CRN Interview: Dick Brown, EDS

EDS Chairman and CEO Brown piloted the systems integration giant to $21.5 billion in revenue in fiscal 2001, a 12 percent year-over-year gain. Brown discussed the Plano, Texas-based company's business strategy, market trends and other issues in an interview with Editor/News Steven Burke.

CRN: What's driving customer IT purchases nowadays, and how is that affecting 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 that 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 of these fancy applications get at the basic needs of the income statement: how to collect receivables faster,velocity,and how to move inventory through the business more quickly. 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 with EDS' successes with our own performance and [EDS consulting unit A.T. Kearney's reputation as an operationalized consultant team, the market is coming to us.

CRN: In its fourth quarter, IBM Global Services was down 1 percent in sales. EDS was up 14 percent. What's 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 1,000 salespeople 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 to. 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.' If you smother a client with care, innovation, attention and success, no competitor has a chance.

CRN: What challenges does EDS face, and how are you addressing them?

BROWN: You heard about two major initiatives [in an EDS financial analyst conference today: digital transformation, or digitizing our [business 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 to be ready as we grow to a $23 billion company, a $26 billion company and then to $30 billion. We need pipelines and bookings with [revenue numbers that are a lot bigger than what you see today.

So the challenge we pose to [our enterprise is this: What do we have to do to 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. We are not a technology company; we are a people company. So we have to continue to retain the best people, attract new people, [instill a pay-for-performance culture, reward people who excel and focus people on what has to get done. And then we win.

CRN: What's your advice to solution providers trying to build an outsourcing business in the midmarket?

BROWN: 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 [figure out how we can more efficiently leverage ourselves, as big as we are. We are not nearly as good as we can be.

This is why a lot of the boutique [service providers just puffed up and got blown away. The marketplace doesn't want an excellent-performing boutique. They can't pass on the efficiencies that they get with an EDS. And there is a preoccupation in the marketplace with speed. A lot of the CEOs I meet haven't got the time for a beauty contest at the front end with [decisions such as 'Who should be my strategic consultants, who should be my solutions architects, who should be my fulfillment capability, and who should be my data center managers and operators?' The handoffs take time. They haven't got it. And EDS goes from front to back and does it all.

CRN: Will the proposed merger of Hewlett-Packard and Compaq have any impact on EDS? What do you think of the deal?

BROWN: We are hardware and software agnostic, which is a differentiating advantage for EDS. When we go to a client, the first thing we have to do well is architect a solution. Then we apply technology. The seductive trap that hardware and software companies fall into is that they find a market,a client to use their product,and then back into the answer [of how products fit into a solution. 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 believe EDS is very important to them. But HP has expressed an interest in getting into services. The fact is, we rarely see HP in the marketplace for services. We see IBM, we see Cap Gemini, we see some of the Big Five. And we see others. But we don't see HP.

Really, I don't have any strong feelings 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 re-create 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 [the HP-Compaq merger chapter by chapter. But how it practically affects EDS? It is a non-issue.

CRN: But do you think that the proposed HP-Compaq merger will have any impact on EDS customers?

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

CRN: Some IT vendors say that their services organizations are impartial in product choices and will recommend and install third-party products. What do you think of such claims?

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

CRN: How much business is up for grabs with the Big Five accounting/consulting split triggered by the Enron-Arthur Andersen debacle?

BROWN: We don't even know, because a lot of that we were not invited into. A lot of this [consulting business is just pretty well 'hostage extension' from the accounting or auditing side of the Big Five that just kind of 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 Five that steadfastly believe that accounting and consulting in their firms can survive as one are in denial. For a lot of reasons, things are going to change,and change dramatically. This plays to EDS' strength. [But I can't quantify at the moment how much more opportunity that is.

CRN: In the wake of Enron's financial collapse, has EDS made any changes in its accounting practices? What impact do you think the Enron fiasco will have on U.S. businesses?

BROWN: It is just a wake-up call for boards [of directors 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, 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 that this puts to rest a lot of anxiety fueled more from ignorance certainly than from knowledge.