Electronic Data Systems Corporation Company Statistics Chairman of the Board, President, and CEO:Lester M. Alberthal, Jr. Worldwide Headquarters: Dallas, Texas Year Founded: 1962 1991 Worldwide Revenues: $7.1 billion 1991 Number of WW Employees: 70,500+ Service Products PROFESSIONAL SERVICES Categorized under the banners of consulting, systems development, systems integration, systems management, and process management, EDS offers a range of professional services. Services include business information planning, information technology assessments, custom application development, packaged software implementation and enhancement, turnkey and custom systems integration, facilities management, network management, service bureau services, and business process management. Service Mission/Target Market PROFESSIONAL SERVICES EDS strives to diversify its revenues as much as possible based on service category, geography, and industry. The company currently earns the bulk of its revenues from systems management services, although consulting services is the fastest growing category of services. U.S.- derived revenues account for 80% of the total. The relatively low percentage of non-U.S. revenues reflects a late start in international markets and some early mistakes. EDS is a wholly owned subsidiary of General Motors (GM). At the time of the acquisition in 1984, GM revenue accounted for nearly three-quarters of EDS' total revenue. In 1991, for the first time since the acquisition, non-GM revenue exceeded GM revenue. While manufacturing remains the largest contributor to revenues, EDS is also garnering revenues from the government and from insurance, financial, transportation, communications, and energy sectors, among others. EDS is a global provider of professional and systems integration services. Headquartered in the United States, EDS' more than 70,500 employees provide information technology services in 30 countries. Worldwide revenues in 1991 topped $7 billion, making EDS the world's leading provider of information technology services. The services the company provides can be broadly characterized as consulting, systems development, systems integration, and systems management. A new service category, formally identified by EDS in early 1992, is process management, or the management of an entire business function (i.e., check processing or customer service) including the IT component. EDS has been performing this type of service for years, but it is only recently that customer interest in this type of comprehensive service has gained momentum and warranted a modification to EDS' service model. EDS' often stated goal is to become a $25 billion company. Chairman Lester M. Alberthal, Jr. when discussing this goal, does not, however, provide a particular time frame. EDS' goal is within reach regardless of the timing. The market for professional and systems integration services is highly untapped. The opportunity far exceeds the penetration vendors have achieved today. To reach its goals, EDS has identified four strategic positioning imperatives: o Full range of service offerings o Geographically ubiquitous locations o Technical proficiencies o Industry knowledge EDS continues to expand its service capabilities across the entire services spectrum from consulting, development, integration, and management. It is adding new capabilities at either end of the spectrum for business information planning and process management. As the company continues to promote its full-service capabilities in the media and builds its track record, growth in EDS' less traditional areas of business should accelerate. Despite its full-service approach to the market and its tailoring of services to particular industries and even accounts, EDS has been able to maintain controls over the degree of customization in its contracts. Most of what EDS delivers is based on a core set of services that are repeated over and over again at different customer accounts. The result is greater profitability. Service Offerings PROFESSIONAL SERVICES EDS offers a range of professional services including strategic consulting, information technology assessments, custom applications development, packaged software modification, turnkey and custom systems integration, facilities management, network management, and service bureau services. Systems integration, systems management, and process management services are generally long-term contracts on a fixed-price basis, while development and consultative services may also be priced by time and materials and/or task completion. Services offered by EDS in the consulting category are more labor intensive. Development, systems integration, and systems management services are progressively more capital intensive. Process management services are generally both labor and capital intensive. For example, EDS may provide the IT infrastructure to automate a customer service function and provide the labor to staff it. Value is created through the consulting process and sustained through the use of technology. Through consulting projects, EDS is able to establish an account presence and identify potential projects. Consequently, EDS is expanding its capabilities in these early life cycle professional services. Consulting EDS uses its business and technological expertise to offer clients strategic information technology consulting. In addition, EDS is in the process of expanding its consulting repertoire to include consulting related to business direction and operations. The result is an integrated program for change. EDS views consulting as a process to develop a "value proposition" for the customer. A value proposition has three components: o Target audience (i.e., billing department) o Benefit offered to the audience (i.e., improving cash flow) o Total cost of achieving the benefit In the consulting process, EDS works closely with the customer to identify business needs and information technology requirements. The result is a plan for an information system architecture that typically re-engineers the customer's business processes making the business more efficient and profitable. EDS has two main objectives for its consulting services. First, EDS strives to understand the