A successful strategy starting from scratch
On the occasion of my only previous meeting with Michael Jordan, the lugubrious chief executive of technology services giant EDS, I had walked into the group’s London office with the theme tune to Mission Impossible playing on my mind’s internal iPod.
That was in April 2003, 10 days after Mr Jordan had been lured out of retirement to rescue EDS from a position so perilous its very existence seemed at stake. The previous management team had led the Texas based group into a perfect storm of calamitous conditions: deteriorating services markets, burgeoning debt, dwindling cash and a series of damaging failures in high profile public sector contracts had all combined to put the group’s share price in freefall.
Looking back, Mr Jordan says he quickly realised that his task was “to take a company that had no strategy essentially and craft one that would enable it to regain a leadership position in the market place”.
Put like that, it sounds rather straightforward and even now Mr Jordan describes some of the steps he took as “Management 101”. And given the remarkably quick turnround since he took the reins, perhaps it was, notwithstanding last week’s revelations that the group’s second quarter earnings may include a $166m charge after it discovered potential problems in one large contract.
“We took a little over $1bn out of our cost structure last year and there will be another $1bn this year. At the end of 2003 we had about $200m-odd in cash and $5bn worth of debt. Now we have a little over $3bn in debt and almost $3bn worth of cash, and that’s important for a company that is in the business of signing eight- to 10-year contracts.
“People want to have assurances, you know I think we’ve taken away those clouds around EDS and nobody even asks us anymore about our financial situation. It’s pretty self-evident,” he says.
EDS, he says, had been run “almost like a confederation of separate businesses” and so his first move was to centralise those parts of it that benefited from it, most notably its technology strategy.
“We’re investing over $400m each year around new technology platforms. One is a global, highly secure network that will link all our major facilities so we can move work around instantaneously, have an instant back up for our data centres and so the strategy was to make EDS not only a cost leader in services, but also a technology leader in the sector,” he says.
Another cornerstone of the strategy is the “EDS Agility Alliance” through which the group has established partnerships with vendors such as Dell, Oracle, Microsoft, SAP and EMC.
“We can put together the best of breed in our service offering, that is, we think, the most cost competitive and performance competitive in the world, whether it’s server management, desktop management or what ever business we’re in,” he says.
The business EDS is in has changed since the dog days of 2003, significantly in the sense that the market for its services has improved - “we saw a pick up in the first part of 2004,” Mr Jordan says, although it is by no means uniform.
Business in the Americas is good, but Mr Jordan says continental Europe remains “spotty” although the group is beginning to experience a trend towards outsourcing and managed services.
“The outsourcing of business processes such as human resources seems to have caught hold on the continent in a significant way. German and French companies realise that they have to do something about shareholder value so we’re seeing some signs of a different market in places such as Germany now,” he says.
But it is not just in continental Europe that EDS views such deals as being part of its future growth plans.
“I think in the whole area of specialised business processing, financial processing, human resource outsourcing, we’re seeing these narrower areas having a higher growth potential,” Mr Jordan says, adding that this prompted EDS down the route of a joint venture with Towers Perrin, the HR services group.
“Towers is one of the leading HR consulting firms, but they also had a benefits administration outsourcing company that we essentially took over in a 85-15 joint venture to sell human resource outsourcing services from benefits administration, payroll administration or just really end-to-end management of the entire HR spectrum, and we invested $400m in this venture,” he says.
Such contracts are a long way from the multi-billion dollar mega-deals that EDS and its rivals were fighting over five years ago and illustrates another change in the post-bust market.
“I think we’re in an era of lots of small deals whether it’s in the services business or elsewhere, although there would be large deals too. But it’s more about being able to package an offer that is more specialised in its application, doing it efficiently. And it’s horizontal expansion, product add-ons and things like that. I just think the big ticket growth is probably pretty much over,” he says.
Mr Jordan reports that much of the infrastructure companies installed in preparation for the Y2K bug that never was remains in place alongside a marked reluctance to invest in new big ticket projects.
What EDS is finding, however, is a lucrative new market in what he describes as “legacy modernisation”.
“This is with companies with 40 or 50 years of building IT systems that don’t work together, don’t talk to each other, are very inflexible. They are realising that it’s not only a costly proposition that takes three-quarters of their budget to maintain these systems and not get any improvement, but it also can inhibit companies from adopting new business models,” he says.
Changing business practices to drive improvement could be Mr Jordan’s specialised subject, having achieved that at EDS, but he knows only too well that the job is merely half done and so there is no imminent prospect of a second retirement.
“I’ve been here two years, and I said I’d try to finish out the transformation for another two and there’s still a lot of work to do.”