EDS uses reorg to simplify business
Computer services giant EDS details a reorganization of its business lines as part of its continuing effort to restructure the firm to boost profits.
Plano, Texas-based EDS said it's changing the way it does business by focusing on four lines of business, to include A.T. Kearny, EDS's consulting subsidiary; E.solutions, its e-business unit; Business Process Management, the company's focus on customer management, claims processing, and settlement processing; and Information Solutions, its IT development unit.
The move is part of chief executive Dick
Brown's plan for reorganizing the company, first discussed this spring.
In order to drive new growth and improve its relationship with clients, the company said it needed to simplify the way it has been conducting business.
"We are making these changes to ignite our growth engines and to reclaim leadership in the industry we founded," EDS's chief executive officer Dick Brown said in a statement.
"On the outside this makes the company a little easier to understand," said Bill Loomis, a financial analyst at Legg Mason. Previously, EDS divided its business into several segments geographically and vertically, but now with just four standalone business units, it might be easier for the company to get its message across to clients, he said.
He added that the company's September quarter seems to be on target, and EDS has shown improvement over the past year with the recent changes.
In research notes, PaineWebber analyst Andrew Burns said the company's reorganization will increase productivity, boost customer services and delivery, strengthen its competitive position, and build management accountability. Burns said EDS is on track for the upcoming quarter and maintains a "buy" rating on the company's stock.
In addition, the company said it will focus on client service as a top priority. Each EDS client will have a single EDS executive responsible for the overall relationship and services EDS provides to that client worldwide.
"EDS is such a large company, you're not going to see dramatically improved results in one, two, or even four quarters," said Loomis. While, he said, the company is in a much better position now to achieve its turnaround goal, "the reorganization is going to cause internal short-term disruption while the plan gets communicated to its employees and during the different management changes."
In July, EDS, which has been knee-deep in lay-offs and cost-cutting efforts since the beginning of the year, reported positive second-quarter earnings, which analysts, at the time, said signaled a recovery for the company.
As reported, EDS chief financial officer Jim Daley touted the company's improvement in new contract signings, which reached $5.7 billion for the quarter and $8.7 billion for the first half of the year. Analysts said they were "impressed" with the early progress the company has made with its restructuring goals.
Looking down the road, Loomis added that EDS will most likely undergo further cost cutting efforts in terms of additional job layoffs even though the reorganization has been talked about since early this year.
"It's definitely a significant event for people inside the company," he said.
Today's business changes are currently being communicated to EDS employees and all of its customers, and will be implemented beginning October 1, the company said.