(FORTUNE Magazine) – "I started my career with EDS in 1983. I remember in the interview being told all the things I could not do, or I would be fired. I took my personal life underground. We were driven to succeed, a disciplined, well-oiled machine. We grew by leaps and bounds. But we left human carnage in our wake--both customers and ourselves. We lacked balance. We were our work. I donned my gray suit and became the model EDSer. Sometimes the mold felt uncomfortable: I had to act in ways that did not feel natural to me...

"As I sat in the [EDS leadership program] last week, I visualized myself breaking out of a plaster cast." --from an EDS manager's written assessment of a recent training session

Like many of its employees, EDS has suffered a terribly repressed existence. Partly that's because when EDS does its work well--assembling and operating computer systems for customers--it is invisible. You know, for example, that IBM ran the buggy networks at this year's Atlanta Olympics, not that EDS ran the networks in Barcelona flawlessly. But EDS's anonymity is also the result of having had to labor for years in some very long shadows. At first the company was synonymous with Ross Perot, the overbearing publicity hound who founded Electronic Data Systems in 1962. Perot sold out to General Motors in 1984 and stayed in the picture only two years before leaving to found, in 1988, the more appropriately named Perot Systems. After Perot, EDS struggled to find an identity within GM, the bureaucratic leviathan that prevented EDS from growing as quickly as it might have as an independent company.

Now EDS is unleashed. GM spun it off to shareholders in June, setting EDS free with a market capitalization of $27.7 billion and profits for 1995 of $939 million on a mammoth $12.4 billion of sales. The sales figure is huge because EDS dominates the computer outsourcing business. According to security analyst Steve McClellan of Merrill Lynch, EDS last year won 37% of the $20 billion in new outsourcing contracts awarded, vs. 23% and 7% for its closest rivals, Computer Sciences Corp. and IBM's ISSC division. Few companies anywhere are more firmly entrenched: Since EDS customers typically sign long-term contracts, the company could fire its entire marketing department tomorrow and still count on a whopping $80 billion in revenues over the next ten years, guaranteed, from the contracts on its books.

All that doesn't seem quite good enough to CEO Les Alberthal, 52, who has been boss since Perot left in 1986. For one thing, he thinks EDS's stock price doesn't reflect its success: $57 on the day of the spinoff, it dipped for a while before coming back up to that price, for a P/E ratio of nearly 27--strong for most industries but only average for a fast-growing technology company.

Alberthal is steering the company into new kinds of business, and to win in those areas he has determined that EDS needs a radically new identity--as the world's most sensitive services giant. In a company known for its rigid, hard-driving, quasi-military culture, that may seem quite a reach. But there's more. Rather than hire kinder, gentler employees from outside, Alberthal has decided to do nothing less than remake the souls of his 95,000 troops. Says Alberthal: "We have historically been dominated by two brands--Perot and GM. This is the first time we have had to develop our own identity 100% tied to the company."

"The customers who make the decision about choosing or not choosing EDS used to be isolated from layoffs, but now, with corporate downsizing, they're not. So the risks to them personally are greater. When people move into an outsourcing situation, it can be very emotional. We have to connect with something other than the head.

"In our leadership classes we have what we call talking hearts. They're stones in the shape of a heart you hold in your hand. It's about putting your heart in your hand and putting it out for the group to see. When you have it, you have the floor. Everyone gets a voice, you can't interrupt people, and you're thinking and processing where your head and heart are on any given morning. If you had a bad morning, or you couldn't start the car, or the kids wouldn't get going, you get to say that."--Marsha Clark, head of the EDS executive training effort

To understand why Alberthal has gone touchy-feely you have to understand how EDS's business has evolved and where it is headed. Perot built the company into a powerhouse by operating mainframe computers for federal departments, the military, and FORTUNE 500 companies. According to Dataquest, a San Jose research firm, 58% of EDS's 1995 revenues came from running other people's computer systems--even though those operations now tend to involve not mainframes primarily but corporate networks made up of dozens of workstations and thousands of PCs. EDS was among the first to offer soup-to-nuts care of corporate PC networks--purchasing the machines, installing and maintaining software, and staffing help desks.

