Tuesday, July 24, 2007

EDS rebounds thanks to alliances

After EDS was divested by General Motors in the late 1990's, IBM Global Services proceeded to clean its clock in the global outsourcing industry. EDS won a huge contract with the Air Force--hooray!--but soon found itself with a money-losing mess.

One outsider CEO--Dick Brown--came and went. His replacement was Michael Jordan (no, not that one), the guy who had somehow turned Westinghouse into CBS, which he finally sold to Viacom. (It's now CBS again.) The stock price fell from a high of over $70 in 2000 to under $15 in 2002. An EDS shareholder, like I was until a few years ago, wasn't a happy camper.

But something happened in the Jordan era. The company started to crawl back. As Jordan announced his retirement this week, the company's stock was trading near its 52-week high of $29.95.

One clue to the EDS renaissance was revealed in the Wall Street Journal (link - $$). EDS built a tight alliance with a group of leading suppliers and used the alliance to compete with IBM in megadeals (outsourcing deals with more than $1 billion in contract value). The alliance companies--Dell, Sun, Oracle, and others--brought strong horizontal technology capabilities to the table and were eager to compete with IBM for these large deals. And it worked. Writes Jim Carlson in the Journal article:

The alliance is helping EDS to outmaneuver rivals. In 2006, deals involving the alliance accounted for 40% of EDS's $26.5 billion in contract signings. So far this year, alliance-involved deals have accounted for almost half of the signings, say EDS officials.

The article also states that EDS created two centers for the alliance partners to work out of, in Plano, TX, and Auburn Hills, Michigan. Having the partners in the same office allowed the team to be responsive to customers--overcoming a major disadvantage of multi-company alliances.

No strategy is perfect. According to the article, EDS has kicked Dell out of the alliance, presumably for moving too close to EDS' sandbox with new services (another common issue with alliances). But EDS deserves plaudits for tackling a difficult task and making it work.

(Disclosure: I worked for EDS during the early-mid 1990's)

(Photo: "Red Arrows" by jerypank via stock.xchng)