QandA: EDS CEO Dick Brown Expects Upside From Enron Fiasco

EDS HP-Compaq

CRN: How much business is there up for grabs with this Big Five accounting-consulting split in the wake of the Enron-Andersen debacle?

Brown: We don't even know because a lot of that we were not invited in. A lot of this is just hostage extension from the accounting side of the Big 5 or the auditing side that flows to the consulting side. So as this thing opens up ... I think we stand to be substantial recipients of a very changing industry. ... I think any of the Big 5 (that) steadfastly ... remain believing that accounting and consulting in their firms can survive as one in the future are in denial. For a lot of reasons, things are going to change and change dramatically. This plays to EDS' strength. I can't quantify at the moment how much more opportunity that is.

CRN: Have you made any changes in how you are doing accounting or structured in the wake of the Enron-Andersen affair, and what impact do you think this will ultimately have on American business?

Brown: It is just a wake-up call for boards and just about anybody that touches commerce to be more alert and proactively fiduciary in their duties. I think in many ways what is happening as a result of Enron is going to be healthy, healthy for business and healthy for the economy. There will be changed behaviors, which will be good. As far as EDS is concerned, we have always disclosed on CFTs (Customer Financing Transactions) that they were there, the liability we had. The recourse is only for the most extreme case of service failure. Ninety-nine percent of the time there has been no issue whatsoever. And in that 1 percent, we voluntarily bought back the assets. So I think this puts to rest a lot of anxiety fueled more from ignorance certainly than from knowledge.

CRN: What is driving IT purchases at this point, and what impact is it having on EDS?

Brown: At a pretty high level, what is driving IT spending is an insatiable need to have businesses and governments be more efficient. Every CEO I talk to has the same basic needs I have for my own company: How do you make my bottom line better? How do you help me grow my top line? Can you give me some ideas on how to process redesign and simplify and raise productivity? All these fancy applications get at the basic needs of the income statement: how to collect my receivables faster,velocity,how to move inventory through my business quicker. These are the fundamental driving forces that are no different than they were in 1968. There is less tolerance today for theory about this, and there is a greater expectation for dealing with a company that has a proven record for delivery. So EDS' successes with our own performance and [A.T. Kearney's reputation as an operationalized consultant team [is strong. The market is coming to us.

CRN: IBM Global Services in the most recent quarter was down 1 percent in sales. EDS was up 15 percent. What is the difference between EDS and IBM Global Services?

Brown: Clearly we are the two giants in the industry. Back in 1999, [EDS went to work to transform the enterprise. We did heavy lifting. We made tough decisions. And it has positioned us very well today for where we are. We put on a drive for service excellence--I mean recognizable, noticeable, differentiated service excellence. And that is worth, I think, as you heard us say, 1,000 sales people virtually. So our lift in the existing client base with record renewals is coming because clients want to stay with us. I can't get inside IBM, and I am not trying. What we do is focus on the client. I have said to EDS people: You serve that client better than the client expects to be served. You smother that client with care, innovation, attention, success, and no competitor has a chance.

CRN: What are the challenges, and what are the changes you are making to address those challenges?

Brown: You heard two major initiatives today: digital transformation--digitizing our processes, which will take a lot of cost out; and Project Next Level, which is basically a comprehensive way to enhance our market facing forces. We are not doing badly. We are doing fine. But we have got to be ready as we grow into a $23 billion company, a $26 billion company, $30 billion. We have got to have pipelines and bookings that are numbers that are a lot bigger than you see today. So the challenge we pose to the enterprise is: What do we have to do so that we can make those bigger numbers two, three, four, five or six years out? It is just a logical extension of enhancing our capabilities of where we are today. We are in a great industry, if we just continue to execute well in the industry we are in. We are not a technology company. We are a people company, so we have to continue to retain the best people, attract new best people, pay for performance culture, reward people who excel, focus people on what has to get done, and we win.

CRN: What is your advice to midsize service providers that are trying to build the same kind of outsourcing business in the midmarket?

Brown: First of all, by its nature, outsourcing is a scale business. If you perform well, you will always be advantaged by size in this industry. Now what we are also trying to do is, as big as we are, [figure out how we can more efficiently leverage ourselves. We are not nearly as good as we can be. This is why a lot of the boutique [services firms just puffed up and got blown away, because the marketplace doesn't want an excellent performing boutique. They can't pass on the efficiencies they get with an EDS. And there is a preoccupation in the marketplace with speed on this. A lot of the CEOs I meet haven't got time for a beauty contest at the front end with who should be my strategic consultants, who should be my solutions architects, who should be my fulfillment capability, my data-center managers, my operators. The hand-offs take time. They haven't got it. And EDS goes from front to back and does it all.

CRN: How is the proposed HP-Compaq merger affecting your customers, and what do you think of the deal?

Brown: We are hardware and software agnostic, which is a differentiating advantage for EDS. We go into a client and the first thing we have to do well is architect a solution for the client. Then we apply technology. The seductive trap that hardware and software companies fall into is they find a market, a client to use their product, and then back into the answer. So our credibility is much greater because we don't make hardware and software. We are there to solve the problem. So we are big customers of HP and Compaq and the application of their hardware and some of their software. And I think HP and Compaq think EDS is very important to them. But HP has expressed an interest in getting into services. The fact is we rarely see HP, hardly ever, in the marketplace for services. We see IBM. We see Cap Gemini. We see some of the Big Five. We see others. But we don't see HP. Really, I don't have a strong feeling on the HP-Compaq merger because my only focus as a CEO is to be sure that my company's IT services organization continues to thrive. And to recreate an EDS would take a business lifetime. You never take a competitor for granted. But we are doing well. It's interesting reading the press on that issue chapter by chapter. But how it practically affects EDS, it is a non-issue.

CRN: How about the impact on EDS customers?

Brown: Customers have an opinion, but as it relates to the continuation of various product lines,one or the other may or may not continue if the merger goes through.

CRN: What do you make of claims by vendor services organizations that maintain they are impartial and independent when it comes to products and will install and recommend third-party products?

Brown: If you listen to our competitors who do services and hardware, they all say their No. 1 objective is shareholder value. Doesn't it stand to reason they would be giving some guidance to their services people to deploy their own hardware and software?