Electronic Data Systems Corporation History

Company Perspectives:

A sharp eye sees beyond what is and envisions what can be. Bringing that vision to life requires a wealth of insight, talent and resources. For clients around the world, Electronic Data Systems Corporation (EDS) is the bridge between vision and reality. We help clients see new ways to redefine their businesses or industries. Then we harness the power of information and technology to expand the horizons of innovation, productivity and service our clients deliver to their customers. The results we achieve speak to the value of a company that sees what the future can hold while helping its clients hold that future in their hands. That company is EDS.

Company History:

Electronic Data Systems Corporation (EDS) is a recognized leader in the management of information technology. The company designs, installs, and operates data processing systems for customers in the automotive, communications, energy, financial, government, healthcare, insurance, retail distribution, transportation, utilities, and manufacturing industries. An innovator in facilities management, EDS originated the concept of long-term fixed-price contracts for this industry. EDS owns the largest private digital telecommunications network in the world and conducts business in all 50 states and in 27 countries.

The Ross Perot Years, 1962--86

This multibillion-dollar corporation sprang from modest beginnings. At the age of 19, a young Texan named H. Ross Perot received a much desired appointment to the U.S. Naval Academy. Although he valued his time in the military, he found it too restrictive and decided against building a career in the Navy. In 1952, while still in the Navy, he was recruited to be a salesman by International Business Machines (IBM). Initially he found their business style comfortable, but became frustrated after a time.

In January 1962, Perot had already fulfilled his entire annual sales quota because of a recent change in IBM's commission structure. Not satisfied with the administrative job then offered him by IBM, he recognized an unmet need among IBM's many computer customers. Most companies had few knowledgeable personnel to operate their new computer equipment. Perot wanted to offer skilled electronic data processing management services to these companies. He presented his ideas to IBM executives, but they were not interested.

Perot left the company and, on June 27, 1962--his 32nd birthday--incorporated Electronic Data Systems in Dallas. EDS developed a business concept later termed "facilities management." Companies would concentrate their energies on what they did best, leaving the computing and data processing tasks to EDS, who could do them more efficiently and economically.

Perot spent the first five months with his new business canvassing the East Coast and Midwest to find a first customer for his computer services company. He had bought wholesale computer time on an IBM 7070 computer installed at Southwestern Life Insurance in Dallas during the latter company's idle hours (EDS would not acquire its own computer until 1965). Once he sold this time at retail, he was in business. Collins Radio in Cedar Rapids, Iowa, became EDS's first customer, and launched a new industry called information services. In November, with money from that first sale, Perot hired IBM salesmen Milledge A. "Mitch" Hart and Thomas Marquez.

As EDS grew, Perot modeled employee behavior on the high standards of IBM. He demanded conservative dress, honesty with customers, and no alcohol consumption during business hours. He expected employees to stay sharply focused and highly disciplined. Although he ran the company with almost military precision, Perot established a management that listened to employee suggestions and ideas. According to an April 1969 article in the trade journal Datamation, Perot's goals were "to create a climate of complete intolerance to company politics, to provide the finest personal and financial advantages for employees, to make EDS an exciting place to work ... to promote from within...." He believed in loyalty, but held duty at an even higher level. A motto over his office door read, "Every Good and Excellent Thing Stands Moment by Moment on the Razor's Edge of Danger and Must be Fought for." Perot expected employees to fight for their ideas.

In 1963 EDS signed its first long-term commercial facilities management contract with Herman Lay of Frito-Lay. While other services companies offered short-term contracts of 60 or 90 days at hourly rates, EDS wrote five-year fixed-price contracts. EDS set up a customer's data processing system, provided the staff to run it, and, once the system was running smoothly, removed some personnel and reassigned them to new projects. Because EDS could cut expenses over the life of the contract by decreasing personnel costs, its profits increased. The customers benefited because they could budget long-term electronic data processing costs. The longer contracts also gave EDS stability.