customer's business objectives. Second, EDS searches for the best technical approach to support and achieve these objectives. Group productivity tools, such as EDS' Capture Center, help draw out ideas and thoughts to be used as the basis for team discussion and analysis. Capture Center facilitates the exchange of ideas during meetings through the use of Macintosh computers from Apple and EDS proprietary and packaged software. Capture Center allows the recording of ideas, without the introduction of errors through rephrasing as well as giving the contributor anonymity. The results are more efficient meetings and the more likely achievement of consensus. The framework for Business Information Planning consulting services has been implemented via one of the Centers of Service in a handful of SBUs. The goal is to integrate the framework into each of the SBUs. The goal of the program is to work with the end users to create a plan or process for change that can be implemented. The plans produced as part of the service are documented via a relational database tool. The cost of the service, on a fixed-price basis, can range from $50,000 to $250,000. It can take between 60 and 90 days to develop the value proposition for the client. It is interesting to note that EDS has used the framework at numerous entry points within an organization: enterprise level, business unit level, process level, and product line level. Nevertheless, to be effective, the most senior management of the client must be involved at some point. Systems Development Through systems development services, EDS works with customers to determine how best to fulfill technology needs. Typically, EDS does not develop a software application from scratch. Instead, the company will customize or enhance already existing software packages or integrate a number of software packages. Within its systems development services, EDS includes custom application development, software licensing, and systems design. Systems Integration EDS has built a strong reputation as a provider of systems integration services. EDS defines systems integration as the process of objectively selecting and linking the information technology - hardware, software, communications, processes, and people - necessary to meet the functional requirements and business objectives of any given enterprise. Systems integration contracts include the development of large-scale computer and telecommunications systems. For these contracts, EDS acts as the general contractor in purchasing hardware, software, and communications services. Systems integration contracts may include as many as 70 to 100 subcontractors to execute large projects. EDS may also offer other services such as training, systems operations, and systems maintenance in conjunction with or as a follow-up to systems integration projects. Systems Management EDS' definition of systems management includes larger projects that involve the bundling of a significant number of professional services. These projects always include systems operations and usually include value-added services such as network support, disaster recovery, applications development, migration, integration of hardware and software systems, training, and maintenance. In systems management contracts, EDS develops, operates, maintains, and upgrades the client's technical infrastructure. Facilities management services are a major portion of EDS' systems management business. The company equates facilities management services with data center operations management, which focuses on the operation of hardware and network systems. Facilities management services, which represent the bulk of EDS' business today, require EDS to offer some or all of the following services: o Industrial engineering o Systems design o Hardware selection o Systems programming o Systems installation o Computer operations o Data processing o Network management o Remote data storage o Systems maintenance o Education and training Typically, facilities management contracts do not include value-added services such as applications development, migration planning, etc. It is important to note that EDS does not differentiate its facilities management services from systems management services on the basis of whether or not the customer elects to transfer capital assets to EDS. Rather, the key factor is the scope of the project, as defined above. This distinction is of particular importance when comparing EDS to other providers of systems management/facilities management services who do make distinctions on this basis. When possible, EDS prefers that customers transfer their assets to EDS. The customer benefits from a cash infusion that can be used to support core business operations. By redeploying their assets, customers move information technology off the balance sheet and transform it to a yearly expense. Furthermore, EDS has the money, experience, and infrastructure to facilitate this transfer and can achieve economies of scale, thus lowering the cost of providing services as compared to a customer using its internal resources. When transferring assets, EDS prefers to hire the customer's staff, adding them to the EDS talent pool. EDS believes that there is significant demand for the transfer of assets, particularly under the economic conditions existing today. Process Management EDS defines process management as those services provided to manage a business process that leverages EDS information technology capabilities and industry knowledge. Three prime examples of process management services are: o Claims Processing: EDS delivers the technology as well as the staff and knowledge to perform this insurance industry function. o Cadillac Roadside Service: EDS provides the technology and staffs Cadillac's roadside service centers. (This service is also provided for Buick, Oldsmobile, and Chevrolet.) o AT&T Telemarketing: EDS provides the technology and know-how to staff a telemarketing function for AT&T. Compensation is based upon the percentage of customers EDS is able to "win back" for AT&T. EDS as a Fiscal Agent EDS can also perform as a fiscal agent. These services include all those mentioned under facilities management, as well as services tailored