A kinder, gentler EDS.

It used to be their way or the highway at Electronic Data Systems. Now the banking industry's largest outsourcer promises a more cooperative relationships with its clients. Can it deliver?

Time was when Electronic Data Systems treated its customers with a take-it-or-leave-it attitude that bordered on arrogance. However unpleasant, it's an image that old hands at the Plano, TX-based company do not dispute.

"Fifteen years ago we would have said, 'Here's our system. You have to stay within this box,'" admits Coley Clark, group executive in charge of the financial industry group at EDS. "But today, banks' customers are demanding mor solutions, and so are the banks. Our role now is to work with banks to develop the solutions they need."

Can this be true? Has the old EDS of Ross Perot, with its stiff military bearin and ramrod culture, really become a kinder, gentler company-one that bends over backwards to work with banks rather than dictate to them? Clark and other company executives swear that real changes are occurring within the company, an a growing number of outsiders are beginning to agree.

"EDS is much more accommodating to customers than it was two or three years ago," says William D. Rabin, an analyst with J. P. Morgan Securities Inc. "I genuinely think the company is evolving right now. There are real changes going on."

To make good on this new pledge of partnership, EDS must develop an understanding of what banks really need, drawing closer to the customer than ever before. The EDS that Perot built into a giant data processor--one that helped lead banking and other financial industries into the age of automation--must go beyond the back office and help banks develop products and services for a substantially changed environment.

No doubt the $8.5 billion global information services company also realizes tha to maintain its leadership in banking--and thus its own prosperity--it must become more than just a data processing outsourcer with an attitude.

These won't be easy changes to make, even though EDS has made substantial progress. "It's always had a very strong culture, a can-do type of attitude," says John Skerrit, managing partner of the financial institutions division of Andersen Consulting--EDS' chief competitor. "From now on, they'll have to be less confrontational, and less contract-driven. And that's an unnatural act for them."

The remaking of one of banking's key suppliers began three years ago when a handful of EDS executives attended a lecture at the London Business School on why great corporations fail. "It scared us," recalls Clark. The EDS executives were especially troubled by the idea that many excellent companies end up stumbling simply because they don't look ahead. "We decided then to change ourselves rather than let circumstances change us," says Clark. "We came home with a sense of urgency to start doing things differently."

The re-engineering of the engineer is a story told here for the first time, in part because attitudinal change is usually the hardest to pin down. The company has never talked about its efforts, nor has a new and improved EDS been formall introduced to the marketplace.

Lengthy interviews with key EDS executives, as well as competitors like Skerrit reveal that they are still in the process of shaping a new EDS. A broad philosophical change, originally dubbed Corporate Initiative 5 within EDS, continues to evolve. "It is not a project that has an end in sight," says Clark "We are in the process of realizing change, and we hope the industry is startin to see results."

These days, every vendor talks about "partnering" with its clients and "developing relationships." Talk is cheap. But the changes at EDS go far beyond the philosophical. Even competitors begrudgingly admit that EDS is engaging in "a more consultative kind of selling, working more closely with upper management," says Thomas Rouse, executive vice president of Dallas-based Affiliated Computer Systems Inc., an electronic funds transfer processor.

Among the more substantive changes at EDS are its acquisition of a major consulting firm; the development of client-server computing systems that rely less on the mainframe, EDS' traditional business; and partnerships with other service providers to offer more complete solutions to banks.

All very un-EDS-like activities, to be sure. But, according to Clark and others all means to a new EDS end, which is that of bringing technology closer to the consumer. What this means for banks is the development of new technologies that will allow them to know their customers better and to deliver goods and service the way consumers want them today.

"All of us are finding that we're being drawn into the bank's relationship with its customer in an ever more intimate way," says Paul Schmelzer, vice president of marketing for Milwaukee-based Deluxe Data Systems.

A Consultative Approach

It's not that EDS hasn't been at the forefront of bank technology development i the past. But what appears to be different today is that EDS is taking a more consultative approach with banks. In the past, says Anderson's Skerrit, the company had a "Texcentric view of the world...in that everything had to be run out of Plano."

Clark is the first to admit that EDS is "trying to shed baggage of being inflexible or having a do-it-our-way attitude." The company took a major step away from being a back-room bully with the purchase last year of consulting fir BEI Golembe. EDS folded BEI Golembe into three-year-old EDS Management Consulting Services, which is now the 14th largest consulting firm in the world with some $430 million in revenue in 1993.

Clark says EDS salespeople who are now called "relationship managers"--don't have to go in for the big outsourcing deal. "Now we want to go for the relationship, even if that means we approach the market in a different way," he says.

Approaching the market differently might mean that the consulting group, which is a separate division from financial services, may be the one to spearhead the company's relationship with a bank rather than data processing. "It is an expression of our determination to know more about the businesses we compete in than our competitors do," says Tom McGrath, the group's senior principal for banking.

Management consulting services (as opposed to technology consulting, for instance) account for 95% of the division's business. "There's no question that the institutions that intend to be in business 15 years from now are rethinking everything about their business from asset generation to transaction processing," McGrath says. "Our role is to help with those strategic issues."

Clark says that EDS' newfound flexibility in providing support beyond technolog issues reflects changes in the market it serves. When he was a salesman for EDS in the 1970s, banks' main concern was "to keep on-line systems up and running and get the reports out on time. The capability to do this was the big consideration, and cost was not a main factor."