The passage of Medicare legislation in 1965 gave EDS the opportunity to enter another lucrative market. Government agencies involved were about to take on a new mountain of paperwork. EDS organized Medicare and Medicaid claims processing systems in many states. By 1968, Medicare and Medicaid contracts provided about 25 percent of EDS revenues, and, by 1977, healthcare claims processing accounted for nearly 40 percent of EDS's sales.

In 1963, EDS executed its first insurance company contract with Mercantile Security Life and, by 1990, was the largest insurance data processor in the country. In 1968, it signed a Dallas bank as its first financial institution customer and later became the world's largest provider of data processing services to banks and savings and loans associations. Beginning with eight credit unions in 1974, EDS serviced more than 3,000 in 1990. While in 1978 EDS had only three employees in its Washington, D.C. office, in 1990, 6,000 people worked in EDS's government arena.

In 1968, prompted by an employee's question about the worth of the company's stock, Perot began to investigate the advisability of a public stock offering. He made the initial release small: 325,000 of his own shares and 325,000 new EDS shares&mdashout seven percent of the company. The offering met with phenomenal success, opening at $16.50 per share and closing at $22. Perot and EDS each received approximately $5 million. The stock traded over the counter until 1971, when the company was listed on the New York Stock Exchange. The shares climbed to a high of $160 in 1970; by April 1971, they had dropped to about $66, and in 1973, with a sharp decline in the stock market, EDS stock plummeted to $15 a share. But the company's revenues doubled almost every year between 1964 and 1970. Revenue increase slowed to 22 percent in 1971, with total revenues topping $100 million by the end of 1973, seven years ahead of the original goal set when the company was founded. Revenue growth slowed again in 1977 to 13 percent.

Perot served as president from the company's inception in 1962 until he appointed Hart to that position in 1970. Hart was president until his resignation in 1977. Perot stayed on as CEO and chairman of the board and resumed the presidency from 1977--79.

Pioneering Distributed Processing: The 1970s

EDS pioneered the concept of distributed processing, by which systems and terminals communicate with each other from remote locations. It developed computer systems set up to serve a specific industry. These systems could then be modified according to each customer's needs. In the 1970s, EDS developed Regional Data Centers, where customers could transmit their work to be handled by EDS's data processing equipment and personnel.

In the early 1970s, EDS bought Wall Street Leasing, a computer services subsidiary of DuPont Glore Forgan, Inc., one of the country's leading retail stockbrokers. Perot charged EDS Vice-President Morton H. Meyerson with the task of attempting to rescue the financially troubled firm. With encouragement from the Nixon Administration, which feared a financial disaster on Wall Street, Perot had begun by investing $10 million in DuPont. By 1973 he had invested further funds in Walston and Company, another retail brokerage house, and had proposed a merger between DuPont and Walston. By early 1974, Perot was defeated by the losses at DuPont and Walston and left Wall Street some $60 million poorer.

A lawsuit filed in 1976 by F. & M. Schaefer Corporation and F. & M. Schaefer Brewing Company, for whom EDS operated a data processing facility, contributed to the slowdown of revenue growth in the mid-1970s. Schaefer claimed that the EDS data processing system was inaccurate and deficient, resulting in inadequate and misleading information. EDS maintained that Schaefer filed the suit to avoid payment of more than $1.2 million owed to EDS. In the 1978 out-of-court settlement, EDS paid Schaefer Corporation $2.3 million and retained $1.3 million already paid by Schaefer. These kinds of lawsuits would continue to plague EDS to the end of the 20th century.

In 1975 the company began to aggressively pursue overseas business. Early the following year, EDS entered the international market by signing a contract with King Abdulazziz University in Saudi Arabia. Later that same year, EDS signed a three-year, $41 million contract with the government of Iran to provide computer services for their social security division and training for Iranian personnel. In December 1978, EDS suspended all operations because Iran was six months behind in payments. The scope of the Khomeini Revolution grew in Iran and, after the jailing of Iranian officials with whom EDS worked, Perot ordered EDS employees and their families home. A few employees remained, hoping the chaos would be resolved. The situation worsened with the "arrest" of EDS executives Bill Gaylord and Paul Chiapparone, with bail set at $12 million. Since diplomatic channels seemed closed, Perot took direct action. In early 1979, he organized a rescue team headed by Green Beret Colonel Arthur D. "Bull" Simons, whom Perot had previously hired to make private forays into Vietnam looking for servicemen missing in action. Although Gaylord and Chiapparone actually left the prison on their own when a rioting mob released all the inmates, they needed the EDS team to get them out of the country.

