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BOSTON—Electronic Data Systems is about halfway toward completing its turnaround, said EDS CEO Michael Jordan in a speech here. Jordan offered a summary of progress in the turnaround of the venerable outsourcer and systems integrator in remarks at a forum for business leaders sponsored by the Carroll School of Management at Boston College.
“First, stop the bleeding. Second, build the balance sheet,” admonished the attendees, which included many of the top business leaders and politicians in the Boston area. The bleeding at EDS reached approximately $1 billion per year in 2002 and 2003—$800 million of which was the Navy Marine Corps Intranet (NMCI) contract.
The main reason for the poor performance was that EDS was being run as a “series of silos,” when he came aboard several years ago, said Jordan, adding, “The Navy account was the worst.” Managers on the NMCI account were autonomous and failed to benefit from the expertise, particularly in desktop management, that EDS had gained from working on other accounts such as General Motors.
Jordans response was to pick the best people at EDS and put them on the Navy contract. That and other measures cut the annual NMCI loss to $400 million this year, with a positive cash flow of $140 million expected next year. Overall, EDS has achieved a net debt of zero, the result of approximately $3.5 billion in cash and $3.5 billion in debt, said Jordan.
Some problems at EDS were cultural. Jordan said the early EDS, under Ross Perot, had Marine Corps discipline, but over the years, EDS lost that. When it was owned by General Motors from 1984 to 1996, EDS became bureaucratic and decentralized.
EDS has shed about 13 percent of its total workforce in the past several years, even as it shifts work to low-cost countries such as India. Jordan said the company will double its labor force in low-cost countries, from 15,000 to 30,000, in the next two years.
“We chose India because they have tremendous training and skills. India and China are hungry societies. They are setting the new mark for effective application development. There is no way to reverse this trend,” said Jordan. In remarks to the press after his speech, however, Jordan said that Indian salaries are rising steadily, and that turnover among Indian workers has reached 40 percent annually.
“Our approach is that we want to retain control over design requirements and farm out coding and testing,” told the audience, adding, “We have to be able to retain entrepreneurial and business leadership.”
Jordan said the combination of protectionism and national security in the United States is “disturbing,” He complained that the federal government is dragging its heels in granting visas to foreign nationals, particularly Chinese nationals who seek to do research at U. S. universities.
“Were in a more competitive world than 10 years ago. The Indian and Chinese governments are supporting science and engineering more than we are.”
A major push into China by EDS is coming in the next two to three years, he said, fueled by Chinese government contracts.
In the United States, there is still a shortage of really well-trained people. Jordan also lamented the dearth of black, Hispanic and female participation in science and engineering. “We run the risk of 40 percent to 50 percent of the population not being employable in areas in which we need people.”