Electronic Data Systems (EDS) plans to lay off between
15,000 and 20,000 employees over the next two years as part of an
effort to cut $3bn (£1.7bn) in costs.
These layoffs would come on top of about 5,000 jobs EDS has cut
over the past year, said the company's chairman and chief executive
officer Michael Jordan, speaking at the Smith Barney Citigroup 2004
Technology Conference in New York.
"Over the next two years there will be a lot of change at EDS.
We said we're going to take 20% off our cost structure which is
$3bn out, and that's the way you do it."
Clearly, EDS plans, at least in the short run, to be a smaller
company, and the big question mark is whether this will erode the
quality of its services, said Andrew Efstathiou, a Yankee Group
analyst. Therefore, clients must be very vigilant about service
quality as EDS downsizes, he said.
"EDS has an excellent service delivery capability in place and
these layoffs, if done improperly, are going to adversely impact
this delivery capability. If done effectively, they'll reduce costs
but also limit somewhat the scope of services EDS can offer."
Compounding the matter is that EDS' performance at generating
new business has been disappointing, so that, lacking a new-sales
boost, the company is being forced to focus more on cutting costs
to improve its financial condition, he said.
This means carrying out a strategy that includes divestitures,
such as the recent sale of its UGS PLM Solutions unit, moving
operations offshore and, of course, trimming the payroll,
Efstathiou said.
"Generating new sales hasn't been successful for them so far.
That's not what's moving the company forward. They've generated
some new sales, but most [revenue] has come from signing existing
customers to renewals and signing extensions of existing business.
But new-sales performance hasn't been strong. It certainly hasn't
been what they would have hoped for."
When EDS announced in July that it had signed $4bn in contracts
in the second quarter, up 25% from $3.2bn in last year's second
quarter, it said that this reflected "sales growth from existing
accounts and strong renewals".
The turmoil at EDS over the past two years or so has harmed
employee morale, and it does not help to hear the company's chief
executive say that significant layoffs are coming, Efstathiou
said.
Jordan's comments are in line with the company's overall efforts
to reduce its costs over the next 24 months to 36 months, said Liz
Bonet, an EDS spokeswoman. Regarding the projected job cuts, the
numbers Jordan provided are an estimate, not a target, Bonet
said.
As such, this estimate could be modified and depends on how EDS'
business transformation proceeds as it improves productivity and
increases new-contract signings, Bonet said. EDS currently has
about 120,000 employees, she said.
In addition to layoffs, EDS plans to lower costs through two
other areas. First, by improving its supply chain and purchasing
process, and second, by improving its capacity management, which
involves the global consolidation of service-delivery facilities
such as data centers and call centres.
Juan Carlos Perez writes for IDG News Service