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Street Talk Herding Cats at EDS

New CEO Dick Brown signaled things were different at serious, stuffy EDS with a Super Bowl commercial that was attention-grabbing and fun. More important, he restructured a flabby company into a lean, mean, business-grabbing machine.
By Gerald Posner |

WHEN EDS ANNOUNCED IN DECEMBER 1998 thai il had chosen Richard “Dick” Brown, the high-profile chief executive of Britain’s telecom giant Cable & Wireless, night had already fallen in London. “It was the end of a very long and busy day,” he recalled recently. Despite the late hour, Brown suddenly found himself inundated with calls from reporters and financial analysts. “What is your 100-day plan for EDS?” was one of the first questions.

At the time, he knew little about the company and had never even visited it.

A couple of weeks after his selection, executives at EDS’ British subsidiary gathered to meet their new boss as part of his effort to find out what the company needed. On a miserably cold Saturday at the UK headquarters, the British managers were encouraged to submit written questions, which were then thrown into a hat and selected randomly. The first was, “You spent 29 months at Cable & Wireless. How long are you going to stay with us?”

That set the tone for what was a comprehensive grilling by a skeptical staff.

Brown, however, erased any budding doubts. Having earned a well-deserved reputation as approachable and easygoing, he confidently handled questions that day. Slowly he won over the assembled executives-not an easy group to impress. “He left us no doubt that he was ready to make EDS the leading contender in our held.” one told me. “He convinced us that he had the right approach and talent for his new role. He was good.”

BROWN HAD TO BE GOOD, BECAUSE EDS was like no other company he had ever walked into. Perot founded EDS in 1962, a computer services company that was crafted to be more IBM than IBM itself. Perot relished the hierarchical corporate structure and the firm’s conservative culture. Visitors often commented on the clean-shaven men with army haircuts in uniforms of dark suits, white shirts, and spit-shined shoes, all walking the buildings in double time. Filled with Vietnam vets, and with much of its business dependent on public contracts, Perot built a conglomerate that worked well with his top-down management style.

But the problem for EDS was that it was so identified with Perot and his autocratic style, that when he left in a huff in a very public fight with then-owner General Motors, the company lost its spark. By the time it regained its independence in 1996, its prestigious roster of Fortune 500 customers led to complacency. The company never showed much interest in the budding market for the Internet and e-commerce. Without Perot prodding them, the executives who had trained under him seemed distant and sometimes aimless, building large stables of perks (there were 14 corporate jets at one point) and-with the . enormous business from former owner GM L (nearly a fifth of the company’s rev-^L% enues)-acting as if the good times would never end. As a result, its share price languished. EDS’ woes allowed aggressive competitors-especially IBM’s Global Services, started nine years ago-to jump far ahead. The company didn’t even take advantage of the significant increase in corporate spending on IT contracts in the run-up to Y2K.

ONCE EDS ’ DIRECTORS STARTED LOOK-ing for a new leader in the summer of 1998. they deliberated several months before settling on Dick Brown. They wanted him in part for his independence-he is the first non-Perot acolyte to take helm of the firm. But he had also worked magic at C&W, boosting revenues, profits, and the share price in 29 months. (AtC&W, he signed off on one of Europe’s biggest-ever IT contracts-a$3.5 billion, 10-year deal-to EDS’ main rival, IBM.)

When EDS approached Brown, they quickly discovered he was content with running C&W. But they also happened to catch the 53-year-old, New Jersey-bom executive at an unusual personal crossroads. His wife was ill and needed medical treatment in the United States (she has since had surgery and is doing fine). His two grown children lived in the States. And at C&W he was traveling 70 percent of the time. Taking the reigns of EDS meant moving back to the United States, and given his wife’s illness and the opportunity such a move afforded him to see his children more frequently, the timing of EDS’ offer was ideal.

“Beyond the personal considerations,” Brown says, “there was also the business side. EDS is a fabulous company with a legacy of superior leadership. 1 believe that IT is the future, and this presented a great challenge. I was having a great time at C&W, but this was too good to pass up. It energized me.”

Knowing what he wanted as a customer helped Brown, who is a quick study, to soon realize that EDS needed a new business focus and a cleansing of the restrictive customs and bureaucracy left over from the Perot era. He was startled to discover that it was not until the mid-1990s that rigid rules-white shirts only, no beards for men, and no trousers for women-had been abandoned. Brown decided to push the company-not nudge it-into the future, and as an outsider he felt free to alter the customs.

“Dick Brown was exactly what the doctor ordered.” notes Linda Cohen, a research director with technology analyst Gartner Group. “If you’re going to change the culture radically, you have to have an outsider.”

Brown seemed the right outsider. Before he had taken over C&W, a sluggish telecom giant, he had never visited Britain. There, as both a corporate and social outsider, he put the British company through a frenzy of deals (21 in 29 months) and grudgingly won the respect of the European business press. The problems at C&W bore some resemblance to the woes at EDS. When Brown took control of the UK firm, it was dependent on a single stake in Hongkong Telecom for most of its sales and profits, much as EDS had become lazy with its dependence on GM. Morale was poor at both firms, and the top executives were often considered remote and not innovative enough to take advantage of fast-moving marketplaces.