Cost did become a consideration later, when the banking industry ranked in the late 1980s and many institutions were looking for efficiency gains to help offset their loan losses. Now, with computing costs going down and capability going up beyond what banks even need, the goal is to improve their business performance. Enter consultants. "The point at which EDS can impact the customer is changing," Clark says.

Although many of EDS' consulting clients are also outsourcing clients, that's not always the case. "We are helping First Security (Corp.) in Salt Lake City develop a business strategy, and we have no outsourcing relationship with them at all," Clark says.

Whether or not the consulting business leads to outsourcing deals--and company representatives insist that it is not designed to do so--it does help cement relationships with clients. For example, J. P. Morgan & Co. has contracted with EDS to develop an overall technology policy, and to handle a systems integratio project for its global electronic mail networks.

"These are small engagements and would most likely not have been interesting to EDS a few years ago," Rabin at J. P. Morgan Securities wrote in a report on EDS in February. "However, this new approach now gives J. P. Morgan exposure to EDS capabilities, and EDS hopes to develop a large relationship with J. P. Morgan b starting small and working up."

EDS' new consultative approach comes at just the right time, as banks are not only evaluating their business strategies as never before but also are dealing with a rapidly changing technology environment. Dependence on the mainframe is waning, as distributed computing power brings information more quickly to bank officers' desks. Being a key player in this environment is crucial to EDS' systems integration practice.

Mainframe Kind of Guys

But how to best take advantage of this brave new world of client/server computing is the big challenge for banks. And until recently, EDS wouldn't have topped the list of companies banks were most likely to turn to for help. That's because EDS has always been a mainframe kind of company, and few expected it to lead the way into client-server computing.

Nevertheless, EDS is becoming a major player in distributed computing, with its On Call family of client/server products gaining momentum. On Call includes customer information files, imaging, office automation, collateral tracking, executive information systems and other services in a client/server environment says Ted Shaw, EDS banking services vice president.

Shaw quickly answers those who would question EDS' commitment to client/server computing: "This is the greatest building block to deliver technology since the development of the mainframe."

EDS put the reputation of its client/server expertise on the line this summer during the World Cup soccer matches in the United States by running one of the most sophisticated client/server systems ever. EDS provided real-time reporting accreditation, logistics and office management throughout an extremely complex network of computing, data and voice communications equipment, for which it had developed the applications and integration with Sun Microsystems and Sprint.

Although the telecommunications companies are the dominant players in the network business, EDS is not without expertise of its own. The company employs some 3,000 network programmers and is a leader in the charge to integrate computing and telecommunications, as it continues its attempt to forge a strategic alliance with a telecommunications company.

Indeed, EDS wants to be at the apex of the convergence of hardware, software an networking capabilities, and because of its breadth of businesses and global reach, it may be uniquely positioned to do so.

That is a lofty goal, and one that eluded EDS when potential deals with British Telecom, and later Sprint, fell through. Still, most observers believe EDS will form some kind of alliance, if not an outright merger, with a telecommunication company soon.

EDS is already quite experienced in forming strategic alliances. Its Interactiv Transaction Partners joint venture with France Telecom and U. S. West, to offer a home banking product to banks, is a prime example. Another is its deal with American Express and Interbold to offer travelers checks

through automated teller machines.

"The whole idea of partnering is to provide broader capabilities to banks," say Clark. And he concedes: "It's probably something we wouldn't have done five years ago."

Shift in Position

Employing a consultative approach, developing cutting-edge applications, and forming strategic alliances are all part of what Neil Marcous sees as EDS' "shift in positioning from being a data processor to providing applications for the banks that are more consumer-oriented."

Marcous is general manager of the electronic financial transactions unit of a relatively new entity within EDS, called Electronic Commerce, which operates as a research, development and implementation outfit for other EDS divisions, including financial. In developing new applications, Marcous' division will hel banks "become more than a payment service mechanism. Banks must use their infrastructure to get closer to the consumer," he says.

The big question is whether this massive company can carry though with the changes it has begun to make. "Is this just another EDS 'issue' for the year?" asks ACS' Rouse. "EDS has the same problem that any other huge organization has--it's hard to keep a consistent focus."

Although Clark concedes that fundamental change is difficult for a company of some 70,000 employees, he feels that the process that began with Corporate Initiative 5 will continue because it has permeated the entire corporation. It actually began even before the London experience; EDS managers began to rethink the direction of the company following Perot's departure in late 1986. (Perot had sold EDS to General Motors Corp. in 1984).

"It wasn't something that 10 people decided and shouted down the tubes," Clark says, adding that thousands of employees were eventually involved.

EDS' core business is still very much outsourcing data processing services, and it is an increasingly successful business. In 1989, owner GM-related processing accounted for 55% of operating revenue, but had dropped to 39% at the end of 1993. EDS estimates that GM will account for only 25% of revenue by 1997 or 1998.

And despite its emphasis on developing relationships, EDS continues to bag the big deals, as witnessed in the processing contract signed earlier this year wit American Express Corp., worth $350 million over a 10-year period.

Rabin at J. P. Morgan, who has a strong buy on EDS stock, believes the company will be able to emerge from the back office because of the strength of senior management. "It will be a fine line to walk to add this dimension to EDS withou losing focus on the core business," he says. "But I believe they are smart enough to do it."

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