In the mid-1970s, EDS began a shift away from facilities management, since many companies were becoming interested in running their own data processing systems. In 1979 Meyerson became president, while Perot continued as chairman of the company. Under Meyerson, EDS diversified its business interests through acquisitions of turnkey systems for hospitals, small banks, and the small business field. With the purchase of Potomac Leasing in 1979, EDS moved into federal government contract work. The bulk of EDS business still remained in facilities management, with processing of healthcare claims a large percentage of the business through the 1970s and into the 1980s.

Always moving with the times, EDS became a systems integrator, sending in teams of experts to connect and coordinate a company's entire computer system, software, and telecommunications. In 1982 EDS celebrated its 20-year anniversary by winning a $656 million, ten-year contract for Project Viable, to streamline and update the U.S. Army's computerized administrative facilities and to build a network connecting 47 bases across the United States. The biggest contract in the information services industry at the time, the landmark agreement signified the start of the large systems integration market.

Under General Motors, 1984--96

On June 27, 1984, although the company never had a contract with an automobile manufacturer, EDS became a wholly owned subsidiary of General Motors Corporation (GM). GM needed EDS to coordinate and manage its huge, unwieldy data processing system and to cut its $6 billion annual data processing costs. Roger B. Smith, GM's chairman of the board, thought Perot's management style would be an asset to his giant corporation. The $2.5 billion purchase price was the largest ever paid for a computer services business. GM agreed to maintain EDS as a separate entity, keep key personnel, and issue a special class of common stock, called "Class E," which would be tied to EDS's performance, not GM's. Perot would retain managerial control of EDS and serve on GM's board of directors.

Problems surfaced within a year when the differences in management style between Perot and Smith became evident. The August 1984 issue of Ward's Auto World suggested "Mr. Perot is a self-made man and iconoclast used to calling his own shots ... Roger B. Smith [is] a product of the GM consensus-by-committee school of management, never an entrepreneur."

EDS saw revenue increases as the result of the GM purchase. In 1985, the first full year after the acquisition, EDS revenues tripled to $3.4 billion. By 1986, personnel had grown to 44,000, almost triple the number from 1984. EDS also branched out into telecommunications and factory automation. Although EDS revenues increased substantially, profit margins fell to 5.5 percent in 1985. GM preferred contracts which stipulated a certain percentage for profit; EDS, on the other hand, wanted to continue the fixed-price contracts it had been using since inception. Additional problems arose as the result of the differing company cultures.

In 1986 GM management bought out Perot for more than $700 million and, for the first time in the 24 years since he started the company, Ross Perot was no longer in charge of EDS. Meyerson also resigned.

At that time, Lester M. Alberthal, Jr., became president and CEO. He had joined EDS as a systems engineer trainee in 1968. In June 1989, he was named chairman of EDS. Under Alberthal's leadership, EDS broadened its customer base and reduced its dependence on GM-generated revenues from 70 percent in 1986 to 55 percent in 1989. Revenues climbed to new highs. The company diversified, moving into energy, transportation, communications, manufacturing, and other new areas of business. Diversification included further expansion of international business. Administration of the company was reorganized through a leadership council, to spread responsibility and authority for daily operations to lower levels of the EDS hierarchy and allow the top executives to focus attention on development of long-range strategy.

Within the GM alliance, EDS developed the world's largest private digital telecommunications network: EDSNET. Consolidating the networks of both GM and EDS took three years, a staff of 2,000 people, and a cost of over $1 billion. In 1989 EDS opened its Information Management Center in Plano, Texas. The 153,000-square-foot facility served as the heart of EDS's extensive worldwide communications network and information processing centers where voice, data, and video transmissions travel to their destinations via state-of-the-art media. The center was the hub of operations for 15 North American and six international Information Processing Centers, allowing EDS to respond immediately to the needs of its thousands of customers, who were then able to take advantage of the leading edge of information technology.