to the customer's requirements. As an insuring agent, EDS will function as an insurance company for a federal program or private group. In these arrangements, EDS receives premium payments from the contracting organization and assumes responsibility for benefit payments and underwriting the risk. Additional Services The EDS service portfolio includes additional services that enhance one or more of the primary services described above. These include network services, desktop equipment procurement, configuration and maintenance services, disaster recovery, and contingency planning. In addition, each SBU develops and promotes service expertise and products tailored to its particular industry focus or geographic needs. Such services might include CAD/CAM, electronic data interchange (EDI), card processing services, international banking systems, document image processing, data center design and construction, etc. Service Delivery PROFESSIONAL SERVICES EDS views itself as being in the information technology services business. As such, technology is viewed as very important; however, it is merely a synergist. In other words, technology enhances the effectiveness of EDS as it provides services to its customers. EDS believes its technology is a means of differentiation among competitors. Multiple approaches to solve a particular technical problem allow the company to avoid the risk of developing dependencies on any single technology. For example, EDS uses multiple transmission media for voice, data, and video communications such as copper wire, fiber optics, microwave, and satellite communications. The variety and depth of EDS' technological expertise allows for flexibility in contract negotiations and enables the company to offer customers cost savings and performance efficiencies over and above their current mode of operations. EDS employs various tools and methodologies as it delivers services to its customers. These methodologies include business planning, technology planning, and information technology planning - the convergence of business and technology planning. In addition, EDS follows a proprietary life cycle methodology called Systems Life Cycle that begins at the information technology planning phase and follows classical systems development processes to carry a project through to implementation and production support. EDS' consistent methodology is automated through the use of computer-aided software engineering (CASE) tools. EDS uses CASE tools throughout the service delivery process to automate and standardize: o Project management o Front-end data collection and analysis o Reverse engineering o Systems development and maintenance o Testing management o Software distribution and promotion Technical Infrastructure The technical infrastructure developed by EDS to deliver information processing services on a global basis is extensive. The technical infrastructure supports the development of open systems and client/server solutions as well as the more traditional mainframe systems. EDS provides systems management services through 15 sophisticated information processing centers (IPCs) located in the U.S., Canada, Brazil, and Europe. The IPCs are tied together by EDSNET, EDS' global computing and telecommunications network. EDSNET links the IPCs into a single, fully integrated network. The information management centers (IMCs), located in Plano, Texas, and Stockley Park, England, are at the center of a hub of EDS technology. The IMCs monitor the movement of voice, data, and video communications through EDSNET worldwide. Twenty percent of EDS' infrastructure is international. Within the IPCs and IMCs, most of the hardware (i.e., mainframes, terminals, data storage devices, etc.) are supplied by Amdahl, Hitachi Data Systems, Digital Equipment Corporation, and IBM. EDS' technical infrastructure is centralized to provide reliable, ongoing, and consistent service to customers at low cost. Six main systems management functions, each made up of a myriad of processes and procedures, enable EDS to deliver its service quickly and efficiently: o Consumer interface (applications and procedures) o Configuration management o Operations o Inventory management o Accounting o Security EDS has more than 70,500 employees provide information technology services in 30 countries. Service Marketing/Pricing PROFESSIONAL SERVICES EDS' approach to marketing and sales can best be described as proactive. The company makes a concerted effort to understand the business processes in the industries it targets and to formulate value propositions that solve a particular business problem that players in the industry are facing. EDS' sales and marketing emphasis is on the business solution rather than the technology. The key question is, "What does the market want to buy?" not "What does EDS want to sell?" By focusing on customers' critical success factors, EDS believes it can shorten the sales cycle, which tends to be quite long for professional and systems integration services (six to 18 months). EDS sells its services directly, rather than through alternate channels. Nevertheless, the company does take advantage of leads from its business partners and does joint marketing. While EDS prefers to be the prime contractor on its projects, it will at times subcontract to another company depending upon the circumstances. The EDS sales force is surprisingly small. EDS has only about 500 sales representatives, representing less than 1% of the total employee population. As an example, the Transportation SBU, one of EDS' key targets for growth in the 1990s, has approximately 2,000 employees. Of the 2,000 employees, only about ten to 15 are in sales. The EDS sales commission programs are administered at a corporate level, although the individual SBUs are given a lot of latitude in how they organize and structure their sales forces. At the SBU level, sales people may be organized by: o Geography o Industry subsegment o Line of business A number of different commission plans accommodate the SBU organization. There is an annual recognition award and banquet for those who exceed their quotas. In addition, as part of the EDS culture, managers may use their discretion to reward exemplary