers could transmit their work to be handled by EDSs data processing equipment and personnel.

The companys revenues doubled almost every year between 1964 and 1970. In the 1970s, revenue increases slowed to 22% in 1971 and 13% in 1977.

In the early 1970s EDS bought Wall Street Leasing, a computer-services subsidiary of Dupont Glore Forgan, Inc., one of the countrys leading retail stock brokers. Perot appointed EDS vice president, Morton H. Meyerson, to attempt the rescue of the financially troubled firm. With encouragement from the Nixon administration, which feared a financial disaster on Wall Street, Perot had begun by investing $10 million in Dupont Glore Forgan. By 1973 he had invested further funds in Walston and Company, another retail brokerage house, and had proposed a merger between Dupont and Walston. By early 1974 Perot was defeated by the losses at Dupont and Walston. He left Wall Street some $60 million poorer.

A lawsuit filed in 1976 by F. & M. Schaefer Corporation and F. & M. Schaefer Brewing Company, for whom EDS operated a data processing facility, contributed to the slowdown of revenue growth in the mid-1970s. Schaefer claimed that the EDS data processing system was inaccurate and deficient, resulting in inadequate and misleading information. EDS maintained that Schaefer filed the suit to avoid payment of more than $1.2 million owed to EDS. In the 1978 out-of-court settlement, EDS paid Schaefer Corporation $2.3 million and retained $1.3 million already paid by Schaefer.

In early 1976 EDS entered the international market by signing a contract with King Abdulazziz University in Saudi Arabia. Later that same year EDS signed a three-year $41 million contract with the government of Iran to provide computer services for their social security division and training for Iranian personnel. In December of 1978 EDS suspended all operations because Iran was six months behind in payments. The scope of the Khomeini revolution grew in Iran, and after the jailing of Iranian officials with whom EDS worked, Perot ordered home EDS employees and their families. A few employees remained, hoping the chaos would be resolved. The situation worsened with the arrest of EDS executives Bill Gaylord and Paul Chiapparone, with bail set at $12 million. Since diplomatic channels seemed closed, Perot took direct action. In early 1979 he organized a rescue team headed by Green Beret Colonel Arthur D. Bull Simons, whom Perot had previously hired to make private forays into Vietnam looking for servicemen missing in action. Although Gaylord and Chiapparone actually walked out of prison on their own when a mob released all prisoners, they needed the EDS team to get them out of the country.

In the mid-1970s EDS began a shift away from facilities management, since many companies were becoming interested in running their own data processing systems. In 1979, Morton H. Meyerson became president while Perot continued as chairman of the company. Under Meyerson, EDS diversified its business interests through acquisitions of turnkey systemssale of systems to be installedfor hospitals, small banks, and the small-business field. With the purchase of Potomac Leasing in 1979, EDS moved into federal government contract work. The bulk of EDS business still remained in facilities management, with processing of health care claims a large percentage of the business through the 1970s and into the 1980s.

Always moving with the times, EDs became a systems integrator, sending in teams of experts to connect and coordinate a companys entire computer systems, software, and telecommunications. In 1982, as the result of its experience in systems integration, EDS won a $656 million ten-year contract for Project Viable, to streamline and update the U.S. Armys computerized administrative facilities and to build a network connecting 47 bases across the United States.

On June 27, 1984, although the company never had a contract with an automobile manufacturer, EDS became a wholly owned subsidiary of General Motors Corporation (GM). The $2.5 billion purchase price was the largest ever paid for a computer services business. GM agreed to maintain EDS as a separate entity, keep key personnel, and issue a special class of common stock, called class E, which would be tied to EDSs performance, not GMs. Perot would retain managerial control of EDS and serve on GMs board of directors.

GM needed EDS to coordinate and manage its huge, unwieldy data-processing system and to cut its $6 billion annual data-processing costs. Roger B. Smith, GMs chairman of the board, thought Perots management style would be an asset to his giant corporation.

Problems surfaced within a year when the differences in management style between Ross Perot and Roger B. Smith became evident. The August 1984 issue of Wards Auto World suggested Mr. Perot is a self-made man and iconoclast used to calling his own shots.... Roger B. Smith [is] a product of the GM consensus-by-committee school of management, never an entrepreneur.

