Monday, 17 November 2008

Should Fujitsu merge the IT services operations of Fujitsu Siemens Computers with Fujitsu Services?

(By Richard Holway)
In my post of 4th Nov 08 “One head better than two” at Fujitsu Siemens, which was occasioned by the news that Fujitsu had bought out Siemen’s 50% stake in Fujitsu Siemens Computers (FCS) for Euro450m, I mused over how the new entity would fit with the rest of Fujitsu and, in particular knowing my interest in IT services, with Fujitsu Services. FCS has cEuro1.1b of IT services revenues. So, it is argued, its possible combination with FS could add both scale and associated “economies of scale” to Fujitsu.

What is IT Services?

Although I’ve been involved in “IT services” for over 40 years, I’m still unsure of its definition. What I am sure of is that it covers a huge range. It’s applied to the IT-enabled BPO that Capita undertakes all the way though to the fourth-party hardware break fix activities of a company like Phoenix IT. It gets hugely confusing when used at, for example, BT where, in the same press release, the same term is used for the management of a global communications network and the bespoke building of a patient records system for the NHS in the UK.

In the case of Fujitsu, the debate is about the ‘product-led services” undertaken by FCS and the much ‘purer’ services undertaken by FS – where the ‘products’ used in the provision of those services can (indeed most usually do) come from a variety of manufacturers outside of the Fujitsu range.

Remember Turnkey?

Back in the 1970s, when packaged software came into its ascendancy, it was almost always sold on a ‘turnkey’ basis. You bought a DEC VAX or an HP3000 ‘solution’ – hardware, application software and associated services. I know well. It was exactly that kind of ‘product-led services’ business that I undertook at Hoskyns at the time and which drove that company to its premier position.

In the UK and the US, and to a lesser extent in Europe, customers (particularly at the larger end) moved away from that model which fuelled the advent of the ‘pure’ IT services players like Accenture, Capgemini, EDS and FS.

But in Japan, the BRICs (China in particular), other emerging markets and indeed in certain parts of Western Europe, that ‘Services only’ model just doesn’t work. Indeed if you don’t have product you don’t stand a chance of selling services. Companies buy product and the services follow the product. That is exactly the case with FSC whose IT services business is there to support the product. That is quite, quite different to FS. Not only is it executed in a different way but it is sold quite differently too. I’m now pretty convinced that putting the two together would be to the detriment of both. A product-led sale is very different to a services-led sale – indeed you need quite different sales ‘animals’ for both!

Different geographies require different solutions

It’s also interesting to note that the two most successful companies in emerging markets are IBM and HP – both have a ‘product-led’ model. Conversely, none of the main ‘pure’ IT services companies have made much headway there. (Please don’t be confused here! Of course, most of the IT services companies have ‘resource’ centres in those locations. But I’m talking about sales into indigenous companies in those countries where they have made little impact)

FSC sees its main growth market in the emerging markets. Even Germany, where FSC is strong, is much more of a product-led market than, say, the UK. Conversely, the UK is the largest market by far for FS.

Forgetting the product bit, there is also very little overlap in the type of services that FCS and FS provide. FS does very little break fix – as all of that is ‘outsourced’ throughout Europe.

Ahead of or behind the curve?

Again, for all of the last 40 years, we have always believed that what happens first in US will travel to UK, then to Western Europe and other ‘developed countries’ before finally finding its way to the emerging countries. That would be a powerful argument that a market for pure services companies will emerge in the Japan, the BRICs and the emerging economies. It could be true, but how long are you prepared to wait?

IT outsourcing has been around since the 1960s in the US, then the UK in the 1970s. But it is still much less used in Western Europe and hardly at all elsewhere. Cultural issues are one reason for slow adoption. But company size is another. Outsourcing is taken up mainly by large companies of which the US and UK have far more proportionately than the other regions mentioned. China, as my recent visit demonstrated quite clearly to me, is a nation of lots of very small businesses.

Taking an FS model into those countries would be very difficult. But the FSC, product-led model is much better suited.

Of course, the deal isn’t concluded until April 09. But I’m I am now pretty convinced that crashing together the IT services bits of FSC with FS is, quite rightly, a non starter.

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