EDS Chief Cites Restoring Leadership as Top Goal

Q&A: EDS has renegotiated bad contracts and nixed unneeded subsidiaries as part of its comeback, but CEO Michael Jordan says more must be done for the company to be great again.

Electronic Data Systems pioneered the outsourcing industry, but fell on hard times several years ago after signing several major, ill-conceived deals, such as the giant Navy-Marine Corps Intranet project.

The reversal led big IT customers and the investment community to become wary of the companys prospects.

To turn the company around, EDS Michael Jordan came out of retirement in 2003 to become EDS Chairman and CEO.

Renegotiating bad contracts and jettisoning unneeded subsidiaries such as UGS and AT Kearney have helped bring the company back to respectability, according to Jordan.

In recent months, investment firms such as Lehman Brothers have begun recommending the companys stock once again.

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Now EDS is looking to retain a sizeable chunk of the IT business at key client General Motors. EDS was a subsidiary of General Motors from 1984 to 1996, and retains about 60 percent of the automakers IT work.

In an interview with Executive Editor Stan Gibson at the companys headquarters in Plano, Texas, Jordan said that there is still more work to be done in returning the company to industry leadership.

You said in a recent speech that the turnaround of EDS is about halfway complete. Is that an accurate assessment?

In the sense of solving the major problems—the loss accounts, the Navy problem—were ahead of that. Weve gone through a trial and come back to a pretty good position. To drive the growth and sophistication of our business is going to take another two to three years.

The one thing we have left to do is to get Moodys to rate us investment grade, but we think well do that. We actually feel pretty good about where the company is headed. Our goal now is to continue to drive ahead, improve our margins, get a bit more growth and build some of our weaker areas like applications.

Was there a time when customers were holding back because of the viability questions?

Yes, that was happening in 03 and 04 after the Moodys downgrade. It was for that reason that we decided to go ahead with the sale of UGS PLM, to put a couple of billion dollars in cash on our balance sheet. We got through that and in 2005, we didnt hear very much about it.

You are getting some long term deals now. In many of them, youre part of a team or alliance.

One of our strategies in restoring competitiveness to our infrastructure business was the development of a standardized technology platform and an alliance structure.

As weve gone into head-to-head competitions, which are generally against IBM, the strength of our alliances have been pretty important. Best of breed technologies—EMC, Cisco, Microsoft—have let us push a lot of differentiation.

Are there specific wins that stand out—where EDS so-called Agility Alliance paid off?

I think Royal Ahold is a good example of a recent win.

IBM has had a few wins as well, such as ABN Amro. Were you bidding on that?

Yes. They won that. They did a good job on that. They had a pretty big position there already. We had a small position. IBM is in most infrastructure outsourcing situations. Its usually us and IBM. I think were winning our share.

Looking at how you stack up against IBM, their classical strengths would probably be research and development, vertical expertise and global capabilities. Youve been global for some time, you are strong in some vertical industries ….

Yes, like manufacturing, transportation and autos. And for the R and D piece, we are piggybacking on our alliance partners.

So the question is, is that R and D strategy working?

Yes. Our alliances are not just marketing alliances. Theyre showing us three-to-five-year product plans and we are baking that into our development strategy. We can say to customers what equipment theyll have and what the economics will be three to four years from now.

The customers seem to be open to the best of breed pitch?

Yes. Oh yes. IBM has built a reputation that is both a strength and a weakness. Theyre a very strong company and have a lot of the dominance in the data center world. On the other hand, there are a fair number of clients that think they got manhandled by IBM.

IBM does tout the ability to use IBM research to come up with a special sauce for a specific client. Can you go to your alliance partners for that?

We havent found a specific instance where that really makes a difference. In the services business, were adapting and implementing established technology with a flexible point of view. Very rarely do you want something from the labs that youll run your business on.

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