Boss Brown Says EDS Has Shed Dinosaur Ways

Boss Brown Says EDS Has Shed Dinosaur Ways<@VM>Electronic Data Systems Corp.<@VM>Super Ad Has EDS Purring

Bill Dvoranchik

By Steve LeSueur, Editor


Electronic Data Systems Corp., reflecting the style of its hard-charging Chief Executive Richard Brown, is shedding its sometimes stodgy, slow-moving ways in an effort to become a versatile and agile provider of e-business solutions.

"People haven't thought of EDS as nimble, flexible and e-moving. They just thought of us as a large accounts company," said the chairman and CEO of the Plano, Texas, company.

It is a reputation that many thought was well-deserved. "As a very large company, they were more bureaucratic than most others," said William Loomis, managing director of the research group at investment company Legg Mason Wood Walker Inc. of Baltimore.

But since taking the reins in December 1998, Brown has streamlined the company's operations by cutting 15,000 employees out of 140,000, including one-third of the sales force.

At the same time, he reorganized EDS' business units and created an e-business solutions unit that pulled together all of the e-business that were "fractured and splintered" among various divisions, according to Brown. The e-solutions unit consists of 7,000 employees and brings in about $1 billion annually.

And Brown has widened the company's focus to include small and midsized customers in both the public and private sectors, and embarked on a $100 million advertising campaign aimed at branding EDS as the world leader in information technology and electronic business services.

"We want to regain leadership in the industry that EDS founded," Brown said during a March 1 lunch with Washington Post Co. reporters in which he assessed his first 15 months at the EDS helm.

EDS' new versatility and emphasis on smaller customers applies to its government customers, said Bill Dvoranchik, president of the company's federal government unit in Herndon, Va. While emphasizing that EDS still goes after large contracts, Dvoranchik said that many governments and agencies want digital solutions that are smaller in scope and shorter in duration to implement, such as Web-enabling an agency or setting up Web pages.

"One of our strengths is delivering replicable e-products," he said.

EDS also is picking up more work with city governments as a result of its year 2000 consulting, said EDS officials.

So far at least, Wall Street has applauded the results of Brown's leadership. EDS' stock price has jumped about 50 percent since he was announced as chairman Dec. 10, 1998, rising from $40.75 a share to a March 10 close of $60.50. EDS, in fact, has beaten the earnings estimates of Wall Street analysts every quarter since the second quarter of 1999, Loomis said.

EDS often missed earnings estimates in 1997 and 1998, and the share price dropped from a high of more than $60 in late 1996 to fluctuate the next two years largely between $35 and $50. The company's 1999 earnings of $421 million represent a 43 percent decline from 1998 earnings of $743 million, and reflect the depth of the company's problems in the previous years. One of Brown's goals has been to reduce operating expenses that have cut into earnings.

"Brown has made a lot of changes and put a lot of energy into the company, especially to focus on new e-business opportunities," Loomis said.

But Loomis and others cautioned that it will be difficult for EDS to be as nimble as its competition in the smaller markets.

"EDS is making progress, no doubt about it. But it's like the aircraft carrier you have to turn around," said Thomas Meagher, a vice president with Scott & Stringfellow Inc., an investment banking firm in Richmond, Va.

"Dick Brown has given EDS a corporate structure and taken a good amount of arrogance out of the company, but they still have a ways to go," said Gregory Gieber, an analyst with the investment company of Brown Brothers, Harriman of New York.

Companies such as Complete Business Solutions Inc. of Farmington Hills, Mich., Sapient Corp. of Cambridge, Mass., and Whitman-Hart Inc. of Chicago have a head start on EDS in serving the midsized accounts, Loomis and Meagher said.

With $18.5 billion in annual revenue, EDS is the second largest IT services company in the world behind IBM Corp. of Armonk, N.Y. The government sector represents one of EDS' largest market sectors and accounts for about 14 percent, or about $2.6 billion, of the company's revenue.

EDS CoNext, a business-to-business, e-procurement solution unveiled in January, is precisely the type of new product EDS wants to sell to the federal government, Dvoranchik said.

Created in partnership with Ariba Inc. of Mountain View, Calif., CoNext would organize participating government agencies into purchasing consortia, called leveraged sourcing networks, that use the Internet to purchase indirect goods and services, such as computer hardware and software, travel and office supplies. CoNext has the potential to cut purchasing costs by 10 percent to 20 percent, he said.

EDS is discussing CoNext with several federal agencies, Dvoranchik said, declining to name the agencies.

