EDS as I Remember It – Part Two

As was stated in the previous Post’s timeline, EDS won a huge government contract called VIABLE in 1982. It required EDS to build and operate multiple data centers along with the communications network connecting them. This in effect replicated the same type of environment that EDS was using for its own data centers.

This was the largest contract EDS had ever taken on and one that could not fail. If I remember correctly, it was also the largest Army contract that had ever been awarded to that time.

In my opinion, this the final catalyst that convinced GM that EDS was the company they needed to modernize their computer operations. With this contact award, EDS started moving employees to Virginia, which would be the headquarters of this contract and the first data center with four more to follow.

A manager, I had worked for in the Healthcare Division, recruited me to move to Virginia. I had missed the initial wave of people moving for the VIABLE contract and the timing of my move happened just after GM had bought EDS. As I said in the previous post, I wasn’t certain for some time if my final destination would be Virginia or Detroit.

While I did remain on the VIABLE contract, I was sent as part of the team of to assume the GM employees into EDS. This was a strange time. GM had purchased EDS, but EDS was the one taking over the people.

We were brought in from all over the US. I remember we were told to make sure we only rented GM cars for this project as any other brand might be destroyed if parked in the GM lots.

My understanding is that Ross resisted selling EDS to GM telling GM, “you don’t have to buy the dairy to get the milk”. GM bought the dairy.

Following is the second article from the Dallas Morning News. It can be found along with photos by Googling “EDS sees success after purchase by GM — but at a cost”. My comments will be embedded in a different color.

Swallowed by the whale.
That’s how some former longtime employees of Electronic Data Systems describe the 1984 purchase of their company by General Motors, then the world’s largest automaker.
And even though it was minuscule in comparison, EDS was supposed to help the whale compete better against Japanese and other competitors by bringing order to GM’s massive, chaotic computer systems.

In many ways, the dozen years of the GM era were the best and worst of business times for EDS. Growth exploded and the huge guaranteed agreements with GM gave EDS a reliable financial platform from which to reach more outside customers.

Success, though, came at a cost. A surge of new employees diluted the EDS culture, especially its customer-first focus, and the profitable GM business masked bureaucratic and competitive flaws that would emerge years later, prefacing the company’s decline.

“The GM influence, while it was very positive in some ways, destroyed EDS,” said former executive Todd Carlson, who worked at EDS 30 years, leaving in 1998.

The $2.6 billion marriage certainly started upbeat.

“I feel nothing but excitement,” EDS founder Ross Perot was quoted in The Dallas Morning News when the deal was announced in June 1984.

While Perot and his family received more than $1 billion in cash and GM stock and Perot joined the automaker’s board of directors, EDS maintained considerable autonomy. It had its own special class of common stock, tied to its performance, not GM’s.

Within a year, EDS’ revenue more than tripled to nearly $3.5 billion. Within two years, employment nearly tripled to more than 40,000.

But a clash of business cultures always lurked and soon erupted.
Perot, GM’s largest individual shareholder, became increasingly frustrated by and outspoken about GM’s bloated bureaucracy. He said it took forever to make a decision that should be made in a few minutes. He criticized the quality of the company’s cars and accused the board of directors and top executives of being out of touch.

If the corporate motto at EDS was “ready, fire, aim,” former EDS employees said, the motto at GM was “ready, aim, aim, aim…”

“Revitalizing General Motors is like teaching an elephant to tap-dance,” Perot told Business Week.

Meanwhile, GM CEO Roger Smith opposed the generous stock incentive packages promised to EDS executives, common in entrepreneurial companies but not at GM.
Smith soon had enough. After apparently exploring the sale of EDS to AT&T, according to news reports at the time, GM bought out Perot and a handful of top executives at the end of 1986 for about $750 million.

Separate ways
For the first time in a quarter-century, Perot wasn’t associated with the company he founded. A year and a half later, tensions escalated as Perot essentially declared war on his old company and GM by starting a new competitor, Perot Systems.

The move tested worker loyalties. Some thought anyone who jumped to Perot’s new firm was a traitor to EDS. Perot accused EDS and GM of trying to crush his new firm; EDS said its founder violated a noncompete agreement by hiring away EDS employees too soon.

“The entire process since 1984 has been emotional,” EDS chairman Les Alberthal told a reporter from The News in 1988, during a courtroom break in Fairfax, Va.
“All these personal relationships have been torn apart by one man’s decision to jump the gun and start a new company,” he added.

About 150 of Perot System’s first 190 employees came from EDS, according to news reports.

“There was a real divide,” Carlson, the former executive, said of EDS employees. “My loyalty was to EDS. It was a tough time for a lot of people.”

EDS employees still had high respect for Perot. After all, he largely created the industry in which they worked. When he left, there was sadness.

“But then we realized, we are EDS, we can do this,” said Dennis Stolkey, who started at the company in 1985 and now runs Hewlett-Packard’s Enterprise Services business in the Americas.

The court wrangling eventually wound down, and each company went its separate way.

This indeed was a trying time for EDS and its employees. I was on a new business procurement, to become the account manager for a government contract to be awarded in Boston, when Perot Systems was formed. I received a personal phone call from Jeff Heller requesting me to stay loyal to EDS and not accept any offer that might be made from Perot Systems

The two senior managers, that I was currently reporting to in EDS, left to join Perot Systems. I felt loyalty to the team I was managing and stayed with EDS. I often wonder what would have happened if I had decided differently.

New vibe

EDS started moving into its new Plano campus in 1985. The general workplace was changing, too. EDS began to relax its dress code and expectations that employees would naturally work 60-, 70- and 80-hour weeks.

