GM hopes for EDS high-tech fell foul of human equation
The union of Electronic Data Systems and General Motors should have been a marriage made in heaven, but it has been considerably less serene. In recent months, H. Ross Perot, the feisty Texas entrepreneur and former EDS chairman, had been increasingly vocal in his criticism of GM management. GM chairman Roger Smith was one of Mr. Perot's targets, along with GM's corporate culture, which includes heated parking garages for its executives and a new car for them every 3,000 miles.
Perot's criticisms, which included the comment that GM's management should be ``nuked,'' must have hit home. Now Perot has been shoved out of the management picture.
GM's board, led by Mr. Smith, decided Monday that it had had enough of Perot and dethroned him as EDS chairman. It did this by offering him $56.50 for each of his 11.4 million shares - about $750 million. Perot accepted - along with the condition that he should not criticize GM publicly. When GM initially bought EDS in 1984, it paid $2.5 billion and made Perot GM's largest shareholder, with 0.8 percent of its stock.
With Perot gone, GM enters a critical time in which it has said it will integrate EDS further into its corporate structure. Analysts are divided on what effect Perot's departure will have on EDS and GM.
``Conceptually, EDS and GM are a perfect match,'' says John Hammond, an analyst with Data Resources Inc., a Lexington, Mass., research firm. ``Without the rallying point of Ross Perot and the old culture he represented, EDS could make a greater contribution to GM.''
Other analysts believe the GM culture needed a non-GM person like Perot to push for changes and streamline entrenched bureaucracy.
``I think it was shortsighted and thin-skinned to get rid of Perot,'' says William Rosser of the Gartner Group, a New York consulting firm. ``It's healthy to have a gadfly prodding.... It's clear that [GM] has remained close-minded rather than taking a fresh approach.''
Virtually from the beginning, analysts say, GM's acquisition of EDS has been a clash of corporate cultures, in which a fast-moving, high-tech vision of manufacturing's future has had to conform to the very real difficulties of making cars in 1986.
It has also involved a clash of motives. GM bought EDS by trading its stock for EDS stock and creating a separate ``E'' class of GM stock. The value of that stock, owned by many EDS employees, is based on dividends returned on EDS earnings. EDS employees are thus highly motivated to maximize EDS profits. Since some 70 percent of EDS revenues come from sales of services to GM, there is a constant battle between the two.
EDS is a company of computer experts who have built a reputation on making complex systems do what they were supposed to do. GM's aim has been straightforward enough. It wanted EDS to use its expertise to fasten together GM's sprawling operations and thereby lowering manufacturing costs. But that hasn't happened - at least not yet.
``The intent was a good one - the problem is that it's been difficult for EDS to get its arms around too big a beast,'' says David J. Andrea of the University of Michigan's Office for the Study of Automotive Transporation. ``EDS is very experienced in office automation. When it first joined GM, it didn't have as much experience in manufacturing.''
GM managers have rebelled against what they have seen as technical theories that don't bear fruit on the factory floor soon enough. While billions of dollars have gone toward automation, there have been few gains in production cost cutting. GM remains easily the highest-cost producer among the Big Three automakers.
Lately, GM has been rethinking its future. It scaled back its vaunted Saturn small-car division, closed plants, slashed capital spending and new-car programs, and eliminated its heavy-truck division. But as GM's market share shrinks against foreign and domestic competitors, analysts say the ultimate challenge is to make EDS's efforts a success.