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PEROT’S PARTNERS

When Mort Meyerson was looking for a partner to run Perot Systems, be knew be needed an entrepreneur. IBM’s most unlBMisb executive was the man for the job.
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MORT MEYERSON IS SITTING IN ONE OF THE austere conference rooms strategically placed along a corridor of cubicles in Perot Systems’ 11th-floor offices in North Dallas. This stark while, windowless chamber has only enough black trim for modest visual dimension-a no-nonsense, no-frills, roundtable, think-tank kind of room where you can brew a pot of coffee, scribble ideas on the erasable walls and say what’s on your mind.

What’s on Meyerson’s mind is the future of his information technology (IT) firm and the man chosen to run it for, perhaps, the next decade, during which Perot Systems will most likely go public (perhaps as soon as this year) and could grow to eight or 10 times its current size.

Meyerson believes he has found the right man. James Cannavino spent 32 years with IBM and rose to the No. 2 spot in the company before his retirement in the spring of 1995.

There are questions: Why did Perot Systems, a young company that places a premium on alacrity and agility, want Cannavino, a veteran of IBM’s legendary lethargic bureaucracy? Why did Cannavino. who had been in the running for CEO of IBM just a few years earlier and was deluged with job offers-300 or more- when he departed Big Blue, want Perot Systems, at the time a relatively minor player in the IT industry?

The answer to both questions. Meyerson says, is some variation of the same word: entrepreneur. Perot Systems is an entrepreneurial company, he says, and Cannavino, as industry watchers have long known, was more antagonistic than compliant toward the IBM bureaucracy.

“He was known as a wild duck.” Meyerson says. “Always was. He was different. He didn’t have a college degree. He dressed differe m… wore casual clothes. He used language that wasn’t IBMish.”

None of which bothered Meyerson when he went shopping for a new president and future CEO for Perot Systems.

“When people put the term ’wild duck’ or ’maverick’ on somebody, what they are normally describing are entrepreneurial characteristics,” Meyerson says. “Jim was an entrepreneur at IBM. If he hadn’t been a maverick, we wouldn’t have talked to him.”

Some of Cannavino’s antics are hardwired into IBM lore: How he bluffed his way into his first job with the company while still in his teens; how he short-circuited IBM’s tedious procedures to appropriate a $6 million mainframe computer for some off-lhe-books research that proved it could be made to run better; how, at a party he threw for a group of subordinates weary from long hours of work and travel, he jumped out of a pink cake; how. when he was moved from the mainframe division to head the company’s fledgling personal computer business, he was less than reverent toward the devices, “If God had intended for man to have personal computers, He would have built [hem into our wrists,” he said. Or unIBMish words to that effect.

Within the rigid IBM system, however, radical nonconformity wasn’t a prerequisite fora wild-duck reputation. Slight variations. such as disregard for the company’s conservative dress code, would do. Cannavino once shocked his colleagues-and perhaps a few IBM clients-by wearing a sweater to the public introduction of a new product. And members of a product development team under his jurisdiction similarly scandalized the company by wearing suspenders to work.

But there was another side to being a maverick at IBM. and it involved defying procedures that were etched in solder.

Meyerson had dealt with a lot of IBM executives over the years-first as head of Electronic Data Systems and later as CEO of Perot Systems. Most of these executives, he found, were captives of the IBM red-tape monster. If he had a problem that required a particular solution, “They’d give me the 400 reasons why it couldn’t be done.”

Cannavino. he says, was one of the few who did not seem bound by the instruction manuals. He recalls one incident in particular when he met with Cannavino to discuss an IBM operating system that would not perform certain tasks required by an EDS client.

“Look, Jim,” Meyerson said, “everything you told me about why this system is the way it is is very logical. 1 understand you have a big organization and I’m only one customer, but you’re going to put me out of business if we don’t solve this problem. I can’t exist without the system doing these things.”

Cannavino said. “OK. I got the picture.”

A week later, he called Meyerson and said. “We can deliver it. Give us four weeks and it will be done.”

Meyerson was impressed enough that he tried to hire Cannavino to be EDS’s chief technology officer. Cannavino had other aspirations: He wanted to run IBM.

But when that opening came, it came at a troubled time. By the early 1990s, the IBM monolith was being devoured at its roots. The mainframe business was near collapse. The company’s software aspirations, like its PC business, had been largely pre-empted by smaller, more nimble competitors. The IBM board took previously unheard-of steps: Workers were laid off and dividends cut.

When Chairman John Akers decided to leave early in 1993, Cannavino was on the list of candidates to succeed him, but the board of directors was set on a course of drastic change. It went looking outside the company for a new CEO. The job went to Lou Gerstner. formerly of American Express and RJR Nabisco. He was the first IBM chief executive not taken from the company’s ranks.

Two years later. Meyerson and Cannavino would talk employment again.



IN APPEARANCE AND MANNERISM. CANNAVINO IS THE ANTITHESIS of the standard tech-nerd, He rides a Harley Davidson, smokes cigars, doesn’t object to being called “Jimmy” and has enough of his old west-side Chicago neighborhood in him to give his voice a street-smart edge. He learned about electronics at the DeVry Institute-earning a two-year degree in six months-and somewhere along the way he seems to have learned that the meek may inherit the earth, but the audacious will get the mineral rights. Married soon after high school graduation and with a young fainily to support, Cannavino sometimes worked several menial jobs simultaneously, but always with an eye out for something better. One day, he hopped a bus hound for the Chicago suburbs and got off at the end of the line in Oak Park. The first building he saw was an IBM branch office.

