EDS Seeks Broader Footprint

EDS Seeks Broader Footprint

Albert Edmonds

By Nick Wakeman

Electronic Data Systems Corp.'s revamped government division has positioned the systems integrator to capture new information technology business in the fast-changing government market, top executives said.

"Our footprint is going to be broader and deeper in all parts of the government," said Albert Edmonds, who became chief operating officer of EDS' Government Industry Group in a reorganization of the unit last month. He reports directly to George Newstrom, corporate vice president and group executive of the government unit.

The plethora of indefinite delivery, indefinite quantity contracts and blanket purchasing agreements and the rise of the General Services Administration schedule as a way to buy services means most contract wins today are nothing more than licenses to hunt, Edmonds said.

With more than half of the $1 billion plus federal business EDS will do in 1998 coming from IDIQs, BPAs and the GSA schedule, he said, speed and agility are more important than ever.

The Plano, Texas-based company responded to the changing government marketplace Oct. 5 with a realignment of its government group across nine functional areas; the old model had separate defense, civilian and state and local units. Other systems integrators that have moved to streamline their federal business include Computer Sciences Corp., which effectively trimmed its federal division from four to two groups in May.

Taking down these barriers puts EDS "in a very good position to go after the marketplace, wherever it leads us," said Edmonds, a former director of the Defense Information Systems Agency who joined EDS in February and previously headed its military division.

EDS' domestic and international government business in 1997 comprised about 14 percent of the company's $15.2 billion in sales. One year earlier, government revenue accounted for 13 percent of $14.4 billion in revenue.

Analysts project that number will hit $17.2 billion in 1998, with the company's government revenue in the same range or slightly lower.

Results of its last quarter were slightly better than analysts predicted. For the third quarter that ended Sept. 30, EDS revenues were 17 percent higher than the third quarter last year.

"I think they need another quarter or so like this one," said Moshe Katri, an analyst with equity research firm Warburg Dillon Read of New York.

EDS also is moving further away from product reselling, a business it entered in the early and mid-1990s. The company tried to sell the government reselling business last spring, but a deal with an unnamed buyer fell through, company officials said. The in-house reselling capability has since been phased out.

When EDS needs a product component for a project, it will pull in a partner, Edmonds said.

"We don't want to do a lot of commodity work as a separate thing, but there are some companies that are very good at commodities, so we'll team with them," he said.

The shift from reselling to services is a good move for the company, said William Loomis, an analyst with Legg Mason Inc. of Baltimore. While reselling can add quickly to total revenue, it is a very-low-margin business, Loomis said.

EDS' new structure is built around these areas: personnel management services; health care administration; financial systems services; logistics systems services; human services; security and intelligence systems; business systems services; integrated solutions; and emerging markets.

These are the types of services EDS executives think will be hot sellers in the defense, civilian and state and local government markets, Edmonds said. He would not speculate which areas would be the hottest sellers. But he said all would contribute to the government unit's growth, which has been keeping pace with EDS' overall 10 percent annual growth rate.

The government group is eyeing opportunities such as the Internal Revenue Services' Prime Integration Services contract, where the agency wants to revamp its business processes and improve customer service. EDS is teamed with Lockheed Martin Corp. of Bethesda, Md., and Arthur Andersen of Chicago for the prime integration services project, which is potentially worth $8 billion over 15 years. Computer Sciences Corp. of El Segundo, Calif., is leading the competing team. An award is expected by the end of the year.

About $500 million of the company's $1 billion plus federal business is with the Department of Defense, and its civilian piece is slightly higher, Edmonds said. Major civilian customers include the State Department, Veterans Affairs, Immigration and Naturalization Service, Federal Aviation Administration and Health and Human Services.

The company has been doing well in positioning itself for growing commercial and government outsourcing opportunities, said Thomas Browne, an analyst with Prudential Securities of New York.

Outsourcing is a major thrust for EDS in the government market, especially when it includes revamping business processes, Edmonds said. The company's commitment has not changed even though it lost two large outsourcing contracts this year, Edmonds said.

The company lost a bid for GSA's $9 billion Seat Management desktop outsourcing contract. It also lost a coveted contract to build and operate the Pentagon's Defense Travel System, a paperless system to make travel arrangements.

"Seat Management [which had eight winners] is not an award you can go put in the bank and borrow money against," Edmonds said. Agencies are under no obligation to use that contract, so EDS will still pursue that type of work under different contract vehicles, he said.

The Defense Travel System contract was awarded to a team led by TRW Inc. of Cleveland ? a win that drew a protest from EDS. "We still think we had a good proposal for the government," he said.

Edmonds noted the government still has a lot to do to improve its management structure. "They are trying, they are working hard, and we are in there fighting with them," he said.

One area EDS plans to emphasize in the government arena is customer service. "For a long, long time, the citizen was the last consideration in providing government services," Edmonds said. But that is changing.

The IRS project, which has a heavy focus on customer service, will be watched by other agencies looking for technology and business process solutions, he said.

"Both the federal [civilian] and DoD are reducing their offices and their work forces. Congress is continuing to talk about reducing the amount of bureaucracy and saving money," he said. "Those [trends] present opportunities to industry to step up and provide services."

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