Now EDS is moving rapidly into new businesses. The other 42% of revenues comes from systems integration--setting up computer systems but not running them--and other businesses like the transaction-clearing company it operates for the cellular phone industry.

No fewer than 2,100 people work for EDS's one-year-old Internet and new-media division, which concentrates on the high-growth field of corporate Websites and intranets. To give an idea of how trendy things have become since the days when EDS defined diversity as "Army, Navy, and Air Force," new-media chief Barry Sullivan, 55, claims to read every issue of Wired cover to cover. One of Sullivan's teams, the 200-person content-development group, builds Websites for PepsiCo and publisher Hachette Fillipachi, among others. Says Eric Schmidt, chief technology officer of Sun Microsystems: "You might have written EDS off for dead, but it didn't happen. All this networking stuff is really hard to do, and EDS is remaking itself into a network-centric company."

Alberthal knows that doing a good job running corporate networks is not enough to keep EDS's revenues growing at the 12% annual rate of the past ten years. And it's certainly not enough to ensure solid profits. After climbing for years, operating margins peaked in 1993 at 13.1% and last year dropped to 12.3%. Customers are becoming shrewder about technology and now bargain more effectively. They also have a raft of new entrants to play off one another. Besides the computer services leaders--EDS, IBM, Andersen Consulting, and Computer Sciences Corp.--smaller outfits like BSG of Austin, Texas, and Claremont Technologies of Beaverton, Oregon, are making things tougher by addressing the needs of specific industries like health care and financial services. Gone are the days when EDSers seemed savants of an inscrutable science. Says Bob Djurdjevic, a market analyst with Annex Research in Phoenix: "Technical knowledge is not a big deal anymore. That's taken for granted by EDS's customers."

So EDS wants to reposition itself. Says vice chairman Gary Fernandes: "Our self-definition has changed from being a provider of technology services to being a provider of services based on technology." Translated, this means that EDS will not only run your computers but help you redesign your business. EDS can even take over your purchasing department or run your human resources division. By leveraging its technological expertise, the company wants to help customers focus and operate their businesses better. Deals that involve EDS more deeply with its customers are often more profitable than old-fashioned outsourcing.

In this new role, EDS becomes a partner as much as a systems operator. And when a company is looking to hire a partner, says Djurdjevic, "the most important hiring criterion is listening skills. Making the customer feel good is more important than knowing the insides of a particular software program."

To put it gently, EDS does not exactly have a history of projecting good feeling. Perot built a military-style organization back in the 1960s and 1970s. Wearing loafers was prohibited. Veterans were the preferred hires. Says Merrill Lynch analyst McClellan: "They had the reputation of being overly aggressive, cutthroat, brutal Green Berets." Competitors still happily trumpet such notions. Says George Shaheen, managing partner for Andersen Consulting: "They have a reputation on the street as tough negotiators and very tough implementers."

Alberthal says he understands. So he has launched an internal campaign to soften EDS's rough edges. The program is classic EDS--methodical, thorough, and relentless. Starting in 1994, Alberthal began putting every EDS manager, starting with himself, through an extraordinary series of training sessions that delve deeply into the realm of feelings, aiming to stimulate greater sensitivity to customers, employees, and colleagues. About half of EDS's 12,000 managers have received the training so far.

A cool, chubby, unremarkable-looking man, Alberthal makes it clear this is dead-serious stuff. He says he spends over half his time thinking about people issues. "The leaders who advance at EDS," he insists, "will be the ones who have seen the light. Our business is about making the customer successful and not having all the assets under my control, so leaders are going to have to do things other than shout orders. The old command-and-control mindset is not how we will be successful."

He is obsessed with delegating authority. He seems almost superstitiously concerned that EDS no longer function the way it did in the Perot days, when one man made virtually every major decision. Alberthal started dispersing corporate power in 1989, when he set up 38 strategic business units, each focused on a specific industry (the company now has 52 such units). Explains Fernandes: "We've moved from a cult of personality to a culture where the emphasis is on teams arriving at collective decisions." The team culture goes right to the top--Alberthal, Fernandes, and President Jeff Heller have worked collaboratively for about 25 years. Now Alberthal is attempting to give individuals more power, along with the knowledge of how to use it responsibly and sensitively. Says Heller: "We want the individual to be the differentiator at the point of customer contact. You've got to give people a lot of personal control. You can't require them to call home for approval."