Throughout the years, EDS contributed to the community and the nation as part of its company policy. In May 1989, and again in 1990, EDS supported Project JASON, which enabled 225,000 children around the country to witness live the undersea exploration of the Mediterranean Sea, led by Dr. Robert D. Ballard, the scientist who discovered the wreck of the Titanic in 1985. EDS provided satellite links and solved technological problems to ensure the success of the undertaking, created an Education Outreach Program for the communities where the company was located, and "adopted' several public schools and worked with teachers to help improve the quality of education.

In the early 1990s, the company won a string of big computer services contracts with regional and super-regional institutions in the banking industry. In 1992 total revenue reached $8.2 billion, with net income at $636 million; the following year, revenue climbed to $8.6 billion, with a net income of $724 million.

In June 1994, the company signed a landmark $3.2 billion, ten-year outsourcing contract with Xerox Corporation. The company also discussed a merger with Sprint Telecommunications, and though nothing came of the talks, they were prescient of the convergence that occurred between telecommunications and computing over the next few years. Total revenue for 1994 reached $9.96 billion, with a net income of $821.9 million.

In January 1995, EDS signed a $350 million outsourcing agreement with American Express Bank Ltd. of New York and acquired A.T. Kearney, a global management consulting firm located in Chicago, for approximately $600 million. In addition, the company began working with Hong Kong-based CargoNet, a company which provided a comprehensive trade and transportation communication network designed to handle millions of trade-related documents each year, beginning a total transformation of the traditional trade cycle, using electronic commerce and logistics services to support Hong Kong trade and transport companies.

Also that year, the company created EDS Digital Studios and acquired Varitel Video, a midsized film-to-video transfer company. Two years later, the company spent $12 million to buy eight Quantel Dominos (of 15 existing on the West Coast at that time), high-resolution drawing pads and computer monitors used for film restoration, compositing, and creating digital special effects. Some of the subsidiary's products included Post Paint (an application which reduced "paint crawling,' an animation problem which occurred when restoring animated films that were more than 20 years old in which the paint on individually painted frames tended to smear), Post Camera (which simulated a camera move after film had been shot), and Post Rez (which improved film resolution and produced a sharpness to the picture). New business consisted of 83 deals totaling more than $10.1 billion. Total revenue for the year reached $12.42 billion, with a net income of $938.9 million.

Self-Governing Again: 1996 Forward

In June 1996, the company was spun off from GM and became an independent company once again, triggering two years of restructuring, including related costs. The company struggled with a string of disappointing quarterly performances for a time, and the stock dropped to nearly half of what it had been trading at a year previously before bouncing back. In addition to a division pursuing multinational banking contracts, headed by Stephen R. Bova, the reorganization also spawned three other divisions--community banking, U.S. banking, and global securities services, headed by Louis Ivey, Michael Littell, and Michael T. Reddy, respectively. The company continued to do business with GM, after renegotiating their contracts, and ended up with $4.31 billion and $4.17 billion worth of business in 1997 and 1998, respectively, from the auto giant, in a ten-year $40 million agreement under which EDS would continue to be GM's principal provider of information technology (IT) services.

Early in the year, Rolls-Royce, one of the world's leading providers of aircraft and helicopter engines, engaged EDS and its management consulting firm, Kearney, and charged them with three goals: improve customer service, increase quality, and achieve significant business improvements. EDS created a "CoSourcing' relationship and improved many of Rolls-Royce's core business processes, including external purchasing, project management, product development and manufacturing, and information-handling and support systems. Rolls-Royce's U.S.-based subsidiary, The Allison Engine Company, later joined the agreement to improve global business process integration. Later that year, the relationship with EDS/Kearney was extended to Rolls-Royce's industrial power businesses, which provided systems in the naval power, oil and gas, electricity generation, transmission and distribution, and materials-handling market sectors encompassing Rolls-Royce's manufacturing capacity and support functions in Canada, Europe, Africa, and the Pacific Rim. Integration Management ranked the alliance as one of "Ten Deals That Shook the Globe' and praised both Rolls-Royce and EDS for a nontraditional approach in making the relationship work.

