As part of a team presentation in
Mgmt301 (Management and Organizational Principles), I wrote this
summary of our analysis of the troubled history of Ross Perot's second
attempt at establishing a second IT giant.
EDS
and Perot Systems were both founded by the same individual with the same
philosophy, Ross Perot. In both cases, the companies grew to
develop large client bases in the field of computer data processing.
However, the story of Perot Systems was much different than with
EDS. Ross Perot, having sold EDS to General Motors, had founded
Perot Systems, to attempt to duplicate the success of EDS.
However, several years after founding Perot Systems, Perot became
engaged in two successive presidential campaigns in 1992 and 1996 and
handed off management to long-time friend and business associate Mort
Meyerson.
Meyerson
found Perot Systems to be much like Perot’s EDS, which had been based on
the same management system, but this time, he realized the old
management model that he had helped Perot create at EDS was not
working. He worked to change company philosophies in three major
problem areas for Perot Systems:
At
the time of Meyerson’s takeover, Perot Systems’ leadership was very
job-centered, where successful employees were well-rewarded and
lesser-performing employees treated with little or no respect by
management. To his credit, he acknowledged his own role in helping
develop that culture, and worked to institute a more employee-centered
system of management, and encouraged those who would not adapt. He
also became more of a hands-on executive, taking part in the activities he
mandated for his employees.
Perot Systems had long had a strict command-and-control philosophy that
extended to its customers. Driven by the strong pay-for-performance
compensation system, Perot Systems employees were looking at short-term
growth, with little regard for the long-term interests of their clients,
or even their own company. He sought input from clients when
performing employee performance evaluations and included customer
satisfaction as a one of the criteria for bonuses. These changes
helped put a focus on serving the customer, not controlling them.
Meyerson aimed the expertise of Perot Systems at specific industry groups,
to develop and apply knowledge of meeting challenges in those
industries. This also enabled it to better understand the changing
trends of the marketplace, and reorient its focus on systems integration
and away from data processing. As a result, Perot Systems landed
several major contracts that helped move it towards the long-term goal of
being able to make a stock IPO.
In spite of Meyerson’s changes, Perot Systems still lagged behind EDS in
profitability, with margins in the late 1990’s averaging 5.3 percent,
compared to 7.7 percent for EDS. Frustrated by three management
changes which delayed Perot Systems’ IPO while the market for high-tech
stocks was surging, Perot stepped in and resumed direct management in
late 1997.
Perot returned his company to the old command-and-control system,
including centralized reviews of spending and new contracts. With
Perot at the helm, Perot Systems went public, but the long-term results
were less than spectacular.
Driven by Perot’s celebrity status, the stock soared on its first day on
the New York Stock Exchange, on February 2, 1999, going from $16 per
share to $42.50 a share by mid-afternoon. However, by March 2002,
Perot’s personal appeal failed to achieve the desired results, as Perot
Systems was losing money and the stock was selling for $19 a share.
Several very important lessons can be learned from the roller-coaster
ride undertaken by Perot Systems in the 1990’s. Different ideas
and approaches caused internal and external forces to shape and reshape
the company, which Perot had intended to match the size and
profitability of EDS, Ross Perot’s first information technology
company.
Perot
Systems faced business problems in both directions. Both Perot and
Meyerson attempted to transform the company Perot founded, but neither
wave of management changes adequately addressed the fundamental business
problems of Perot Systems. While Perot Systems under Meyerson was
unable to match the businss volume or profit margins of EDS, the leader
in the industry, in his time at the helm, he was able to reorient it to
become more competitive and Perot’s return has led to a disaster.
WHAT CAN BE LEARNED
FROM PEROT SYSTEMS?
After
creating one of the world’s largest IT companies, EDS, Ross Perot sought
to create a second EDS that would match and overtake its place in the
marketplace. Instead, Perot Systems became another staggering
casualty of the high-tech market crash of the early years of the
21st century. From the tumultuous story that was and is
Perot Systems, managers can learn several lessons:
Every
company must have a clear and unique vision and mission. It cannot
be a better version of another company. Perot Systems was
continually driven to compete with Perot’s first venture: EDS. Its
successes and failures, as well as its management philosophies were held
to the standard of EDS. Attempting to follow in another company’s
lead, rather than blaze its own trail to success left Perot Systems
without a unique vision and purpose to guide its growth, inspire
employees and attract customers.
A
commitment to changing management must be total and consistent.
The change agents should be supported and the process must be seen
through to completion. Ross Perot placed Mort Meyerson in
control of Perot Systems, and allowed Meyerson to implement wholesale
changes that, out of necessity, disrupted the fabric of the
company. When Perot disagreed with those changes, he seized
control and worked to undo those changes before giving them enough time
to be fully implemented and proven. One wave of change meeting a
wave of reaction left the company focused on smoothing out internal
conflicts, instead of focusing on its business.
Companies
must be willing to embrace change and adapt to new market environments
in order to survive. Perot’s EDS, based on a centralized
command-and-control model that dominated employees and customers alike,
was well adapted for it’s time and place in the market. However,
Perot Systems was a start-up in a different time and environment.
Its smaller size, when compared to EDS, forced it to compete for
employees and customers in an environment that was more competitive and
less tolerant of a strictly-run organization. In his time at Perot
Systems, Meyerson had attempted to refocus Perot Systems on new
technologies and to develop a significant market presence in certain
industry segments, but Perot’s return to control disrupted this
process.
Effective
leaders and managers delegate power to make decisions, and show
confidence in those they delegate authority to. Ross Perot
made strong and centralized use of his position power to run Perot
Systems drove employees hard to perform, at the expense of any
consideration for the personal lives of his employees, or the long-term
interests of clients. Perot stepped back from managing Perot
Systems and put Meyerson in charge, but then showed little faith in
Meyerson’s changes when they deviated from his vision for Perot Systems
and seized power back before Meyerson’s changes could be given time to
work.
Instead
of creating another IT giant, Ross Perot’s personal ambitions and
management methods drove a company to the breaking point.
Ultimately, the failures of Perot Systems to succeed on the scale of EDS
are centered on Ross Perot’s failure to show the proper leadership
skills and to develop a successful culture of leadership within his
company left Ross Perot losing in the marketplace his business vision
helped create.
Got something
to say? Email me!