He walked in and told the secretary he was there for a job interview. Having no record of such an appointment she summoned the manager, who apologized to Cannavino for the “mix-up” and arranged for an immediate aptitude test for keypunch machine repairmen. Although he easily passed, his lack of a col lege degree posed a problem.

Cannavino offered the manager a deal. He would become the branch’s best repairman in six months or he would return all of his paychecks. He got the job. but continued to moonlight as a cook in a pizza parlor while he stashed his IBM pay in a shoe box in case he had to give it back.

Three months later, the manager called him to his office and scolded him for screwing up the company’s accounting system. Cash the checks, he ordered Cannavino. The job was permanent.

Cannavino quickly took on more responsibility, namely fixing bugs in IBM’s mainframe operating system. The glitches were so numerous and he was so adept at mending them that he offered to give up his salary and be paid a set price for each bug he fixed.

Instead. IBM assigned him to its mainframe facility in Poughkeepsie. N.Y.. where he could write software, rather than mend il. There, he hit on a idea he though! would significantly speed up the processing of mainframe applications, but could not persuade his bosses to let him experiment on something that was the heart of the IBM system. Also, his tinkering would require a $6 million machine, which he proposed to reconfigure seriously.

Willi three colleagues, he devised a risky scheme, one that could cost them their jobs if they failed.

Cannavino visited an IBM assembly line and found three computers that were bound for locations within the company. One of them, he determined, would not be missed immediately, so he changed the shipping lag. routing it to a vacant laboratory, which he had also appropriated without authorization.

Working evenings and weekends. Cannavino’s team souped up the computer with new circuits and design changes they called Virtual Machine Assists. In three months, they had proven their point, doubling the speed at which some software would run on the machines. Cannavino’s bosses were so impressed that they brought workers from other departments to witness the results. They were unaware that the computer, the laboratory and the experiments had not been officially sanctioned. (Large bureaucracies have some advantages, it seems.)

Before long, though, the bean counters discovered that the computer had been rerouted from its rightful destination and Can-navino was called into the office of the chief financial officer for the mainframe business. “He told me that in IBM terms, what 1 had done was equivalent to Murder One.” Cannavino later told a reporter. “There is no question in my mind that if the idea hadn’t worked, I would have been fired, and I probably should have been for hiking a harebrained scheme and destroying a S6 million asset. Bui I wasn’t wrong.”

His team’s modifications were incorporated into the mainframe standard system and were credited with giving IBM an important edgeagainst its competitors. The chief financial officer later moved on to another company and Cannavino moved up to the head of the mainframe division, which accounted for more than half of IBM’s revenue during his tenure.



CANNAVINO IS WEARING A NECK! IE TODAY. PERHAPS a modest concession to having been elevated from president to president and chief executive officer of Perot Systems. But while discussing his departure from IBM. the maverick in him still slips past the but toned-down facade.

He was offered a generous financial package, reportedly worth millions, if he signed a limited. no-compete contract with IBM. “Sitting out three or four years would have been the financially correct thing to do,” he says, “It was a lot of money…more money than I thought existed 10 years ago. I just didn’t feel like being owned. It gave me the feeling thai I was for sale. It was less about money, less about a job and more about me.”

So he turned down IBM’s millions and had no immediate plans but to take a year off, build a home in West Palm Beach, Fla.. and weigh the future at his own leisure, The idea of “doing a start-up” appealed to him but. at 50, he felt he was too old.

What I.T.?

INFORMATION TECHNOLOGIES, REFERRED TO BY those in the know as “IT,” is an industry built around the creation and use of data in business. Any business-from a mom-and-pop grocer to a huge financial conglomerate, acquires information that is essential to daily operations, This information pertains to diverse aspects of business, from inventory to cash flow to marketing.

Of course, most companies are in the busi-ness of doing things besides tracking data, so it makes sense for them to outsource these needs. IT firms create and maintain systems that allow data to be processed in coherent forms.

IT often is lumped in with the management consulting field because its end results are often the same- recommendations on facilities, equipment and starring that are based on efficiency, accuracy and cost-effectiveness of various processing capabilities.

In recent years the number of firms involved in IT has exploded. Founded by Ross Perot in 1962, EDS is probably the best-known of these companies. IBM also has a large IT division. Sabre, probably best known for its travel reservations system, also is a player in the IT market. Often, a company will create a department to handle its own IT needs and that department will then begin serving outside clients, thereby turning a traditional cost center into a profit center.

IT has led to some unusual marriages. AT&T’s Global Information Solutions Unit and Delta Airlines created TransQuest Information Solutions to serve Delta’s IT needs; now TransQuest has other clients. IBM and Eastman Kodak have a similar arrangement. IT partnerships tend to exceed the level of client-vendor relationships, and employees of one often move to the other’s payroll for logistical purposes.

Although Perot Systems is a relatively small newcomer among these titans ($688 million in projected 1996 revenue versus S12 billion to $14 billion at EDS and IBM), it does have a number of advantages. Many smaller companies are hesitant to get involved with an IBM or EDS for fear of being a small fish in a big pond. Also, like most IT firms, Perot Systems is involved in “co-sourcing,” a partnership arrangement where a portion of the compensation is based on risk/reward sharing. Perot Systems has been more aggressive than others in this area, creating partnerships that, if successful, could speed their growth to twice that of their competitors.

Analysts are divided, though, on the prospects of some of Perot Systems’ more aggressive deals, including one with Swiss Bank Corporation that gives Swiss Bank a 24.9 percent stake in Perot Systems.

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