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ELECTRONIC DATA SYSTEMS

ELECTRONIC DATA SYSTEMS. Electronic Data Systems, headquartered in Dallas, is an independently operated and wholly owned subsidiary of General Motors Corporation that specializes in the management of information technology. EDS designs, installs, and operates data-processing systems for the automotive, communications, energy, financial, government, health-care, insurance, transportation, utility, and manufacturing industries, as well as for retail distributors. It owns and operates one of the world's largest private digital telecommunications networks, EDSNET, which reaches fifty states and twenty-seven countries. In the 1990s company subsidiaries included EDS Federal Corporation, EDS Financial Corporation, EDS Technical Products Corporation, National Heritage Insurance Company, and VideoStar Connections, Incorporated.

The firm was founded by H. Ross Perot and incorporated on June 27, 1962. Perot was born in 1930, attended public schools in Texarkana, and took a two-year prelaw course at Texarkana Junior College. In 1949 he joined the United States Naval Academy and in 1953 was commissioned an ensign; he served on the aircraft carrier Leyte. When his tour of duty ended in 1957, Perot joined International Business Machines. Soon thereafter, the company set a maximum annual sales volume for him, which he reached by mid-January in 1962. Dissatisfied with his position as an IBM salesman, Perot decided to form EDS when he recognized that business personnel needed help in using electronic data-processing systems. When IBM showed no interest in pursuing his idea, Perot left the firm.

According to various sources, EDS offered data-processing and computing services, or "facilities management," at an economically attractive price, but profited from a nontraditional approach to the electronic data-systems market. While other companies' contracts often lasted only sixty to ninety days, EDS made five-year fixed-price contracts with its customers. This allowed company representatives to go into the customer's organization, set up a data-processing system, and then reassign employees to other jobs to save personnel costs, increase profits, and maintain a steady flow of business. From the beginning, Perot also held his employees to a strict corporate regimen that forbade alcohol consumption during business hours and required conservative dress along with loyalty and a sense of duty. Despite his almost militaristic management style, however, he developed a management team that listened to employee suggestions and was open to new ideas.

For his first customer, Collins Radio of Cedar Rapids, Iowa, Perot purchased computer time on an IBM computer at Southwestern Life Insurance in Dallas and sold this time at retail prices. By 1963 EDS had signed its first long-term commercial contract, with Herman Lay of the Frito Lay Corporationqv, and established a contract to process insurance data for Mercantile Security Life, the start of an interest that by 1990 made the firm the largest insurance data processor in the nation. Perot also took advantage of 1965 Medicare legislation that caused excessive paperwork by organizing claims-processing systems across the country, a business venture that by 1977 accounted for nearly 40 percent of sales.

In 1968 Perot made a public offering of 7 percent of the company, from which equal amounts went to himself and EDS. Company stock prices rose to a high of $160 in 1970 and dropped to a low of $15 in 1973. Perot served as the president of EDS until 1970, when former IBM salesman Milledge A. "Mitch" Hart took his place. After Hart resigned in 1977, Perot served as chief executive officer and chairman from 1977 to 1979. In 1979 former EDS vice president Morton H. Meyerson became president, and Perot resumed his position as chief executive officer.

After the firm's first financial institution, a Dallas bank, became a customer in 1968, EDS grew to become the world's largest provider of data-processing services for banks and savings and loan associations. In the early 1970s Perot also diversified into brokerage firms. With the support of the Nixon administration, he bought Wall Street Leasing, a subsidiary of retail stockbroker Dupont Glore Forgan, Incorporated, and invested $10 million in the firm. By 1973 he had put money into Walston and Company, another brokerage house, which he proposed to merge with Dupont Glore Forgan. However, losses at the latter put him $60 million behind. Furthermore, EDS was faced with a 1976 lawsuit by F. and M. Schaefer Company and F. and M. Brewing Company which alleged that EDS data-processing systems provided inadequate information. EDS countered that the companies simply wanted to avoid paying their $1.2 million tab for EDS services. An out-of-court settlement forced EDS to pay Schaefer $2.3 million, but Perot's company retained the $1.3 million Schaefer had already paid.

As in-house corporate data processing diminished business for outside service providers in the mid-1970s, EDS entered the sale of turnkey systems of hardware, software, and peripheral equipment geared to the needs of specific users such as individual hospitals or small businesses. It also diversified into data-processing services for some 3,000 credit unions nationwide. The firm became involved internationally in 1976, when EDS took as its clients King Abdulazziz University in Saudi Arabia and the government of Iran. The company suspended its services to the latter after the Iranian government became delinquent in its payments and, as the diplomatic situation worsened, Perot ordered all EDS employees out of the country. Eventually, Perot had assembled a rescue team led by Col. Arthur D. Simons, a Green Beret he had previously hired to look for missing servicemen in Vietnam, and managed to get his remaining executives out of the country in 1979.

After Meyerson became president, the company pursued federal government contracts, particularly a 1982 contract for Project Viable that streamlined and updated the United States Army's computerized administrative facilities and established a nationwide network. While EDS remained oriented to facilities management, the company began to offer customers systems integration-a service through which a company's telecommunications, computer, and software systems were all provided by EDS.

General Motors purchased EDS on June 27, 1984, for $2.5 billion, the largest price ever paid for a computer-services operation. The terms of the sale required GM to keep EDS as a separate corporate entity, retain some personnel, and issue performance stock based on EDS's performance rather than that of General Motors. Perot retained his managerial function and a position on the GM board of directors. Though his management ideas and those of GM chairman Robert Smith quickly clashed, Smith believed that Perot's management style would improve GM's huge data system, and EDS benefited from its new GM business. Revenues tripled in the first year after the GM acquisition, employee numbers increased, and the company entered the fields of telecommunications and factory automation.

Perot's involvement in the company ended in 1986, when GM management bought his special-performance shares for $700 million. Meyerson resigned, and Lester M. Alberthal, who joined the company as a systems engineer trainee in 1968, became president and chief executive officer; by 1989 he was also chairman of the board. Alberthal continued the diversification that Perot and Meyerson had instigated, moving into energy, transportation, communications, and manufacturing. He also developed a leadership council to replace the original EDS administration, thereby distributing daily operational powers throughout the EDS hierarchy.

In 1989 EDS opened an Information Management Center in Plano, Texas, to maintain its worldwide digital private-communications network, EDSNET. The center sends data, voice, and video to destinations across the globe and serves as operational headquarters for twenty-one similar information centers serving 7,200 customers worldwide.

EDS has been instrumental in supporting individual communities and national causes. Locally, the company supports education through its Education Outreach Programs and public school "adoptions." Beginning in 1989 it also sponsored Project JASON, which enabled 225,000 children to witness a Mediterranean Sea exploration. Within the firm, EDS funds a Systems Engineer Development program to provide ongoing training for its personnel. In 1992 Perot ran unsuccessfully for president of the United States.

BIBLIOGRAPHY: 

The International Directory of Company Histories. Vertical Files, Dolph Briscoe Center for American History, University of Texas at Austin.

Damon Arhos

Citation

The following, adapted from the Chicago Manual of Style, 15th edition, is the preferred citation for this article.

Damon Arhos, "ELECTRONIC DATA SYSTEMS," Handbook of Texas Online (http://www.tshaonline.org/handbook/online/articles/dne02), accessed November 26, 2014. Uploaded on June 12, 2010. Published by the Texas State Historical Association.