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Electronic Data Systems Corp. is quietly overhauling its Information Solutions organization to boost a key metric used by Wall Street to measure consulting performance: revenue per employee.
By the end of next month, as part of the restructuring of the outsourcing organization, EDS plans to move the majority of its Global Delivery desk-side support employees and first-line managers to strategic suppliers, according to a presentation given to employees late last month by Joe Sindelar, vice president of global operations at Information Solutions.
As part of that plan, EDS is negotiating with DecisionOne Corp., of Frazer, Pa., to take on as many as 400 EDS support technicians currently working with one of EDS largest outsourcing customers, Xerox Corp.
The transformation of the Information Solutions organization is part of a concerted effort at EDS to boost the value of its stock. EDS executives and observers believe that, despite a string of impressive quarterly results, Wall Street is not recognizing EDS value because it does not stack up well on the revenue-per-employee metric.
“Fair or not, companies are no longer judged against their own quarter-to-quarter revenue growth but, instead, compared to the performance of their best-in-class peers and to other comparable-sized organizations,” said Sindelar in his memo to employees.
“Theyre not getting the credit they deserve,” echoed John Madden, an analyst at Summit Strategies Inc., in Boston. “EDS is executing really well. They are trying to make customer service a high priority. If they have to wring out operational savings somewhere, its a logical choice.”
But whether customer service will be affected is unclear. EDS executives stressed in internal memos that the transition will be “seamless” for clients and that EDS Global Delivery will manage the relationship with subcontractors and monitor performance against financial and service objectives, according to Sindelars presentation.
Seamless was also the way Xerox officials described the pending transition last week. “This is really not a big deal,” said Christa Carone, a spokeswoman for the Stamford, Conn., company. “It will be a seamless transition. Our points of contacts will not change.”
Nevertheless, Xerox, which in November awarded EDS a $1.5 billion, five-year extension to an existing outsourcing deal, found out about the DecisionOne deal only last week.
“We just found out about this a day ago,” Carone said. “All we know at this point is that EDS has mentioned that theyre entering into a relationship with DecisionOne to handle desktop support.”
For Xerox, Carone said, that means help desk support for software, hardware and remote dial access, among other things.
Under Chairman and CEO Dick Brown, EDS has implemented a “whole program around service excellence,” said Julie Giera, an analyst at Giga Information Group Inc., in Cambridge, Mass. “Theyve tied compensation directly to service quality.”
An EDS spokesman downplayed the potential impact of the DecisionOne negotiations. The Plano, Texas, company last year signed a 10-year contract with DecisionOne for technology support services, including service planning, deployment and support, call center, network, and logistics services.
DecisionOne put the value of that contract at $370 million. The EDS spokesman characterized that DecisionOne deal as break/fix work that EDS has not traditionally done.
Subcontracting desktop services and field operations support is not uncommon among large outsourcing companies, according to Linda Cohen, an analyst at Stamford-based Gartner Inc.
“Desktop outsourcing is a very low-margin business that requires a lot of humans,” Cohen said. “They are using partners to deliver on that—so does IBM and [Computer Sciences Corp.].”
At the same time, Cohen questioned the wisdom of allowing Wall Street to apply a metric that isnt appropriate to the outsourcing business. “Thats what consultancies use to measure performance,” she said. “If you do a lot of outsourcing, your revenue per head is much lower than it is for consulting.”
Additional reporting by Michael R. Zimmerman