If it seems as if EDSers are becoming hopelessly namby-pamby, never fear. In this bunch, even delicate sentiments wear flak jackets. Take the shorthand expression that has become an unofficial corporate mantra: "S squared equals PS." Senior executives use the expression regularly. Its meaning: Soft shit equals powerful shit. They're not listening to feelings for fun; they're doing it because that's where the money is. Says Dean Linderman, an Alberthal confidant who supervises leadership development: "In an organization with a history of avoidance of the soft stuff, the heart-and-soul stuff, we've now said that not only is heart and soul important, but it's a prerequisite to take the corporation where we want to go." "I meet with my direct reports every Monday morning, and we start out listening to a piece of music, generally something calming or reflective. We're silent. We just listen to the music. This week it was a piano solo called "If You Believe." It's a pensive, reflective piece of music that makes you sentimental and feel hope for your future.

"We are whole people, not someone in our private life and someone in our public life. That's what I want in the workplace.

"As a manager, I used to pride myself that I was taking more personal responsibility than anybody. That made me like a dictator. When something went wrong, I would cut to the quick and say, 'You did this wrong; we need to learn from this. Everybody see this mistake that was made. Now go fix it.'

"All that did was alienate people from me. Yes, the problem got fixed. But my team did it begrudgingly. There were times we didn't do as well as we should have. Now I tell the team: 'I want to talk to you about this. I don't want anyone to feel uncomfortable. I think it would be helpful if we shared about this problem.' " --Sally Mattei, who supervises 750 EDS employees

Analysts who study EDS rave about the Alberthal transformation. Some even use the same kind of language. Says Bonnie Digrius of the Gartner Group, a research and consulting outfit in Stamford, Connecticut: "They realize that firms that succeed in the future will be the customer-intimate ones that really know how to nurture and care for their clients."

For now, outsourcing remains EDS's bread and butter. EDS operates practically all the computers of Continental Airlines, Enron, Britain's Department of Inland Revenue (the U.K.'s IRS), and the state of South Australia, to mention but four of its 9,000 accounts worldwide.

Outsourcing is still a very good business. Merrill Lynch's McClellan predicts that $30 billion worth of contracts will be awarded this year--up 50% from 1995. Two years ago Xerox hired EDS to take over its mainframe data centers and to help roll out a client-server network in 19 countries. Xerox will pay EDS about $3.2 billion over ten years. In such deals, the outsourcer typically uses part of the fee to buy the customer's hardware--PCs, workstations, mainframes, and even the wires connecting all these devices--and hire many of the customer's data-processing employees. More than 2,000 former Xerox employees now work for EDS. (About 40% of EDS's workers joined the company this way.) To date, the Xerox deal is the largest commercial outsourcing contract ever awarded.

With Xerox, EDS is performing its traditional role, albeit on a grand scale. But other deals show how the company wants to use computing expertise to get into a wider array of businesses by helping customers outsource entire corporate functions like accounts payable or even human resources. The idea is not entirely new--for example, ADP of Roseland, New Jersey, has built a multibillion-dollar business handling other companies' payrolls. But EDS is trying to extend the practice into a wide variety of corporate functions where it has rarely been applied.

For example, EDS has taken over all supply purchasing for Federal-Mogul, a $2-billion-a-year auto parts distributor in Southfield, Michigan. Federal-Mogul spends more than $40 million annually on materials for its maintenance and repair operations--everything from safety goggles to paper clips. Reuben Slone, a vice president, says that on its own the company was incapable of dramatically lowering costs: "We were doing the buys on a local basis, so we weren't taking advantage of our volume."