EDS saw revenue increases as the result of the General Motors business. In 1985, the first full year after the acquisition, EDS revenues tripled to $3.4 billion. By 1986 personnel had almost tripled to 44,000 from 1984 levels. EDS also branched out into telecommunications and factory automation. Although EDS revenues increased substantially, profit margins fell to 5.5% in 1985. GM preferred contracts which stipulated a fixed percentage for profit; EDS, on the other hand, wanted to continue the fixed-price contracts it had been using since inception. Additional problems arose as the result of the differing company cultures.

In 1986 GM management bought Perots Class E shares for more than $700 million. For the first time in the 24 years since he started the company, Ross Perot was no longer in charge of EDS. Morton Meyerson also resigned.

At that time, Lester M. Alberthal became president and CEO. He had joined EDS as a systems engineer trainee in 1968. In June 1989 he was named chairman of the board of EDS. Under Alberthals leadership, EDS broadened its customer base and reduced its dependence on GM-generated revenues from 70% in 1986 to 55% in 1989. Revenues climbed to new highs.

Under Alberthal, the company diversified, moving into energy, transportation, communications, manufacturing, and other new areas of business. Diversification included further expansion of international business. Administration of the company was reorganized through a leadership council, to spread responsibility and authority for daily operations to lower levels of the EDS hierarchy and allow the top executives to focus attention on development of long-range strategy.

Within the GM alliance, EDS developed the worlds largest digital private telecommunications network: EDSNET. Consolidating the networks of both GM and EDS took three years, a staff of 2,000 people, and a cost of over $1 billion. In 1989 EDS opened its Information Management Center in Plano, Texas. The 153,000 square-foot facility serves as the heart of EDSs extensive worldwide communications network and information processing centers where voice, data, and video transmissions travel to their destinations via state-of-the art media. This center is the hub of operations for 15 North American and 6 international Information Processing Centers located all over the world. EDS can respond immediately to the needs of its more than 7,200 customers, who are able to take advantage of the leading edge of information technology.

Throughout the years, EDS contributed to the community and the nation as part of its company policy. In May of 1989 and again in 1990, EDS supported Project JASON, which enabled 225,000 children around the country to witness live the undersea exploration of the Mediterranean Sea. Dr. Robert D. Ballard, the scientist who discovered the wreck of the Titanic in 1985, led this excursion. EDS provided satellite links and solved technological problems to ensure the success of this undertaking. EDS created an Education Outreach Program for the communities where the company is located. EDS adopted several public schools and worked with teachers to help improve the quality of education.

EDS emphasizes employee training, spending over $100 million per year on the Systems Engineer Development program, to give customers the best service available. The firm has the technology and skills to continue global expansion of its information technology services.

Principal Subsidiaries

E.D.S. Federal Corporation; EDS Financial Corporation; EDS Technical Products Corporation; National Heritage Insurance Company; VideoStar Connections, Inc.

Further Reading

Louis, Arthur M., The Fastest Richest Texan Ever, Fortune, November 1968; Burlingham, Bo, and Curtis Hartman, Cowboy Capitalist, Inc., January 1989; Levin, Doron P., Irreconcilable Differences: Ross Perot versus General Motors, Boston, Little, Brown and Company, 1989; Mason, Todd, Perot: An Unauthorized Biography, Homewood, Illinois, Dow Jones-Irwin, 1990.

Ann T. Russell

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Electronic Data Systems Corp. (EDS)

ELECTRONIC DATA SYSTEMS CORP. (EDS)

Electronic Data Systems Corp. (EDS) is the largest information systems and business process services firm in the United States. Second only to IBM Corp. in the worldwide systems consulting market, EDS offers network operations, systems integration, data center administration, applications development, and management consulting. In the late 1990s, at the prompting of new CEO Dick Brown, EDS began overhauling its own internal operations with the e-business technology it had spent years selling to other clients. The restructuring paid off as annual sales in 2000 reached $19.22 billion, compared to $18.5 billion in 1999. More importantly, the Plano, Texas-based firm's earnings more than doubled, from $420.9 million to $1.1 billion, over the same time period.