By 1993, the Plano campus was complete, with 37 buildings spread over about 360 acres.
The centerpiece then and now remains a futuristic executive office building — nicknamed the God Pod — with a grand reception lobby 55 feet above the ground. The campus included a health club, tennis courts, softball field and an automotive service center for employees. While the service wasn’t free, it did save employees time.

The data center, filled with computers and communications equipment, was — and still is — located in a five-building cluster surrounded by earth berms for security. Around the data center and some other parts of the complex, hidden concrete roads, buried under 6 inches of dirt and grass, can support heavy emergency vehicles, such as firetrucks, if necessary.

“It was built to a very high level, a military-type standard,” Carlson said of the security. “We wanted to impress the military, even GM, that we took security seriously.”
Now only the data center and the main office complex are used by HP, which acquired EDS in 2008. The rest of the former EDS campus is occupied by other companies and organizations. The EDS education center, for example, became SMU’s Plano campus.

Losing incentive

In mid-1993, The News ran one of the most ambitious business news projects in its history, a 15-story package spread over several days called “EDS: The Next Horizon.”
Over its first 30 years, the stories said, EDS had surpassed Texas Instruments as the region’s biggest technology company with 8,000 employees in Plano and more than $8 billion in annual revenue. Eventually the Plano complex would employ 15,000, the stories said, and EDS’ ambition was to be the dominant player in the then $2 trillion global computer services market by the end of the 1990s.

Peerless — in other words, like IBM.

While mentioning some pesky competitors, including some based overseas, and the potential threat of the ongoing shift from heavy-duty mainframe computers, the package, with the benefit of hindsight two decades later, missed some key issues.

Former employees pointed them out.

They said many of the issues EDS then faced were part of the normal maturation process of a company as it got older and larger, accelerated by the growth boost provided by GM.
EDS started to add layers of professional bureaucracy and lose focus on the customer. The alliance with GM increased profits and cash flow, allowing EDS to build new data centers and other facilities. But it almost made it too easy to succeed, some former employees said.

Because of outsized profits from GM, EDS was able to look more successful than it really was, former employees said. Over time, the company lost incentive to innovate and lost competitiveness among non-GM customers.

Growth targets

Previously, the goal was to give customers service they never expected, no matter what the cost. If the company did that, EDS employees believed, revenue and profit growth would follow automatically.

After GM acquired EDS, however, management focus became more and more on numbers — hit growth targets no matter what — and less on customers.
“We signed bad contracts, riskier contracts, that we might not have done in the past because you have to have the growth,” said Skip Robbins, who joined EDS in 1989 and left in 2005. That’s a huge cultural shift.

All the while, running huge data centers increasingly became a low-margin commodity business. While companies like IBM shifted to developing specialized software for customers, a higher-value endeavor, EDS did not.

“We sold a commodity where the only difference was price,” said former general counsel Dick Shlakman.

In April 1996, GM spun off EDS. Independent again, the company had nearly 100,000 employees and a powerful board of directors, led by Dallas oilman Ray Hunt, former Secretary of State James Baker III and Dick Cheney, then CEO of Halliburton and future vice president of the United States.

It was ambitious leadership for ambitious times. EDS still thought it could conquer the IT world.

1985 — The first two information processing centers open at EDS’ future headquarters site in Plano.
EDS revenue more than triples in a year to about $3.5 billion.
1986 — Les Alberthal becomes president of EDS.
EDS employment nearly triples in two years to more than 40,000.
After a squabble with GM CEO Roger Smith, GM buys out Ross Perot and a handful of other EDS executives for about $750 million. They leave EDS.
EDS’ annual revenue hits $4.4 billion, with $3.2 billion of that from GM.
1988 — EDS acquires MTech Corp. of Dallas for $347 million.
Perot launches a rival to EDS, Perot Systems. Some 150 of the first 190 employees of the new firm come from EDS.
1991 — EDS signs a $2.1 billion contract with Continental Airlines for reservation system management.
For the first time, EDS’ revenue from non-GM customers exceeds that from GM.
1992 — EDS’ annual revenue exceeds $8 billion, surpassing Texas Instruments as Dallas’ largest technology firm.
1993 — EDS completes the move to its new headquarters in Plano. The complex includes 37 buildings spread across 363 acres.
1996 — GM spins off EDS, which has about 100,000 employees.

I eventually moved back to Dallas from Virginia and was in the “God Pod” facility for a period of time. This was a facility you had to see to believe. I would be in Dallas until I retired from EDS in October 1999.
The last contract I worked on was for Hawaiian Airlines. Sort of my last Aloha.

Two months after I left EDS, I went to work for Perot Systems.

The last Dallas Morning News article can be found by Googling “After spinoff from GM, EDS’ days of independence were numbered”.
I can say I was at EDS during the time it really was EDS. It changed tremendously over the 29 years I worked there. The friendships I made were the best. The people I worked with were the best.
Nothing lasts forever and that is true also for EDS, whose name is now history. I am glad I was a part of it.

I have good friends that stayed on into the HP era. I am glad I am here in Panama and didn’t participate in EDS’s final days.

3 thoughts on “EDS as I Remember It – Part Two

  1. Fascinating stuff, Don. The clash of business cultures has killed more than a few companies. I went through 2 such events where I worked in the 90’s as buyouts and mergers completely changed the landscape. I retired in 2009 and this year, the department I was with was dissolved and the people laid off. Senior management folks have a problem with “if it’s working, leave it alone”.

  2. Don, This is great and you know I share a lot of it with you. My 25 years were good for this small town boy and the early years were the best. Good Job.

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