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Ross
Perot represents one of the true masters of the American economic free
enterprise system. Born in Texarkana, Texas on June 27, 1930, his
life has been a continuing saga of one significant achievement after another.
Having grown up his whole childhood in Texarkana, he entered the U.S. Naval
Academy in 1949, where he served as class president and battalion commander,
an experience which even to this day motivates him to hire many of his
top company officers from ex-military personnel.
Upon his discharge
from the navy, Ross married and began working for IBM's data processing
division as a salesman. In 1962, with $1000, he started a one-man
data processing company which he called Electronic Data Systems.
Drawing on his experience in the military, in addition to recruiting a
large number of ex-military personnel, Perot was able to build his firm
into the premier data processing company in the United States.
In 1984, EDS
was sold to General Motors
for $2.5 billion. GM wanted to greatly increase its use of technology
in its manufacturing process, and viewed its EDS purchase as an effective
way of meeting this goal. As a result of the purchase, Ross Perot
became one of the single largest holders of General Motors and a director
in the company. However, Perot had great difficulty in adjusting
to GM's bureaucratic, autocratic management style, and was eventually bought
out of GM in 1986. After waiting the required two year non-compete
period, he started Perot Systems in 1988. (2) Interestingly, GM spun
EDS off in 1996, as it became obvious that the two entities did not make
a good fit.
Throughout his career,
Ross Perot has always been a model of citizen volunteerism. In 1969,
the U.S. government asked Perot to determine what action could be taken
to assist the prisoners-of-war in Southeast Asia. In recognition
for his work, he received the Medal for Distinguished Public Service, the
highest civilian award presented by the Department of Defense (3).
In 1992 and again in 1996 Ross Perot ran for President of the United States
representing a new third-party, the Reform
Party, begun by him to offer an alternative to the Republicans and
Democrats.
Perot's campaign
efforts forced him to step down from daily involvement in Perot Systems.
In 1992, Mort
Meyerson, who had helped him build EDS into a world-recognized leader
in data processing, stepped in to assume the Chief Executive Officer duties.
Although he had worked closely with Mr. Perot at EDS, Mr. Meyerson
did not share Mr. Perot's desire to recreate EDS' "young, male, military
model" corporate climate at Perot Systems. (4) He was convinced that
times had changed.
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"In purely financial
terms, my seven years running EDS had been unbelievably successful. When
I left, I was very proud of the people, the company, and our achievements.
From the day I started as president in 1979 to the day I left in 1986,
EDS never had a single quarter where we lost money. We never even had a
quarter where we were flat - every quarter we grew like gangbusters. That
kind of economic performance made a lot of our people very rich. I used
to take enormous pride in the fact that I was instrumental in getting a
lot of equity into the hands of the people at EDS.
What I realized after
I left was that I had also made a lot of people very unhappy. Our people
paid a high price for their economic success. Eighty-hour weeks were the
norm. We shifted people from project to project and simply expected them
to make the move, no questions asked. We called our assignments "death
marches" - without a trace of irony. You were expected to do whatever it
took to get the job done. In terms of priorities, work was in first place;
family, community, other obligations all came after." (5)
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Meyerson's concern was
the
overemphasis on profit at the expense of people. He believed that
technology, customers, the market, what people in organizations wanted
from their work had all changed from his previous time at EDS (6).
He asked himself two fundamental questions:
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To get rich, do you have to be miserable?
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To be successful, so you have to punish your
customers?
Meyerson wanted to move Perot Systems toward
a corporate model that recognized that the larger issues in life mattered
as much as the demands for profit-and-loss. Listening to a senior
manager talk about how they handled low performers on teams bothered him.
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"I heard talk of 'drive-by
shootings' to 'take out' nonperformers; then they'd 'drag the body around'
to make an example out of them. They may have meant it only as a way of
talking, but I saw it as more: abusive language that would influence behavior.
Left unchallenged, these expressions would pollute the company's culture."
(7)
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Meyerson was fully aware that he had not
only supported this environment at EDS, but encouraged it. As President
for 7 years, he had been largely responsible for the high performance atmosphere
that demanded so much from EDS employees. He tells a story where
an employee named Max missed a day of work due to a snow storm and how
Meyerson himself called the employee at home to question his loyalty to
EDS. The employee took the first opportunity he could and left EDS.
He was Max Hopper, who later went on to design the highly successful SABRE
reservation system for American
Airlines. (8)
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"None of that happened
by accident. I had helped design EDS to operate this way, using the compensation
system to motivate people: I tied their pay to profit-and-loss performance.
If you ran your project very profitably, you were richly rewarded. If you
didn't, you weren't. I routinely spent an extraordinary amount of my time
on compensation and rewards - roughly 15%. I did it because I knew that
compensation mattered most.