Also in 1996, the company began moving away from pursuing huge regional contracts in favor of smaller, more profitable ones with community banks (although in June the company signed a $250 million contract to manage desktop computer systems for Citigroup). As a result, in one larger deal EDS lost out in May to competitor Computer Sciences Corp. for part of a $2 billion, seven-year outsourcing contract with J.P. Morgan & Co., but signed 147 outsourcing contracts for a total value of $8.4 billion, including a ten-year, $75 million technology outsourcing agreement with Credito Emiliano, a private bank in Italy with 180 branches and 2,000 employees, EDS's first such contract with an Italian bank. Total revenue for the year reached $14.44 billion, but the company's profits declined for the first time since 1976, with a net income of $431.5 million, which included $895 million of restructuring charges, asset write-downs, and other related charges, as well as $45.5 million of one-time split-off costs, all before income taxes. On the up side that year, the company's stock began trading on the London Stock Exchange, and EDS became the first company to earn more than £1 billion in the U.K. computer services and software market.

By 1997 over 70 percent of the automated teller machines (ATMs) in the United States were manufactured by the company, making EDS the nation's leading designer and supplier of such. That year the company signed a record level of new business valued at more than $16.3 billion, including two megadeals worth a combined $5.9 billion--one with The Commonwealth Bank of Australia Ltd.; the other with BellSouth in Atlanta, Georgia. Kearney's gross fees surpassed $1 billion for the first time, and new clients included market leaders such as British Airways, Chevron, and Mobil.

In June, the company merged its banking and securities unit with the credit services division, and the following month acquired all remaining outstanding equity interests in Neodata Corporation, a Colorado-based integrated marketing communications services company, for $61.7 million. The company's total revenue kept climbing, to $15.24 billion, with a net income of $730.6 million, outstripping the combined total revenue of its closest three competitors, Computer Sciences ($5.24 billion), First Data ($4.94 billion), and Vanstar ($2.01 billion).

Early in 1998, the company began working with Italy's Ministry of Education to help update their information technology infrastructure and help decentralize power and responsibilities from central government to peripheral offices. EDS allied with Ferrovie dello Stato (FS), the Italian State Railways, combining EDS's information technology expertise with FS's logistics know-how and existing infrastructure covering all of Italy. A distributed client/server system with 30,000 computers to link 14,000 institutions, from primary through high schools, with the Ministry's regional education offices throughout Italy, was designed.

In December 1998, Richard H. "Dick' Brown, former CEO of Vienna, Virginia-based Cable & Wireless, became the company's third CEO, replacing outgoing Alberthal, who also stepped down as chairman. During Alberthal's tenure, net sales grew from $4 billion to $16.9 billion, with a 1998 net income of $743.4 million. Also at the end of December, Vice-Chairman Gary Fernandes, a veteran EDS executive, retired, leaving industry analysts concerned about turnovers at the top of the company.

In January 1999, the company announced a joint venture with NCR Corporation, part of EDS's newly unveiled Business Intelligence Services (BIS) group. The arrangement would couple EDS's industry knowledge and consulting expertise with NCR's data warehousing capabilities. Together, EDS and NCR would help companies open up data warehouses linking employees, vendors, and business partners, a roughly $100 billion market. Such deals, coupled with a continuing emphasis on employee training and customer service, virtually guaranteed EDS's prominence within the information technology industry.

Principal Subsidiaries: A.T. Kearney Inc.; Bancsystems Association Inc.; Cummins Cash and Information Services Inc.; EDS Australia (65%); EDS Personal Communications Corp.; EDS Unigraphics; Energy Management Associates; Neodata Corp.; Scicon.