Rather than build its own centralized purchasing unit, Federal-Mogul hired EDS last December. Alberthal's troops are quickly leveraging their national organization. By establishing relationships with Federal's many suppliers and by aggregating Federal's purchases with those of other EDS customers, they are starting to get volume discounts. EDS has also built a sophisticated database that helps it match suppliers and buyers. Federal-Mogul expects to save around 5% a year compared with what it spent before. The contract is designed so that if EDS reduces Federal's costs beyond that target, it pockets a large share of all additional savings.

"We talk about our toxic waste. It's an acknowledgment that 40% of what we do and know today is toxic to our future.

"In contract negotiations with customers we used to sit around the table trying to one-up each other. You tend to have a little deterioration in the relationship because it is stressful.

"In the last two negotiations we've eliminated hidden agendas on both sides. We started the meetings asking, 'What do you want to accomplish out of this deal?' and we said, 'This is what we need to accomplish out of this deal.' Then everyone understands where you are coming from. These negotiations went much faster and turned into win-wins for EDS and the customer. And in both cases, the day after we signed the contract, we were already talking about other business opportunities." --Denis Roy, an EDS manager in Iowa

EDS's most ambitious effort to transcend its past and boost profits is a practice it calls "co-sourcing." The idea is to go well beyond implementing projects for customers, becoming in fact a partner in planning new organizational structures and even entire new businesses. In such deals, EDS wants its pay to be tied to improvements in the ultimate measure of success--customer profitability.

Co-sourcing now accounts for only a small part of revenues. Nevertheless, the bold talk of some managers might give you the impression that it makes outsourcing a thing of the past. Says new-media chief Sullivan, who until June was EDS's top marketing executive: "Outsourcing is a denial that information technology is strategic. We think you should focus on outcomes. Outsourcing's done to you, and co-sourcing is done with you." Abbas Rizavi, 33, a hotshot who led the internal task force that pushed the co-sourcing strategy, says it redefines the company: "We are really in the business of helping our customers evolve, align, regenerate, and restructure."

To date, the biggest example of "doing with" a customer is the $900 million ten-year agreement EDS inked last November with Rolls-Royce Aerospace Group in England. EDS took on 750 Rolls employees and assumed full responsibility for the group's hardware and software. But the key to the deal is Rolls-Royce's desire to speed innovation. Says Hartmut Burger, a top EDS executive who helped negotiate it: "Their main interest is to produce new engines faster and adapt them to more airframes in a shorter period of time." EDS will help design the engineering processes for developing engines faster, and will then build and run the systems. As a first step, it is building a research center near Rolls's main plant in Derby, England. The deal is structured so EDS's fees depend on Rolls's business performance.

A lot of the expertise that EDS hopes will drive the Rolls partnership comes from A.T. Kearney, a Chicago consulting firm that EDS bought last year for almost $600 million. Acquiring Kearney greatly strengthened EDS's expertise in strategic planning and high-level problem solving. Kearney is especially helpful in dealing with Rolls--the firm has a long history of working with aerospace clients.

Nevertheless, the Kearney deal points to perhaps the greatest risk in Alberthal's makeover--convincing investors that the new EDS is a good bet. Analyst McClennan thinks at least part of the dip in the stock's price immediately after the spinoff can be attributed to the fact that GM's pension fund sold 20 million shares in July. But investors were also concerned about whether Alberthal would make the Kearney acquisition pay, and whether he could successfully integrate 1,100 consultants from the firm into EDS's rapidly changing culture.

Still, the stock has bounced back, and in mid-September was trading at the spinoff price. And there's a good reason every major analyst who follows EDS has a buy on the stock. Says Bill Rabin of J.P. Morgan: "The management team has just done great in every single way. EDS is fundamentally the strongest company in the services sector." For all his talk of changing souls, Alberthal knows that being perhaps the most reliable company in the volatile world of technology is good business. "We ought to grow faster when the relationships are stronger and deeper. This is not about harmony, but about having voice and feeling that your contributions are valued. If we work together and rely on each other's contributions we'll be better than we could be alone.

"This is about the meaning-of-life stuff. About destiny." --Training boss Marsha Clark

REPORTER ASSOCIATE Henry Goldblatt