What makes Ross Perot’s EDS not sustainable?

         Electronic Data Systems (EDS) was founded by Ross Perot in the year of 1962 when he quit working as a salesman for IBM. Perot’s goal was to start a company that offered skilled electronic data processing management personnel along with the computer equipment and targeted large corporations by offering long-term contracts at a time when short-term contracts were the norm. The company signed its first long-term commercial facilities management contract with Frito-Lay in 1963.

        The Social Security Act of 1965 created Medicare and Medicaid and EDS designed a system to process insurance claims and payments for Texas’s program. In 1969, the company received contract with California Blue Cross to handle its backlogged Medicare data processing. The claims processing programs became an early driver of the company’s revenue, which topped $16 million by the end of the decade. In 1968, the company held its first public offering at $16.50 a share and closed at $22. The shares topped out at $160 in 1970 but dropped to $15 in 1973 after a sharp decline in the stock market. Still, the company’s revenue and earnings grew. In 1978, EDS expanded into financial markets by introducing automated teller machines, electronic funds transfer and real-time point-of-sale terminals. In 1988, it acquired MTech Corp., an operator of automated teller machines, for $347 million. By 1997 it became the country’s largest maker of ATM's.

           In 1984, EDS was bought by GM for $2.5 billion. Under GM, the company expanded internationally and its sales grew to $3.4 billion. Earnings of EDS fell by 5.5% in 1985 and Perot, who still ran EDS, has troubled time with GM. By 1986, GM paid Perot $700 million for his stock and he was dismissed. He was replaced by Les Alberthal who started as a trainee with EDS in 1968. In 1988, Perot started a rival company, Perot Systems Corp. In 1992, Ross Perot run for presidential debates. In June 1996, EDS again became independent when it was spun off from GM.

          By the end of the 1990s, EDS faced stiff competition and rising production costs, this led to $1 billion reorganization and laying off of 13,000 employees. The circumstances were taken to get rid from debts and the cost-cutting efforts who conducted by CEO Richard Brown, were successful and the company returned to get profit. Brown attempted to raise the company’s profile with such moves as buying a Super Bowl ad that portrayed cowboys herding cats. In June 1997, Electronic Data Systems and SHL Systemhouse started work on a Canadian national firearm registration system. The original plan was for a small IT project that would cost tax payers only $2 million - $119 million for implementation which was to be offset by $117 million in licensing fees. But then, politics got in the way. Pressure from the politic lobbyists and other interest groups resulted in more than 1,000 change orders in just the first two years. The changes involved having to interface with the computer systems of more than 50 agencies and since that integration wasn't part of the original contract, the government had to pay for all the extra work.

         In 2000, EDS had two main competitors: IBM and Computer Sciences Corp. In just a few years, that number greatly increased because of global competition from offshore rivals. By 2001, the annual maintenance costs alone were running $75 million a year. A 2002 audit estimated that the program would wind up costing more than $1 billion by 2004 while generating revenue of only $140 million, giving rise to its nickname: "the billion-dollar boondoggle." In 2003, the company had $5 billion in debt. CEO Michael Jordan was charged with leading the turnaround. He restructured contracts, centralized some business functions, diversified into additional support services and targeted new accounts. By 2006, the company has seen earnings drop in recent quarters.

The reasons why Ross Perot’s EDS not sustainable are:

-          Stiff competition with IBM & Computer Sciences Corp

-          High maintenance costs

-          Pressure from the politic lobbyists

-          Mis-management

References:

    1.  The Wall Street Journal http://blogs.wsj.com/deals/2008/05/12/a-look-back-at-eds-from-ross-perot-to-cowboys-herding-cats/

    2.   http://www.brighthub.com/office/project-management/articles/15893.aspx

    
  note: this is one of 12 assignments on my strategic management class and this one had a good grade from my professor, so I felt confident to share it with you :)