Electronic Data Systems Corp. (EDS) - Early History

EARLY HISTORY

EDS was created in 1962 by H. Ross Perot, a former IBM salesman. Recognizing that companies were struggling to recruit employees with the technical expertise needed to operate new equipment, Perot had come up with the idea that IBM should offer electronic data processing services along with selling computer equipment. When IBM discarded Perot's idea, he resigned to found EDS. The firm's first client, Collins Radio, bought computer time, which Perot had purchased on a wholesales basis, on an IBM 7070 machine at Dallas, Texas-based Southwestern Life Insurance. The following year, EDS began securing data processing contracts with firms like Mercantile Security Life and Frito Lay. To differentiate his firm from competitors who marketed two-and three-month contracts, Perot established five-year contracts with a predetermined price. EDS operated by putting in place a computer system and supplying staff qualified to run it. EDS employees were replaced by the client's workforce once they had learned to operate the machines.

EDS began establishing Medicare and Medicaid claims processing systems in 1965. Three years later, Medicare and Medicaid accounts were generating 25 percent of total sales. The Dallas Bank signed on as the first financial institution to use EDS, and later became a world leader in providing data processing services to banks and savings and loan institutions. The firm also secured its first $1 million contract and conducted its initial public offering at $16.50 per share. Sales in 1970 reached $47 million. After reaching a high of $160 per share in 1971, stock plummeted to $66 by the year's end. As a result, Perot hired Morton H. Meyerson and charged him with the task of preventing further stock drops. However, stock fell to $15 per share in 1973. The following year, eight credit unions signed up for EDS service, and sales reached the $100 million mark. EDSNET, an internal communications network, was launched.

In 1976, EDS faced litigation filed by F&M Schaefer Corp. for what F&M alleged was the firm's erroneous and defective data processing system. EDS contended that F&M was merely trying to wrangle its way out of paying its $1.2 million bill. Eventually, EDS agreed to pay F&M $200,000 to settle the case. The firm also made its first international foray, securing a $41 million contract to provide computer services to the Iranian government for three years. EDS landed a contract from King Abulaziz University in Saudi Arabia as well. In 1978, after waiting six months for payment from Iranian officials, EDS discontinued its operations in the country.

Morton Meyerson was named president in 1979, and was appointed CEO shortly thereafter. Perot retained the role of chairman. EDS diversified by securing contracts with hospitals, small banks, small businesses, and other organizations it had not targeted before. The firm also acquired Potomac Leasing, gaining access to its first government contract. In 1982, Meyerson was lauded by the Wall Street Transcript as "The Best CEO in the Computer Services Industry," an award he also won in 1983 and 1984. In the early 1980s, EDS signed a federal government contract that was the largest such deal ever assigned. The firm also landed a $656 million contract, known as Project Viable, to develop the U.S. Army's computerized administrative system over a period of 10 years. The system became known as Army Standard Information Management Systems (ASIMS). In June of 1984, General Motors Corp. paid $2.8 billion for EDS, completing the most costly purchase to date for a computer services company. As specified by the terms of the deal, EDS retained its corporate culture and most of its workforce. GM assigned a class E stock to EDS, tying its value to the new subsidiary's performance. Perot was named to the General Motors board of directors, and EDS took over management of General Motors' unwieldy data processing system and began whittling down the automaker's data processing expenditures, which totaled roughly $6 billion each year. Eventually, EDS connected the firm's suppliers and dealers in one of the first major electronic data interchanges.