Electronic Data Systems Corp. (EDS) - Reorganization After Spinoff By Gm

REORGANIZATION AFTER SPINOFF BY GM

BellSouth Telecommunications selected EDS for its $4 billion computer systems operation contract in 1997. The deal marked the first billion-dollar contract secured by EDS in more than a year and a half. In August of 1998, EDS was listed on the Standard and Poor's stock index. At that time, employees exceeded 90,000, and operations spanned more than 40 nations. Alberthal resigned as CEO and chairman, and was succeeded by Richard H. Brown in early 1999. According to William Schaff in an August 1998 InformationWeek article, Brown's challenge would be to maintain the firm's competitive edge as demand for IT outsourcing grew. "Companies are outsourcing more IT functions, including their Web sites and E-commerce systems, as they focus on their core business. This puts EDS in a good position, but the booming market has also attracted strong competitors, including Computer Sciences Corp. and IBM Global Services, which have started winning some of the megacontracts that used to be EDS's private domain." Another issue facing EDS was that costs were growing as quickly as revenues, undercutting earnings growth.

One of Brown's first accomplishments was the purchase of Advanced Computing. He also oversaw the $12.4 billion, 10-year dual outsourcing agreement between EDS and MCI WorldCom, through which MCI WorldCom contracted EDS to handle a portion of its IT operations for $6.4 billion, and EDS contracted MCI WorldCom to oversee a chunk of its network operations for $6 billion. As part of the deal, EDS acquired MCI Systemhouse Corp., which designed, constructed, and operated systems that connected computers with data, voice, and Internet networks. It also offered e-commerce services such as call center management. Eventually, MCI Systemhouse was folded into a new Web-based electronic business unit called E-Business Solutions, which later became known as E.Solutions.

Decreased earnings in 1999, due in large part to increased competition and rising costs, prompted the firm to undertake a $1 billion reorganization effort which resulted in the layoff of 13,000 employees. Brown also combined the 48 business units of EDS into four divisions. In 2000, EDS purchased France's Captimark Corp., a customer service management systems provider. Rolls-Royce hired EDS to oversee its IT services; the contract was valued at $2.1 billion. The firm also secured a $6.9 billion IT systems contract from the U.S. Navy. At the dawn of the new millennium, EDS employees totaled roughly 115,000 and the firm operated more than 800 offices across the globe. Sales continued to grow, and profits more than doubled, reflecting the success of cost cutting measures launched by Brown in 1999. According to Inter-netWeek, when Brown took over, "not only did EDS have aging systems, but it wasn't using the e-business technology it recommends and deploys for so many of the large enterprises that make up its clientele. Upon his arrival, Brown kicked off an extensive systems-modernization effort and insisted upon the implementation of e-business applications." For example, the firm began training its employees via online courses, which drastically cut training costs.

In early 2001, EDS bought the outsourcing operations of online travel agent Sabre for $670 million and Germany's IT systems provider Systemantics for $570 million. In June, EDS also agreed to acquire collaborative software manufacturer Structural Dynamics Research for $950 million to bolster a push into Web-based collaborative product design. The deal reflects the firm's continued efforts to broaden the reach of its e-business solutions operations.