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 :)

What kind of a leader Jack Welch is?

        John Francis Welch Jr. (born November 19, 1935) had worked for General Electric for a year in 1961 when he wanted quit his $10,500 job as a junior engineer in Pittsfield, Mass. He want to did that because he felt stifled by the company's bureaucracy, underappreciated by his boss, and offended by the civil service-style $1,000 raise he was given. Welch wanted out, and to get out he had accepted a job offer from International Minerals & Chemicals in Skokie, Illinois. But Reuben Gutoff, then a young executive a layer up from Welch, had other ideas. He had been mightily impressed by the young upstart and was shocked to hear of his impending departure. Desperate to keep him, Gutoff asked Welch and his wife, Carolyn, out to dinner that night. For four straight hours at the Yellow Aster in Pittsfield, he made his pitch: Gutoff swore he would prevent Welch from being entangled in GE red tape and vowed to create for him a small-company environment with big-company resources. These were themes that would later dominate Welch's own thinking as CEO.The next day, Welch gave him his answer. He will stay with the company and Welch's future management style manages a small company environment with big company resources.


Through the 1980s, Welch worked to streamline GE. He also pushed the managers of the businesses he kept to become more productive. Welch worked to eradicate perceived inefficiency by trimming inventories and dismantling the bureaucracy that had almost led him to leave GE in the past. He shut down factories, reduced payrolls and cut lackluster old-line units. Welch's public philosophy was that a company should be either #1 or #2 in a particular industry, or else leave it completely. Welch's strategy was later adopted by other CEOs across corporate America. Each year, Welch would fire the bottom 10% of his managers. He earned a reputation for brutal candor in his meetings with executives. He would push his managers to perform, but he would reward those in the top 20% with bonuses and stock options. He also expanded the broadness of the stock options program at GE from just top executives to nearly one third of all employees. Welch is also known for destroying the nine-layer management hierarchy and bringing a sense of informality to the company.

During the early 1980s he was dubbed "Neutron Jack" for eliminating employees while leaving buildings intact. In Jack: Straight From The Gut, Welch states that GE had 411,000 employees at the end of 1980, and 299,000 at the end of 1985. Of the 112,000 who left the payroll, 37,000 were in sold businesses, and 81,000 were reduced in continuing businesses. In return, GE had increased its market capital tremendously. However, Welch eliminated basic research, and had closed or sold off businesses that were allegedly under-performing. These and other moves placed basic research at the bottom of the list with respect to funding and attention.

In 1986, GE acquired RCA. RCA's corporate headquarters were located in Rockefeller Center; Welch subsequently took up an office in the now GE Building at 30 Rockefeller Plaza. The RCA acquisition resulted in GE selling off RCA properties to other companies and ultimately keeping NBC as part of the GE portfolio of businesses. During the 1990s, Welch shifted GE business from manufacturing to financial services through numerous acquisitions.

Welch adopted Motorola's Six Sigma quality program in late 1995. In 1980, the year before Welch became CEO, GE recorded revenues of roughly $26.8 billion. In 2000, the year before he left, the revenues increased to nearly $130 billion. When Jack Welch left GE, the company had gone from a market value of $14 billion to one of more than $410 billion at the end of 2004, making it the most valuable and largest company in the world.

Welch launched the effort in late 1995 with 200 projects and intensive training programs, moved to 3,000 projects and more training in 1996, and undertook 6,000 projects and still more training in 1997. So far, the initiative has been a stunning success, delivering far more benefits than first envisioned by Welch. Last year, Six Sigma delivered $320 million in productivity gains and profits, more than double Welch's original goal of $150 million.

While analysts on Wall Street or GE's own investors view Welch's likely legacy as creating the world's most valuable company in stock market terms, Welch himself sees things quite differently. The man who spends more than 50% of his time on people issues considers his greatest achievement the care and feeding of talent. He believes he has to know people well enough to trust them and their judgments. Welch knows by sight the names and responsibilities of at least the top 1,000 people at GE. ''He knows their names. He knows what they do. That's an incredible reinforcement to the individual that he or she counts,'' says Dunham of GE's Medical Systems business.

According to the informations that Jack Welch can streamline GE’s manager and he had a nick name ‘Neutron Jack’, in my opinion he is a leader which arrive at decision primarily on his own with little input from others. But considering his concern about minimize the bureaucracy in the company, his leadership type is transformational leadership, because his eager to transformed each members to becoming more aware of the importance of their tasks, inspire members by giving a ‘dream’ or ‘vision’ in higher order and stretching member’s self confidence.

References:

1. http://www.businessweek.com/1998/23/b3581001.htm

2. http://en.wikipedia.org/wiki/Jack_Welch


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 :) :)