Wednesday, 24 September 2008

Brand new CSC unveils new brand

We went along yesterday to the launch of CSC’s impressive new customer briefing centre at the Gherkin, where they unveiled their new ‘brand’ and logo. While the analyst community’s response to the new logo was, shall we say, muted (“in the box thinking” was one of the less complimentary comments we overheard), we were far more interested in hearing what management had to say about business performance.

In that regard, both Guy Hains (CEO, Europe) and Nick Wilson (CEO, UK) were very bullish. Though management is coy about country numbers, we got the sense that CSC UK is on track for some 10% (organic) growth this year, which would mean winning share if achieved. Wilson sees huge opportunity in UK public sector, figuring there’s $10-12bn of megadeals to be competed for in the next couple of years, including the DWP re-let.

CSC also seems to be holding up very well in Financial Services (FS), both in the UK and in Europe. The UK drives about 30% of CSC Europe’s $1.2bn FS revenues, with marquee clients such as Schroders, Barclays and JP Morgan Chase (the outsourcing vestige of the long-defunct Pinnacle Alliance). What’s helped CSC’s UK FS business is that about 80% comes from the insurance sector, so its exposure to banking in general and capital markets in particular is pretty small. In any event, about 70% of CSC UK’s FS business comes from traditional infrastructure outsourcing, which is a great place to be when project work is drying up. Not that CSC is immune from that; about 15% of its outsourcing business is project work, and we understand this has been hit in the current downturn.

Where CSC has to take care is that while infrastructure outsourcing is a great place to be in current market conditions, it is also a target for spending cuts. We think it is inevitable that customers will push CSC to give “more for less”, which invariably means moving some of the infrastructure management offshore. CSC may not be badly positioned for that, with Covansys now fully integrated into CSC India, but we have yet to investigate its delivery capabilities (we will report on that in later commentary).

Although management seems pretty clear in its strategy for the ‘new’ CSC, one area where it is still ambivalent, at least in the UK, is BPO. It sounds to us that BPO is, at best, a “definite may be” and I don’t think that’s a good place to be. It’s ironic that it was CSC that launched insurance BPO in the UK in the mid-90’s and after firmly grabbing the ball with both hands, proceeded to lob it to Capita. The rest, as they say, is history. At least CSC sells the software that is the platform for many insurance BPO deals, but we think they have to make up their minds whether this is a market they are going to chase or not. To be honest, I don’t really know what the right answer is as yet. The UK BPO market is arguably the most varied and vigorous in the world and, depending on which analyst’s figures you care to believe, is barely 10% penetrated – and perhaps much less. Capita currently rules the roost and the Indians are desperate to get their fair share. How should CSC fit in? We’ll come back to this again.

Meanwhile, well done to the CSC team – we hope they can meet the high expectations they have clearly set!

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