Can Eds Catch Up With The Net?

With a new CEO and E-business chief, it's back in the game

At an Apr. 28 Internet and electronic-commerce trade show in New York, Susan Scrupski-Miranda, a consultant at IT Services Advisory, noticed a stark difference between the Electronic Data Systems Corp. booth and those of the other vendors. No one was visiting the EDS exhibit. "It was empty. That spoke volumes about EDS's credibility in the [market]," she says.

There's no question that the onetime king of computer services has slipped. It's still a $17 billion giant, but growth has stalled, and it trails far behind IBM in the new high-margin market for technology consultants: helping companies launch E-business setups. That's where the crowds that weren't at the EDS booth have gone--and where EDS needs to be. Sure enough, on Apr. 29, in his first meeting with analysts, EDS's new chief executive, Richard H. Brown, promised big changes, including an E-commerce push. "The EDS you see one year from today will be very different from the company you know now," he said.

Creating a credible E-commerce strategy is only one of Brown's many challenges. He has plans to cut more than $1 billion in costs, improve EDS's relationship with its top customer, former parent General Motors Corp., and streamline the outsourcing business. Brown aims to grab share by boosting EDS's growth above his market's 14% to 16% annual rate--even though last year, revenues rose 11%, while net before special items fell 11%, to $840 million. In the first quarter, with a $380 million charge for a new round of layoffs, EDS had a net loss of $21 million.

DECISIVE ACTION. Even for Brown, the former Cable & Wireless PLC chief, it's an ambitious plan. But even if investors question whether EDS can pull it off, they welcome the initiative. "You've seen more action in three months down there than you've seen in the previous five years," says shareholder Kenneth G. Langone of Invemed Associates Inc.

Brown's reputation for decisive action has pushed the stock from $41 just before he was named in December to about $53. He has cut 5,200 jobs, or about 4% of the workforce, replaced more than a half-dozen top execs, axed the bottom 20% of the sales force, created a new performance-appraisal and compensation system, and dropped such perks as 2,000 executive cars.

A key part of the growth strategy is making EDS a top player in electronic commerce. To create the E-Business Solutions unit, Brown is gathering 20,000 people from seven businesses with skills spanning consulting, Web design, electronic-payment services, and call-center operations. And he vows to work more with EDS's A.T. Kearney consulting arm, though Kearney is struggling to reignite its own growth (BW--May 10). Kearney might, for instance, help a client with a Web-based supply-chain strategy, while EDS would design an electronic-procurement system and manage transaction processing.

The new chief of the $2 billion unit, Gary B. Moore, a 26-year EDS veteran, reports directly to Brown. "The world really doesn't have an appreciation for what we have here," says Moore, who recently ran manufacturing. Moore, 49, rose through the technical ranks. As head of Hitachi Data Systems, once part-owned by EDS, he doubled sales and market share from 1989 to 1992. He pegs the global market for E-business Solutions at $200 billion, with an annual growth rate of more than 20%. And, he says, "We have plans to grow a lot faster than that." Analysts say EDS is well positioned to offer one-stop E-commerce consulting, if it pulls its resources together. "It's a little late to the game, but the game is just in the first or second inning," says Howard Anderson, managing director of market researcher Yankee Group.

But can the ungainly EDS move quickly enough for the Internet world? "If you're a dot-com, would you ever go to EDS? Probably not," says Gajen Kandiah, vice-president for interactive solutions at Cambridge Technology Partners, a tech services rival. But for the first time in years, the exec running EDS has his foot on the accelerator.