Electronic Data Systems chairman and chief executive
officer Michael Jordan says his company had the multiyear,
multibillion-dollar US Navy Marine Corps Intranet (NMCI) contract
under control.
The contract, signed in October 2000, has been a recurring
financial and logistics problem for EDS. It has been marked by
delays and has drained significant amounts of cash from the IT
services provider.
EDS wrote down $559m in deferred costs related to the NMCI
contract for its fourth quarter of 2003, ended 31 December, which
it closed with a net loss of $354m.
However, Gartner analyst Lorrie Scardino was unconvinced.
"EDS has, on a regular basis, made statements that it
understands the NMCI problems and that it has corrected those
issues that impeded its performance on that contract," Scardino
said.
"Until we actually see the results of those fixes, this is just
a recurring message. What they said yesterday doesn't sound too
different from what they've said in the past."
Jordan, who became chairman and CEO in March 2003, said that
responsibilities in the NMCI engagement were vaguely specified. In
particular, the agreements EDS reached with subcontractors were
faulty because they did not make the subcontractors sufficiently
accountable, Jordan said.
Moreover, he added, the NMCI project suffered from a lack of
leadership on EDS' part, operating in isolation from the rest of
the company, and from a lack of commitment on the part of the Navy,
he said. This lead to delays as personnel at local navy bases
failed to co-operate or as EDS employees faced thorny technical
roadblocks. Meanwhile, he added, EDS made the mistake of committing
capital too early and assuming costs not contemplated in the
contract to avoid further delays.
Now, Jordan and the new management team he has put in place over
the past year have established a "firm" implementation schedule and
developed a more efficient rollout plan in conjunction with Navy
officials, he said. Jordan expected EDS to begin recovering its
NMCI investment in 2005.
When it was signed in 2000, the NMCI contract was valued at more
than $4.1bn for five years, with an additional three-year option
that could put its value at more than $6.9bn. It was extended in
2002 to seven years with a three-year option and its value rose to
$8.8bn, a navy official said yesterday.
Speaking about EDS as a whole, Jordan contested the notion that
EDS is in financial trouble. "This is far from the case. I've been
in a financial turnaround and this is very different. This is a
managerial turnaround," he said. "We're very confident in our
ability to turn around this ship very quickly."
In 2003, Jordan and his team focused on stabilising EDS, which
had been rocked by disappointing sales, loss of confidence in its
top managers, problematic contracts and government scrutiny, such
as an investigation by the US Securities and Exchange
Commission.
"Instead of operating as a $21bn business, we were operating
like 200 smaller businesses," Jordan said. "As a result we had a
wide disparity in execution across our businesses."
Now, the central management group has been strengthened in key
areas such as account management, contracting and procurement, and
the company realigned to function more organically as a whole. The
company is executing on its strategy to strengthen its core IT
outsourcing business and to expand into growth areas, such as
business process outsourcing, he said.
In 2004, EDS top management will focus on fixing outstanding
problems, and Jordan expected EDS to move to a growth strategy in
2005 and beyond.
Gartner's Scardino did not think the plans were particularly
ground-breaking.
"It's positive that they're upbeat about what they've done and
what they want to achieve in the next couple of years," she said.
"But the things they talked about aren't earth-shattering.
"Theirs is a very similar strategy to the one other service
providers have adopted long before them. I didn't hear anything
that is a real breakthrough or something the competition isn't
already engaged in."
Juan Carlos Perez writes for IDG News
Service