CSC and HCL Technologies have announced a strategic partnership for application modernization and IT cloud migration services.

The two companies are to:

• Offer application modernization services around migrating applications to the cloud. The service will rely on several IPs, including the recently CSC-acquired ServiceMesh
• Enhance their existing vertical-specific app modernization offering, initially in banking and overall financial services, with a creation of a banking CoE in the U.S.
• Create a joint delivery network with the first delivery centers to be launched in Bangalore and Chennai. HCL and CSC will share revenues on projects and direct costs 50/50.

In addition, HCL is to white-label CSC’s BizCloud offering, complementing its own MyCloud, and sell it to its clients.

The first client for the joint offering is longstanding CSC client and partner AT&T.

The partnership is part of CSC’s drive to generate business around clients' adoption of cloud computing by building a service ecosystem:

• In February 2011, CSC launched its BizCloud offering, a private cloud offering which offers a pay per use model, whether servers are located in the client’s or CSC datacenters, with a claim that it could be ready for workloads within 10 weeks
• In August 2013, CSC announced a broad partnership with AT&T which included CSC deploying its BizCloud VPE entry level IaaS offering in several AT&T datacenters
• A third step was the acquisition of ServiceMesh, who brings in a cloud orchestration platform
• This fourth step is partnering with HCL Technologies on application modernization.

CSC is not expecting any revenues from it this fiscal year (ends March 30, 2014).

CSC has briefed NelsonHall on the partnership and answered queries such as:

• Why did CSC need to partner with HCL? (given that CSC has a decent presence in India, at ~24k personnel). Each company would have struggled to make the necessary investments in automation software on its own; this is perhaps more important than access to HCL’s offshore application services delivery capabilities
• How will HCL and CSC ensure the partnership succeeds? Where previous alliances between IT services vendors have failed to deliver, the agreement tended to favor one of the partners more than the other. This agreement has exec sponsorship at the very top of both companies, plus a commitment to share revenues and direct costs 50/50. So any application modernization deal that has been sold entirely by one partner to its client, both partners will receive 50% of the revenues. All delivery on application modernization will be done from joint delivery centers. This apparently straightforward model should help make the partnership work
• What types of application modernization deals are they targeting? The focus is on opportunities to move mainframe/Wintel/UNIX applications to the cloud, whether public, private or hybrid (not traditional mainframe to Wintel/UNIX re platforming and COBOL to /NET/Java re-writing projects). CSC is emphasizing:
  - Refactoring: application running on mid-range and mainframes computers to Java with blue printed database and middleware
  - Re-platforming Celeriti and Hogan
  - Wrap and reface: mobile and web enablement of legacy applications through (RESTful) APIs
• -  Refactor and replace: extraction of processes and and information; and development of new applications
• How does this announcement enhance CSC’s existing application modernization offerings? CSC has previously developed offerings for legacy modernization (FuturEdge), and for ERP modernization through BPM (Cordys). This offering is targeting all sectors with the two partners creating a specific center of excellence in financial services, and especially in banking, a sector with traditionally a high level of mainframe-based applications, and one of the core commercial verticals of CSC and accounting for ~26% of HCL’s revenues. CSC is adapting its strategy to the banking sector, having in Q2 2013 announced a partnership with SAP to help clients migrate from CSC’s Hogan (core banking) and Celeriti (cards and payments) to SAP’s core banking applications. Clearly, it has changed its approach, and is now looking instead to modernize its platforms 
• How will the centers be set up? Each of the two new centers is part of one CSC’s or HCL’s largest Indian campuses, but both partners will bring related assets/IPs and personnel into the operations. CSC’s modernization offering hub will be in Chennai while HCL’s will be in Bangalore. The aim is to increase the number of centers.

NelsonHall research has shown that application modernization has not been a growth area in recent years, in spite of vendor hype, because of the cost and risk involved. However, over the next few years, growth is likely to really take off as clients look to modernize their legacy applications, whether in old languages e.g. COBOL or old architectures e.g. mainframes and client server, to the cloud, particularly if service providers can offer low-risk and lower-cost solutions.

This partnership is a bold move by CSC

• From an application modernization perspective, it provides a means to modernize Hogan et al, strengthens the  go to market for its IP, and increases its delivery capabilities in India as well as ability to invest in automation tools
• From an IT infrastructure management/cloud computing perspective, CSC is getting an additional go to market with HCL Technologies’ white labeling of CSC BizCloud services
  - It supports CSC’s positioning in the market shift from traditional, asset-heavy IT infrastructure management deals to smaller but higher-margin cloud deals
  - This partnership, combined with its agreement with AT&T, means CSC is in a position to offer to modernize cloud applications at scale (with offshore delivery where appropriate for lower costs), orchestrate them through ServiceMesh, host them, using CSC IaaS or third-party cloud infrastructure, and run them on AT&T’s network.

CSC points out that its partnership with HCL Technologies is a-one-of a-kind. With its simple governance model, it believes it is positioned to make the alliance work. It cannot be ignored that CSC is helping a competitor, which has made it very public that it is targeting IT infrastructure outsourcing contracts renewals of clients of IBM, HP and CSC. A relatively recent example of a CSC contract taken over by HCL is Freescale. 

Dominique Raviart and Rachael Stormonth