EARLY HISTORY

EDS was created in 1962 by H. Ross Perot, a former IBM salesman. Recognizing that companies were struggling to recruit employees with the technical expertise needed to operate new equipment, Perot had come up with the idea that IBM should offer electronic data processing services along with selling computer equipment. When IBM discarded Perot's idea, he resigned to found EDS. The firm's first client, Collins Radio, bought computer time, which Perot had purchased on a wholesales basis, on an IBM 7070 machine at Dallas, Texas-based Southwestern Life Insurance. The following year, EDS began securing data processing contracts with firms like Mercantile Security Life and Frito Lay. To differentiate his firm from competitors who marketed two-and three-month contracts, Perot established five-year contracts with a predetermined price. EDS operated by putting in place a computer system and supplying staff qualified to run it. EDS employees were replaced by the client's workforce once they had learned to operate the machines.

EDS began establishing Medicare and Medicaid claims processing systems in 1965. Three years later, Medicare and Medicaid accounts were generating 25 percent of total sales. The Dallas Bank signed on as the first financial institution to use EDS, and later became a world leader in providing data processing services to banks and savings and loan institutions. The firm also secured its first $1 million contract and conducted its initial public offering at $16.50 per share. Sales in 1970 reached $47 million. After reaching a high of $160 per share in 1971, stock plummeted to $66 by the year's end. As a result, Perot hired Morton H. Meyerson and charged him with the task of preventing further stock drops. However, stock fell to $15 per share in 1973. The following year, eight credit unions signed up for EDS service, and sales reached the $100 million mark. EDSNET, an internal communications network, was launched.

In 1976, EDS faced litigation filed by F&M Schaefer Corp. for what F&M alleged was the firm's erroneous and defective data processing system. EDS contended that F&M was merely trying to wrangle its way out of paying its $1.2 million bill. Eventually, EDS agreed to pay F&M $200,000 to settle the case. The firm also made its first international foray, securing a $41 million contract to provide computer services to the Iranian government for three years. EDS landed a contract from King Abulaziz University in Saudi Arabia as well. In 1978, after waiting six months for payment from Iranian officials, EDS discontinued its operations in the country.

Morton Meyerson was named president in 1979, and was appointed CEO shortly thereafter. Perot retained the role of chairman. EDS diversified by securing contracts with hospitals, small banks, small businesses, and other organizations it had not targeted before. The firm also acquired Potomac Leasing, gaining access to its first government contract. In 1982, Meyerson was lauded by the Wall Street Transcript as "The Best CEO in the Computer Services Industry," an award he also won in 1983 and 1984. In the early 1980s, EDS signed a federal government contract that was the largest such deal ever assigned. The firm also landed a $656 million contract, known as Project Viable, to develop the U.S. Army's computerized administrative system over a period of 10 years. The system became known as Army Standard Information Management Systems (ASIMS). In June of 1984, General Motors Corp. paid $2.8 billion for EDS, completing the most costly purchase to date for a computer services company. As specified by the terms of the deal, EDS retained its corporate culture and most of its workforce. GM assigned a class E stock to EDS, tying its value to the new subsidiary's performance. Perot was named to the General Motors board of directors, and EDS took over management of General Motors' unwieldy data processing system and began whittling down the automaker's data processing expenditures, which totaled roughly $6 billion each year. Eventually, EDS connected the firm's suppliers and dealers in one of the first major electronic data interchanges.

GROWTH AS A UNIT OF GM

After its takeover by General Motors, EDS moved into Europe, setting up operations in the United Kingdom. The following year, in 1985, sales grew threefold to $3.4 billion. The firm's workforce also nearly tripled, reaching roughly 40,000. However, earnings fell by 5.5 percent. International expansion continued with the creation of units in Australia, Brazil, Canada, France, Germany, Mexico, New Zealand, and Venezuela. GM paid Perot more than $700 million for his remaining shares of EDS stock and dismissed him from the board. Eventually, Perot established a competitor to EDS, known as Perot Systems. Meyerson resigned, and Lester M. Alberthal was named as his successor. As this management shakeup was taking place, EDS diversified into factory automation and the telecommunications industry with the goal of growing its client base and reducing its reliance on the GM contract, which accounted for the majority of the firm's revenues. EDS also made its first foray into Asia by establishing a unit in Japan that housed two information processing centers and catered to automobile manufacturers, electronics firms, and financial institutions.

