In the spring of 1992, Perot Systems Corp. was soaring. Not only was the computer-services company basking in the glow of its flamboyant founder's political success but it had also landed three long-term contracts worth $1.2 billion. There was even talk of going public in 1994.
But just as Ross Perot's political fortunes have sagged, so have those of his five-year-old company. Faced with intense competition from much larger rivals, Perot Systems is struggling to find its niche. It hasn't won a big contract in more than a year, and no major announcements are in the offing. In its zeal to win new business, the company concedes it sometimes promised more than it could deliver, prompting at least one customer to sue. The initial public offering has been delayed, and some of Perot Systems' founders have left. "We're at a pivot point," says Ross Reeves, a founder who has stayed.
UNREALISTIC. The company is overhauling both its strategy and its gungho culture. Chairman and CEO Morton H. Meyerson--who was brought in by Ross Perot in June, 1992--has shifted the emphasis from the cutthroat outsourcing business, which involves taking over a company's computer operations, to higher-margin consulting services. And he is moving to modify the former can-do approach--of promising customers anything to get business and then putting unrealistic pressures on employees to get the work done. That tactic has tended to burn people out. One victim: President J. Patrick Horner, who Meyerson says left in December after working in overdrive for many years. Horner won't talk about his decision to leave.
Meyerson is now in charge of the overhaul. "We did not bring in as much new business as we would have liked to in 1993," he says. Worse, some existing customers are far from happy. Take Macklanburg-Duncan Co., a maker of construction materials in Oklahoma City. CEO Michael S. Samis says Perot Systems promised in 1990 it could redo its computer operation--converting from a mainframe to a network of personal computers--in two years. Ross Perot himself telephoned, promising to stand behind the deal, says Samis. He quotes Perot as saying: "If anything goes wrong, call me, and I'll make it right."
But when it came time to switch to the PCs, the entire system shut down. The $4 million project is still not complete, and that experience nearly put the company out of business, says Samis. He is suing Perot Systems for unspecified damages, claiming negligence and breach of contract. A Perot spokesman says the company met the requirement of the contract.
All this leaves Perot Systems far from its founders' goal of recreating Electronic Data Systems Corp., the outfit Perot launched in 1962 and sold to General Motors Corp. in 1984 for $2.6 billion. Perot Systems went after the main businesses of EDS: outsourcing and systems integration--linking different brands of computers into a single system. But even a Ross Perot startup is no match for $8.5 billion EDS. "The trouble is that EDS is better at being EDS than Perot is," says one rival.
Indeed, with only $290 million in revenues in 1993, Perot Systems remains a pygmy among giants. In addition to EDS, both IBM and Digital Equipment Corp. are pushing services such as outsourcing to make up for their plummeting hardware margins. In November, IBM snatched a $415 million contract with Southern Pacific Lines that Perot had been counting on. Big Blue, explains Southern Pacific Vice-President Thomas J. Matthews, simply had more experience with railroads.
Perot is facing its own margin problems. It has large startup costs for long-term contracts, including those with Britain's East Midlands Electricity, Volkswagen of America, and Europcar, a rental agency based in Paris. To clinch the Europcar deal, Perot agreed to accept payment based on a percentage of Europcar's revenues. But problems with software delayed startup of the reservation and customer-tracking system, and the European recession could take a toll on Perot's take. All in all, says Michael Urfirer, a managing director at First Boston Corp.: "I don't think they're making much money." Perot declines to disclose earnings.
And while a phone call from Ross Perot once helped seal a deal, the high-profile founder is looking more like a detriment lately--at least in Mexico, where his crusade against the North American Free Trade Agreement has made him persona non grata. Perot Systems talked with Multibanco Mercantil Probursa early last year about millions of dollars' worth of potential business. But Ross Perot's description of Mexico as a peasant-filled backwater angered the bank's board, and the talks quickly broke down. In November, Perot Systems withdrew its bid for a job at Volkswagen de M xico. Even though the company had Volkswagen's U.S. business, it says the potential deal in Mexico didn't appear profitable enough. Neither VW nor Multibanco would discuss its dealings with Perot.
SMOOTHER EDGES. Now, Meyerson is focusing on issues closer to home. He has set up an advisory board of academics and business leaders to help him keep track of changing markets. He's also trying to change the company's culture to emphasize teamwork over individual decision-making. And to smooth his troops' rough edges, Meyerson has launched an Intellectual Fitness Center, where employees can study history, art, and foreign languages. "The company was so performance-oriented that we overlooked the human side of the equation," he says.
Meyerson describes 1993 as a year of consolidation--absorbing big wins such as Europcar and East Midlands. He also admits that, in the company's zeal to win new business, it may have promised too much to customers and asked too much of employees. "We are coming out of the tunnel," says Meyerson. "1994 will be a building year, and 1995 will be a breakout year." Perot Systems expects to sign a small-but-important deal soon with Rocky Mountain Health Care Center, which would give it a foothold in the burgeoning medical arena.
Meyerson is looking outside the U.S. for new business. Returning from a swing around Europe and Asia, he says only that he'll take Perot to places where rivals aren't. But that doesn't mean Meyerson is giving up on the U.S. market, where he's still looking for a big showcase contract. Whether it's a high-profile job such as Southern Pacific or a collection of small assignments that would help build the company's reputation, Ross Perot's upstart needs new business. Otherwise, it won't pose a threat to EDS--or anyone else.
PEROT'S MISSED OPPORTUNITIES SOUTHERN PACIFIC LINES A $450
million contract was expected to be Perot's showcase in the U.S. But IBM snagged the deal in November.
PROBURSA Negotiations began with the Mexican bank in early 1993. They ended, however, after it became clear that Ross Perot's anti-NAFTA views made the company a hard sell.
VOLKSWAGEN DE MEXICO With Volkswagen's U.S. business already
in hand, Perot had hoped to win VW's Mexican business, too. But Perot dropped out of the bidding,
saying the contracts wouldn't be