The system worked; that
is, we got exactly what we wanted. We asked people to put financial performance
before everything else, and they did. They drove themselves to do whatever
was necessary to create those results - even if it meant too much personal
sacrifice or doing things that weren't really in the best interests of
customers. Sometimes they did things that produced positive financial results
in the short term but weren't in the company's long term interest. That's
a charge you'd usually apply to a CEO - but I've never heard it said about
individuals down to the lowest ranks of a company. Yet my pay-for-performance
approach effectively encouraged that behavior from all of our people."
(9)
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Upon his arrival
at
Perot Systems, he inherited a company of 1500 employees and a revenue of
$170 million. His initial effort went into meeting with the top 100
leaders in the company. Through these conversations, Meyerson concluded
that he had heard "a laundry list of horrifying bad news" (10). He
set about to change the company's culture, including a training seminar
that over two-thirds of the firm's employees (including Meyerson) attended.
Individuals who could not adjust were asked to leave. Meyerson's
objective was clear:
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"We still tell people
we'll give them everything we can in the way of financial rewards. In fact,
more than 60 % of our company is owned by the people who run the company.
So if we go public someday, we'll still make a lot of our people very rich.
But we will have done
it without having first made them miserable - by offering them another
dimension they can't get in most other high-performance companies: a human
organization. If any of our people has an interest outside the company,
we will encourage and support them; if they have needs outside the company,
we will recognize them." (11)
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Meyerson's other major concern was how
EDS had treated customers. He described negotiations as intense,
with EDS' desire to win every penny possible from the customer. Not
just to win, but to dominate. (12) At Perot Systems,
Meyerson promoted a much closer working relationship with customers, and
designed the reward system to reflect this new-found cooperation.
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"Here again, at Perot
Systems, I turned to the compensation system to help us live the lesson.
We use 360-degree evaluations for our people - asking boss, peers, and
subordinates to participate - and always include input from our customers.
We also ask our customers to give us report cards - and then we temper
bonuses based on customer ratings of how well we support their needs."
(13)
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Similar to other Information Technology
Service firms, Perot Systems concentrates on particular industry
groups in order to provide enhanced expertise. These include:
financial services, energy, travel and transportation, health care, communication,
manufacturing, and construction. (14) Several of the contracts that
Perot Systems obtained reflect this new corporate vision.
Project:
Avis Rent A Car
| "Avis Rent A Car System, Inc. selected
Perot Systems Corporation to provide and maintain
a state-of-the-art imaging and workflow solution for customer document
processing in its Garden City, N.Y. World Headquarters and Virginia Beach,
Va. Processing Center. The decision places Avis on the cutting edge of
technological advancements, and the services agreement frees Avis to focus
on what they do best, serving their customers" (15).
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Project:
California Electrical Grid
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"The ISO Alliance, a limited liability
company owned jointly by ABB
Power T&D Co. and Perot Systems Corp.,
has been awarded a contract to develop and implement one of the most critical
new business systems the state of California will need to operate its electricity
markets under deregulation. The new systems will help the state administer
the bidding and manage the usage of its power grid to ensure reliable service
- much the same way an air traffic control system coordinates take-off
and landings at airports to maintain order and manage congestion. California
is the largest power market in the United States, with approximately $27
billion in electricity commerce per year." (16)
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Swiss Air
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"March 4, 1997--Perot
Systems Corporation today announced it has purchased a controlling
stake from SwissAir
Corp. in Icarus Consulting AG, a Zurich- and Frankfurt-based management
consulting firm that serves the travel and transportation industries in
Europe.
Founded in 1988, Icarus had been owned
55% and 45% by SAir Group, the holding company of SwissAir, and Icarus's
management, respectively. After today's agreement, Perot
Systems will have a 70% stake in Icarus, with a fixed option to
purchase the remaining 30% from SAir Group over a three-year period.
As an example of its work, Icarus recently
conceived and implemented a new air cargo system that combined the services
of SwissAir and Sabena Airlines. Under this unique arrangement, Sabena
has essentially sold its airline cargo space to SwissCargo the SAir
Group's cargo arm, giving up marketing and operational costs in exchange
for a guaranteed revenue stream. SwissCargo gains added capacity and market
share and can utilize its existing sales infrastructure much more efficiently.
'This is a good example of the consolidation
of core competencies by major air carriers,' said Ludwig Bertsch, the Zurich-based
managing director of Icarus. 'In the coming years we will see some airlines
specializing in the design and management of hub systems and routes designs
as network managers. Others will excel in flight operations. Still others
will create strong niches in catering, cargo services, or maintenance'."
(17)
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The change from data
processing to systems integration has been motivated by globalization and
the need for full supply-chain management. Companies depend on information
systems to tie all the functional areas, including marketing, customer
support, logistics, service, and operations together into a seamless whole.
Rather than develop these competencies on their own, companies are increasingly
depending on outside consultants such as Perot Systems to provide the expertise
to run these complicated systems.
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