EDS forged two major deals in 1987. The Beijing Municipal Government's Commission for Science and Technology hired the firm to create the Beijing International Information Processing Co. It also secured a contract from Nippon Information Industry Corp. of Japan to develop Nippon EDS to offer computer and telecommunications services. International growth efforts resulted in the creation of an information processing center in Paris. The Health and Benefits Strategic Business Unit of EDS agreed to supply data processing services to the National Account Service Co., which was a joint venture established by five U.S. Blue Cross and Blue Shield plans. In 1988, Fortune magazine named EDS as the leading diversified services company in the United States. Also, Alberthal was named one of the top 10 executives of companies with more than $1 billion in revenues. Acquisitions that year included M&SD Corp.; the $347 million purchase of Mtech Corp.; General Data Systems Ltd.; VideoStar Connection Inc.; and a 50-percent stake in China Management Systems Corp., the top information services provider in Taiwan. Sales grew to $5.5 billion, and operations had expanded to 27 countries.

In March of 1989, EDS completed work on its 153,000-square-foot Information Management Center, a communications home base for the more than 7,000 EDS clients across the globe and the headquarters facility for 21 information processing centers, six of which were overseas. Hitachi Corp. agreed to develop Hitachi Data Systems Corp., a joint venture with EDS which marketed computer hardware made by Hitachi. In June, EDS began merging EDSNET with the communications network of General Motors to create the world's largest proprietary digital telecommunications network. The project, which took three years and 2,000 employees to complete, cost more than $1 billion. Systems management contracts secured during the year included a 10-year deal between EDS Hong Kong and Hong Kong's biggest bank, and an agreement between EDS Australia and Australia's leading private food producer. The firm also purchased BancSystems Association Inc. and the electronic fund transfer operations of Automatic Data Processing Inc.

Employees reached roughly 61,000 in 1990. The Army, Navy, and Defense Logistics Agency awarded EDS a $712 million contract. Efforts to increase its presence in the travel and transportation industry paid off when EDS secured major contracts with National Car Rental System, Continental Airlines/System One CRS, and Hospitality Franchise Systems Inc. In 1991, Stratus Computer began working with EDS Personal Communications Corp. on developing a Home Location Register (HLR) system for the burgeoning cellular telephone industry. CAPSCO Software Canada Ltd. and EDS Canada began working together to target Canadian life insurance businesses. EDS also began providing data processing and communications network services to China's Ministry of Railways. The firm restructured operations around new Centers of Service, such as e-commerce, customer services technology, document processing, performance services, and technical products. Sales in 1992 grew to $8.5 billion, 40 percent of which were attributed to the GM account. GFI Informatique merged with EDS France to form one of the top information technology (IT) service providers in France.

Merger negotiations between EDS and long-distance telephone service provider Sprint Corp. dissolved in 1994. That year, EDS added to its international holdings with the purchase of French consultancy Eurosept and Brazilian consultancy F.C. Consultoria. In August of 1995, General Motors revealed its intent to spin off EDS as the largest independent computer services firm in the world. Valued at $25 billion, EDS was worth 10 times the amount General Motors had paid for it 11 before. In September, EDS bought A.T. Kearney for $628 million. When A.T. Kearney's 1,900 consultants had been integrated with the 1,600 consultants from EDS, the firm became one of the leading business consultancies in the world. In June of 1996, EDS stock was listed on the New York Stock Exchange after General Motors finalized its spin-off of the firm. EDS agreed to pay General Motors $500 million and provide computer services at a discount until 2006.

