• United States
by Tim Wilson

Perot finds success in government and healthcare

Feb 26, 20033 mins
Enterprise Applications

* Sticking to its knitting, Perot Systems turns a profit

Just two years ago, the government and healthcare industries were among the slowest-growing sectors of the IT market, and many outsourcing providers gave them short shrift during the e-commerce boom of the 1990s. Today, however, government and healthcare institutions are among the few industries expanding their IT investments, and the outsourcers that targeted them during their slower days are now reaping the rewards.

One of the best examples of this phenomenon is Perot Systems, the IT outsourcing firm founded by entrepreneur (and former presidential candidate) H. Ross Perot. Perot Systems, now headed by Ross Perot Jr., had made significant inroads in the federal government and health care industries before falling on harder times during the recent economic downturn.

Now, Perot Systems is using those inroads to make a major leap back to profitability. In financial results posted earlier this month, Perot Systems announced a net income of $78.3 million on $1.2 billion in revenue for fiscal 2002, up from a $2.7 million loss on $1.1 billion in revenue in 2001. The company’s profit figures, as a percentage of revenue, were some of the best in the outsourcing industry during 2002.

Perot Systems appears to be just heating up. The company tripled its profits in the fiscal fourth quarter, increasing sales by 6%. Perot Systems earned $19.9 million on sales of $330 million in the quarter, up from just $6.6 million in sales during the same quarter last year. Company officials say Perot Systems’ earnings could be about the same during the first quarter of 2003 – they expect revenues of $335 million to $350 million.

And the company is expanding. Earlier this month, Perot Systems announced its intention to acquire Soza & Company, a $137 million IT professional services provider that primarily serves federal government clients. The deal is a good one for Perot Systems, which spent just $75 million in cash for Soza, with another $32 million in cash and stock to be added if Soza meets specific performance targets.

Perot Systems is a good example of what can happen when an outsourcer finds a core market and sticks with it. During the days when its competitors were pursuing seemingly bigger fish, Perot Systems paid attention to slower-growth markets that were often overlooked. With the economy – and world politics – now turned on end, Perot Systems is now seen as a leader in two of the few remaining “growth” industries.

For users of outsourcing services, the Perot Systems experience also provides a few tips. One of the chief tips is that it is best to align your enterprise with an outsourcer that can demonstrate a long-term commitment not only to your company, but also to your industry. Outsourcers learn many of their best lessons by working with other companies in your field, including your competitors. If an outsourcer can show that it has earned its stripes by solving similar problems in the same industry over time, then you can be sure it has the experience it needs to serve your enterprise as well.

A second tip is to watch out for outsourcing providers that roll too quickly with market conditions. Some outsourcers put too many eggs in their e-commerce baskets a few years ago, and now they find themselves short on revenue and resources that might be used to serve their clients. Cutting-edge thinking is an asset in an outsourcing provider – but it isn’t as important as stability and service quality. Make sure your outsourcer’s business strategy is one that will enable it to serve your needs – in good times as well as bad.