EDS will continue to partner with other e-procurement software companies, such as Commerce One Inc. and
Oracle Corp., Brown said. EDS selected Ariba for the CoNext partnership in
part because it also provided a beneficial business arrangement between the two companies. Under terms of the agreement, EDS CoNext and Ariba each receive warrants to purchase each other's common stock.

When Brown came to EDS, it was widely expected that he would pursue an aggressive acquisition strategy. The former chief of Cable & Wireless plc of London, he completed 21 deals valued at more than $20 billion in less than three years there.

Brown has been relatively quiet at EDS in terms of making deals, but in December 1999 he created a $1.5 billion venture capital fund that will allow the company to take equity positions in Internet-based clients and partners.

Nevertheless, Loomis expects EDS to initiate more acquisitions in the future.

One of Brown's key initiatives has been an aggressive advertising campaign aimed at raising the company's profile. In 1998, the year before Brown took over, EDS spent more money on philanthropy than advertising, he said.

The ad campaign launched last September included a change in the company's logo and a widely praised television commercial, aired during this year's Super Bowl, that compares IT consulting to herding cats.

"The awareness of EDS has gone up over 50 percent since we began advertising, and our association in the e-space has moved up even more than that," said Don Uzzi, senior vice president of global marketing.

EDS will spend in excess of $100 million over the course of the year on advertising, a tenfold increase, he said.

The goal is to establish EDS as a megabrand that is immediately recognized throughout the world as the leader in IT services, just as Coca-Cola is the No. 1 brand in the soft drink industry.

To retain Wall Street's approval, EDS must continue reducing its dependence on revenue from it largest customer, General Motors Corp., said analysts. The company also must continue expanding its Web solutions and its forays into the small and midsized markets, both in the private and public sectors.

Brown is confident the company is heading in the right direction.

"We're improving our operating margins and accelerating growth above the market average in each sector," Brown said. "We're an electronic solutions company."Business: Business process re-engineering, data center and IT outsourcing, and e-commerce solutions


Headquarters: Plano, Texas


Chairman and CEO: Richard Brown


1999 Revenue: $18.5 billion


1999 Net Earnings: $420.9 million

Employees: 125,000


Ticker: EDS on New York Stock Exchange


Web Site: www.eds.comBy Steve LeSueur

Electronic Data Systems Corp. is trying to capitalize on the momentum of its offbeat and clever Super Bowl television commercial, a 60-second spot called "Herding Cats."

The commercial presents itself as an epic of the American West, much like a John Ford movie or the television show, "Rawhide," except that these craggy-faced cowboys do not herd cattle. Instead, they rein in cats, driving them across streams, quelling stampedes, rescuing them from trees and carrying them gently across their horses' saddles.

Filled with humorous touches, such as a rugged cowboy rolling a ball of yarn and another brushing cat hair from his coat, the commercial suggests that trying to keep pace in the fast-changing and chaotic world of information technology is like trying to herd cats.

"This was the perfect metaphor for communicating what we do," said Don Uzzi, EDS senior vice president of global marketing.

EDS officials also liked the commercial because it was epic and funny, no one had done anything like it before, and the commercial itself required advanced technology to create the illusion of thousands of cats being herded across the plains. In reality, about 60 cats were used, each with special skills such as running, swimming and sleeping.

"The commercial spoke volumes about technology. Two years ago, it couldn't have been done," Uzzi said.

The commercial ran once during the football game and again during the post-game show. As soon as it aired, EDS telephones started ringing, and its Web site overflowed with visitors. The company had 2 million hits on its Web sites the next day, 10 times the normal volume, said Richard Brown, EDS chairman and chief executive officer. The company had to mobilize additional servers to handle the hits.

"Herding Cats," which was created by Minneapolis-based Fallon McElligott, has won every online poll ranking of Super Bowl commercials, including polls by CNBC, CNN and Yahoo, EDS officials said. The commercial also helped erase the company's image as rigid and unapproachable, one of the chief goals of a $100 million ad campaign that started last September.

While the commercial has aired only six times, EDS has created a "cat herding" game called "The Good, The Bad, The Furry," that can be played on the company's Web site. (www.eds.com/cat_game/game.html) They also have produced a short video about the making of the commercial.

Company officials would not say how much it cost to produce the commercial, but advertising publications reported that the average cost for a 30-second ad spot during this year's Super Bowl was more than $2 million.

"In terms of payout, we got seven to 10 times the return on our investment," Uzzi said.

And will EDS be airing another commercial in next year's Super Bowl?

"We're not saying," he said.

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