REORGANIZATION AFTER SPINOFF BY GM

BellSouth Telecommunications selected EDS for its $4 billion computer systems operation contract in 1997. The deal marked the first billion-dollar contract secured by EDS in more than a year and a half. In August of 1998, EDS was listed on the Standard and Poor's stock index. At that time, employees exceeded 90,000, and operations spanned more than 40 nations. Alberthal resigned as CEO and chairman, and was succeeded by Richard H. Brown in early 1999. According to William Schaff in an August 1998 InformationWeek article, Brown's challenge would be to maintain the firm's competitive edge as demand for IT outsourcing grew. "Companies are outsourcing more IT functions, including their Web sites and E-commerce systems, as they focus on their core business. This puts EDS in a good position, but the booming market has also attracted strong competitors, including Computer Sciences Corp. and IBM Global Services, which have started winning some of the megacontracts that used to be EDS's private domain." Another issue facing EDS was that costs were growing as quickly as revenues, undercutting earnings growth.

One of Brown's first accomplishments was the purchase of Advanced Computing. He also oversaw the $12.4 billion, 10-year dual outsourcing agreement between EDS and MCI WorldCom, through which MCI WorldCom contracted EDS to handle a portion of its IT operations for $6.4 billion, and EDS contracted MCI WorldCom to oversee a chunk of its network operations for $6 billion. As part of the deal, EDS acquired MCI Systemhouse Corp., which designed, constructed, and operated systems that connected computers with data, voice, and Internet networks. It also offered e-commerce services such as call center management. Eventually, MCI Systemhouse was folded into a new Web-based electronic business unit called E-Business Solutions, which later became known as E.Solutions.

Decreased earnings in 1999, due in large part to increased competition and rising costs, prompted the firm to undertake a $1 billion reorganization effort which resulted in the layoff of 13,000 employees. Brown also combined the 48 business units of EDS into four divisions. In 2000, EDS purchased France's Captimark Corp., a customer service management systems provider. Rolls-Royce hired EDS to oversee its IT services; the contract was valued at $2.1 billion. The firm also secured a $6.9 billion IT systems contract from the U.S. Navy. At the dawn of the new millennium, EDS employees totaled roughly 115,000 and the firm operated more than 800 offices across the globe. Sales continued to grow, and profits more than doubled, reflecting the success of cost cutting measures launched by Brown in 1999. According to Inter-netWeek, when Brown took over, "not only did EDS have aging systems, but it wasn't using the e-business technology it recommends and deploys for so many of the large enterprises that make up its clientele. Upon his arrival, Brown kicked off an extensive systems-modernization effort and insisted upon the implementation of e-business applications." For example, the firm began training its employees via online courses, which drastically cut training costs.

In early 2001, EDS bought the outsourcing operations of online travel agent Sabre for $670 million and Germany's IT systems provider Systemantics for $570 million. In June, EDS also agreed to acquire collaborative software manufacturer Structural Dynamics Research for $950 million to bolster a push into Web-based collaborative product design. The deal reflects the firm's continued efforts to broaden the reach of its e-business solutions operations.

FURTHER READING:

Boyd, Jade." EDS Helps ItselfTechnology Services Firm Finally Gets Some E-Biz Religion as Major Systems." Internet-Week. March 12, 2001.

Deckmyn, Dominique. "EDS/MCI $12.4 Billion Outsourcing Deal Nailed Down." Network World. November 1, 1999.

"Electronic Data Systems Corp." In Notable Corporate Chronologies. Farmington Hills, MI: Gale Group, 1999.

"Electronic Data Systems Corp." Sacramento Business Journal. March 16, 2001.

Forman, Preston P. "With Global Focus, EDS Embraces Security Role." Computer Reseller News. May 24, 1999.

Goldstein, Alan. "EDS Plans to Acquire Two Firms." Dallas Morning News. May 24, 2001.

"History." Plano, TX: EDS Corp., 2001. Available from www.eds.com.

Hunt, Ben. "EDS Pushes into Germany with $570M Acquisition." Financial Times. April 2, 2001.

Schaff, William. "The Problem with EDSThe Company's Growth Has Slowed Over the Past Few Years, and Margins Are Shrinking. Can New Management Turn Things Around?" InformationWeek. August 17, 1998.

Schaff, William. "Turnings Point for EDS?After Several Years of Slow Growth, the Outsourcing Giant May Be on the Verge of Winning Back Investors." InformationWeek. March 1, 1999.

SEE ALSO: E-commerce Solutions; Information Management Systems; Information Technology; Perot Systems

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