Prior to his British stint, Brown had earned his telecom stripes as a Baby Bell veteran, spending almost 25 years primarily at Ohio Bell, United Telecommunications {later Sprint), and Ameritech. At the latter, he helped restructure the company, streamlining its corporate bureaucracy.

While EDS presented the additional challenge of eliminating the remnants of Perot’s button-down culture, that was minor compared to converting a value-oriented mainframe firm into an Internet-foe used one that began to think like a growth company. Although EDS’ revenues had grown in the 1990s, the number of employees and overhead had bloated, and margins-traditionally low anyway in IT outsourcing-had declined steadily. Because of its staid reputation, the company was no longer attracting the kind of employees needed to retool and launch new initiatives.

But Brown quickly made his mark, slash-ing $l billion in costs and eliminating 15,000 jobs, many of them workers with outdated IT skills (it was dubbed “Brownsizing” inside EDS). The new goal was to double revenue without doubling the company’s employees.

Brown followed a pattern he had set at C&W where he replaced 70 of the company’s 100 executives during his short tenure. EDS bid farewell not only to Alberthal, its chairman, but also its chief executive, finance director, head of human resources, chief information officer, and a phalanx of senior vice-presidents. Those who stayed were shuffled around, and a younger, more aggressive team was soon brought in.

“Leaders get the behavior they tolerate,” says Brown, who dismisses the moniker “takeover artist” and insists that he never goes to a company to turn it around. “I go in operationally to lead it. I have the ability to get involved in the details, to see all the trees in the forest, and then fly up to 38,000 feet and see the entire landscape.”

The landscape that Brown saw at EDS needed a complete overhaul. He reorganized the company, creating a key 20,000 employee e-solutions division responsible tor winning Internet and new-economy business. Brown’s touch was even evident on this year’s EDS Super Bowl ads, where the once-stuffy company now compared IT services to herding cats. Not only would Ross Perot have refused to spend that much on a single ad, but he also would have thought the suggestion heretical. But Brown knows that to shake EDS ’ image, he needs to take a few gambles.

Brown streamlined the company’s decision-making process, making it more agile when taking on nimble competitors like San Francisco-based Scient, or Cambridge’s Razor Fish. The Internet and e-business divisions now report directly to him. And Brown has successfully exploited EDS’ strength in financial institutions to work the company into new Web-based applications on existing ATM networks.

By February 2000, Brown’s innovative business strategy was evident in a complex deal between EDS and MCI. Under the $6.4 billion agreement, MCI became the sole telecom provider to EDS. and EDS took over a significant piece of MCI’s IT operation. In July. the company signed a smaller but no less significant deal with Microsoft to train thousands of technicians. But investors and Wall Street analysts still wanted more, pushing Brown to show fast results.

In October. Brown and his new management team finally hit pay din and had something to brag about-EDS announced a stunning five-year U.S. Navy Marine contract valued at least at $7 billion (and possibly $ 10 billion with options). That contract, the biggest U.S. government IT deal ever, and the second largest in EDS’ history, was the best evidence that the company’s revitalization was on target, Investors evidently agreed, The day after the deal was announced, they bid up EDS ’ stock by nearly 15 percent. Several brokerage houses upped the company’s rating. What made the deal especially sweet for EDS was that it prevailed without evidently being the lowest bidder. Instead, their innovative solution-forming a cost-saving partnership with Raytheon, WorldCom, and Wam!Net, as well as subcontracting 40 percent of the work to small or minority-owned businesses- clinched the deal. And while most analysts acknowledged that the revenue benefits from the Navy contract would not be seen for several quarters, they had little doubt that EDS and Brown would use it as a showcase to lure lucrative, smaller commercial contracts.

“If you can do a contract of this size,” says Bill Loomis, an analyst for Legg Mason, “then you can certainly handle an $800 million contract from a Fortune 500 company.”

MANY INDUSTRY ANALYSTS BELIEVE that the possibility for real growth and profits hinges on EDS’ success in convincing customers that e-business is the future and demonstrating how EDS can help move companies onto the Net. In many of Brown’s speeches, he seems a virtual evangelist on how e-business and EDS can save customers substantial money. Companies are evidently listening. On EDS’ first e-com-merce initiative, it quickly signed up Bethlehem Steel, paper conglomerate Fort James, and nine other Fortune 500 companies.

But Brown has not forgotten the company’s core business, which is still conventional hardware information services. Although GM now competitively bids out its contracts, EDS has managed to win back 90 percent of them and it continues to build against more traditional competitors.

One particular competitor that EDS relishes beating is Perot Systems. Although Perot Systems was a star IPO in December 1999, jumping from the offering price of $14 to more than $80 on the first day of trading, reality has since set in. A profit warning last summer, Ross’ transfer of reins to his son, Ross Jr., and the disclosure that a single client, UBS AG, a Swiss bank, provides 30 percent of its revenue, has not helped. Revenue for the first half of 2000 was lower than the same 1999 period. By October, as the Nasdaq swooned, Perot Systems sank fast, trading at its all-time low. under $8 a share.

Beating Perot may make some old-time EDS employees feel good, but turning the company back into the No. 1 information services outfit in the world is what will make the tenacious Brown and impatient investors happy. If October’s Navy contract is any indication, the company is on the right road.

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