Principal Divisions: Credit Union Services; Health Care; Information Systems; Maintenance Systems Integration; Military Systems; Technical Products; People Systems.

Further Reading:

• Avery, Susan, "New Integrated Supply Raises Concerns,' Purchasing, November 7, 1996, p. 71.
• Black, George, and Toby Poston, "EDS's Global Reach to Win BP Deal,' Computer Weekly, August 20, 1998, p. 2.
• Callaway, Erin, "Xerox, EDS Try to Keep Spark in Outsource Deal,' PC Week, September 9, 1996, p. 1.
• Davey, Tom, "The Grass-Roots 6x86 Movement; Cyrix's EDS Deal Is Rooted in Desktop PCs,' PC Week, March 18, 1996, p. 31.
• Egodigwe, Laura Saunders, "EDS Insiders Post Stock Sales of $22.7 Million,' Wall Street Journal, May 6, 1998, p. C1(W)/C1(E).
• Files, Jennifer, "Shares of Electronic Data Systems Increase As Investors Applaud Changes,' Knight-Ridder/Tribune Business News, August 9, 1998, p. OKRB9822005C.
• Gabriele, Michael C., "Design Software Can Shorten Product Development Cycle,' Modern Plastics, May 1996, p. 37.
• Hausman, Tamar, "And the Finalists Are?' Wall Street Journal, November 24, 1998, p. B14(E).
• Hudson, Richard L., "Two EDS Officers in Europe Defect to Philips Affiliate,' Wall Street Journal, Europe, June 6, 1996, p. 3.
• Jennings, Robert, "Card Firm, EDS in Dispute About 'Letter of Intent' for a Marketing Alliance,' American Banker, January 16, 1996, p. 16.
• Keenan, Charles, "EDS Is Testing Commercials on Teller Machines,' American Banker, December 12, 1997, p. 11.
• La Monica, Paul R., "EDS, IBM Promise Ways to Cut Costs,' American Banker, May 2, 1997, p. 1.
• Machlis, Sharon, "Electronic Data Systems Corp.,' Computerworld, August 17, 1998, p. 1.
• Nakamoto, Michiyo, "EDS to Take on 600 Yamaichi Staff,' Financial Times, December 2, 1997, p. 26.
• O'Sullivan, Orla, "Data Warehousing--Without the Warehouse,' ABA Banking Journal, December 1996, p. 42.
• Palmeri, Christopher, "Going It Alone,' Forbes, December 16, 1996, p. 86.
• Price, Christopher, "EDS-Led Group Wins 1.4BN Pounds Sterling Contract for Tube Ticketing,' Financial Times, August 14, 1998, p. 16.
• Radigan, Joseph, "EDS Nabs a Customer at Alltel's Expense,' US Banker, January 1996, p. 17.
• Sabatini, Patricia, "Mellon Hires Firm to Improve Bank's Software Development Practices,' Knight-Ridder/Tribune Business News, September 19, 1997, p. 919B1028.
• Talmor, Sharona, "Mine for Data,' The Banker, April 1996, p. 93.
• "$3.7B Outsourcing Deal for EDS in Australia,' American Banker, August 14, 1997, p. 19.
• Tucker, Tracey, "Nervous About PCs, Many Banks Go Halfway with Hybrid Systems,' American Banker, August 21, 1996, p. 12.
• Walton, Christopher, "Texas-Based Electronic Data Systems to Insure Its Gay Workers' Partners,' Knight-Ridder/Tribune Business News, October 25, 1997, p. 1025B0910.
• Warner, Melanie, "A Tale from the Dark Side of Silicon Valley,' Fortune, April 13, 1998, p. 92.
• Wighton, David, "EDS Among Bidders for Business,' Financial Times, December 13, 1996, p. 10.
• Wise, Peter, "EDS in Portuguese Venture,' Financial Times, November 6, 1997, p. 5.
• Zellner, Wendy, "EDS Is Learning the Price of Freedom,' Business Week, May 5, 1997, p. 44.

Source: International Directory of Company Histories, Vol. 28. St. James Press, 1999.

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