performance. EDS has a corporate marketing group that focuses on issues that affect the entire EDS organization, including market analysis and strategy, market research, competitive analysis, marketing communications, and business development. In addition, corporate marketing provides support to each of the SBUs. Each SBU has its own marketing group to support its industry- or geography-specific activities. The SBUs function independently, creating their own sales collateral, performing market research, developing market segmentation strategies, etc. EDS understands that professional and systems integration services are a reference sale. In its favor, the company has a strong proven track record and is financially stable - two very important considerations for potential customers. However, in 1989 the company realized, as a result of a market awareness study, that it was relatively unknown and not well understood. Consequently, EDS embarked on a major advertising/ media campaign in 1990 to raise its profile. The primary goals of the first phase of the campaign were to increase market awareness, raise the understanding of EDS and its capabilities, and create a market image consistent with its strategic intent. A secondary goal was to contribute to employee focus and spirit. The first round of ads (including a television commercial) very successfully told customers that EDS does much more than facilities management. Now EDS' primary objective is to demonstrate results. The advertisements present success stories such as EDS' relationship with Apple Computer. The Apple Computer advertisement highlights the benefits of using technology to improve business processes such as the globally networked imaging system EDS developed for Apple. EDS runs its magazine advertisements in all of the major business publications from the Wall Street Journal to the Harvard Business Review. EDS also recognized the influence of the trade press, the general business press, and industry analyst community on marketplace perception. In response, the company has been much more open in talking to the press and the industry analysts, who very often influence what is said in the press. In fact, EDS has established a market relations group within its corporate marketing organization to manage relationships with analyst firms and other organizations such as institutions of higher education. Each year, starting in 1991, EDS plans an information forum for industry analysts to educate the market influencers about EDS' strategies and service initiatives. This forum is in addition to the annual meeting held by investor relations for the securities and financial analysts. As a result of its efforts, EDS is in a better position to influence its marketplace image to its best advantage. EDS has also opened an impressive exhibit at the InfoMart in Dallas, Texas, to serve as a marketing tool. Potential customers are invited to tour EDS' exhibit featuring industry-specific applications of technology in a Disney Land-like setting. The exhibit and films produced especially for EDS provide concrete examples of EDS' capabilities and the benefits of applying technology. Perception/Evaluation PROFESSIONAL SERVICES Lester M. Alberthal, Jr. has often articulated EDS' goal of being a $25 billion company. The market potential for professional and systems integration services demonstrates that the market penetration of vendors thus far is minimal when compared to the dollars available within customer budgets. If EDS continues to increase its business on par with the growth of the market in general, EDS should reach its goal of being a $25 billion company by the year 2000. The organizational structure and management team will be challenged to manage an organization large enough to support $25 billion in revenue. The SBU/SSU organization, succession planning, and leadership training will be assets throughout the next decade. The beauty of EDS' current organization is its fluidity; SBUs/SSUs are created and disbanded as needed. At the same time, EDS is training the next generation of corporate managers through SBU/SSU leadership assignments. Furthermore, EDS' current management has the foresight to pilot new organizational structures such as the Centers of Service. A major target for growth in the 1990s is business consulting. EDS views front-end consulting as the gateway to the back-end, large integration and management deals. EDS is expected to make major investments in resources to provide top quality consulting services and in marketing communications to project an image congruent with its strategic intent. While EDS contracts are typically large, multimillion dollar agreements spread over a number of years (three to ten), EDS is now pursuing smaller projects and companies, especially those with the potential for major follow-on business. As EDS increases its revenues in the consulting end of the services spectrum as a percentage of total revenues, it can expect to see its revenue per contract decline. Consulting projects tend to be smaller and more focused in scope than a systems integration or management deal. EDS will continue to focus on specific industries, including increasing the availability of software applications. Focal industries are those experiencing above average levels of change, whether it be from economic pressures (i.e., airlines) or rapid growth (i.e., telecommunications). EDS currently measures its success via the success of its customers. This definition of success will be expanded to reach beyond the relationship between EDS and its customers to extend all the way to the customer's customer. This focus requires not only an in-depth understanding of the customer's business issues, but an exhaustive insight into the market issues. The current EDS model for impacting customers is centered on what Michael Porter defines as the customer's value chain. EDS contributes to customer performance by impacting the activities internal to the customer's organization. The new model looks at the value chain within the total market context. This new model will require EDS to be even more proactive but will bring the company closer to its goal of providing services to clients that are "legendary."