If one views the stock market as the ultimate gauge of corporate success, then, without doubt, the most successful professional-services company in America is Electronic Data Systems Corp.
While its competitors are selling between 50 percent and 99 percent below their 52-week highs, EDSs stock on May 1 closed just below $65, only a few dollars below its high of $68.75. Not a bad showing during one of the worst tech slowdowns in recent memory.
EDSs financials support Wall Streets renewed enthusiasm for the stock. The companys earnings for the 12 months ended Dec. 31, 2000, nearly tripled, to $1.14 billion, on a 4 percent gain in sales to $19.2 billion.
In the fourth quarter, when nearly everyone else was tanking, EDSs earnings were up nearly 700 percent to $321 million. The company announced its first-quarter results on April 25. For that period, earnings increased 19 percent while total revenue jumped 9 percent to $5 billion.
Whats behind the solid numbers? Apart from a two-year-old corporate reorganization that streamlined operations and introduced the concept of enterprise resource planning—and a new management team that restored crumbling employee morale—the major factor in EDSs resurgence is growth in its traditional outsourcing business, where long-term revenues are predictable and sustainable. Outsourcing tends to offer quick payback to customers, which is why that business generally holds up in a recession.
"EDS is extremely well-positioned in its mainframe outsourcing and Internet hosting businesses," says David Sturtz, who follows the company for Credit Suisse First Boston.
EDS currently derives about 86 percent of its total revenues from IT and business-process outsourcing (mainly call-center management). Two smaller units of EDS—strategic consulting and E-solutions—which account for the remainder of the companys revenues, also are doing fairly well, says Sturtz, although the front-end Web development practice has no doubt experienced some falloff in demand over the past six months.
"They may be more insulated than some of their competitors, because theyre part of a large company with longer-range projects," says Joseph Vafi, an analyst at Robertson Stephens. "But, look around … nobody out there is doing much in the way of new applications development. EDS has to be feeling some pain."
Meanwhile, there are other challenges going forward. One is achieving better integration between the A.T. Kearney consulting division and the e-biz specialists. EDS has talked for years about leveraging high-end consulting to drive downstream activities, but even company insiders admit that Kearney has yet to forge close ties with the E.solutions side.
Sturtz says one reason is geographic—about two-thirds of Kearney revenues are derived offshore, while only about 15 percent of E.solutions revenues are generated outside of North America.
EDS, however, is taking steps to address that disconnect, according to a company spokesman. Dietmar Ostermann, the newly named head of A.T. Kearney, is moving his base of operations from Chicago to EDSs Plano, Texas, headquarters, and is bringing with him about 10 members of the Kearney executive team. In addition, Ostermann and E.solutions chief John McCain will now sit on each others global leadership team, further promoting tighter links between the two groups.
Another hurdle for EDS is branding the E.solutions unit, which has very quietly grown into a $1 billion business in less than two years. This is not a big number relative to the rest of EDS, but $1 billion worth of e-biz work is pretty impressive in the outside world.
EDS is trying to boost its e-profile, making an uncharacteristic PR splash at last years Fall Comdex. But the company is not a very creative marketer—its idea of marketing has always been to get in bed with the customers CEO and stay there. Vafi says now may be the worst time to be doing any serious image branding in e-services.
A final challenge for EDS is to inculcate a partner-centric mentality throughout the organization. Up until a couple of years ago, EDS approached partnering as a pickpocket approaches a victim—get in and out fast, grabbing as much booty as possible. However, comments from key partners like EMC and Hewlett-Packard indicate that EDS is no longer partner-phobic and has become an important conduit for launching core technologies into the marketplace.
EDS officials add that the new emphasis on partnering is enabling the integrator to roll out repeatable hosting solutions for a variety of market segments, from the data center to the desktop.
"Clients can source [these solutions] from a diverse set of boutique providers, or partner with a company like EDS that provides a complete end-to-end service delivery portfolio," notes Doug Frederick, who heads EDSs Information Solutions business.
Whether the driver is cutting costs or reducing speed of deployment, Frederick concludes, clients are finding that single sourcing makes good sense.
Wall Street apparently agrees.