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CSC's Gary Budzinski Discusses AT&T Alliance and Portfolio Transformation Initiative

We recently met with CSC's Gary Budzinski, EVP and GM of its Global Infrastructure Services (GIS) business.

A year into the ‘Fix the Foundation’ stage of CSC’s multi-year turnaround program, GIS has been aggressively pursuing the corporate drive to rationalize the offerings portfolio (shifting from a historical tendency for services to be client-customized). Budzinski claims the GIS portfolio has been reduced from ~500 (mostly customized) to just 38 next gen standard core offerings across four offering areas:

  • Workplace
  • Datacenter and networks
  • Platform, includes compute, mainframe and cloud. CSC has a storage-aaS offering based on EMC
  • Enterprise service management.

For CSC’s total portfolio, the offerings have been reduced from over 1,200 to less than 300 in number, with more to come.

Other pillars of the turnaround program focus on driving demand and moving up the value chain, including through strategic alliances to develop scale in ‘next-gen’ infrastructure service offerings. These offerings are to be based on tight relationships with a few partners, with whom CSC is creating reference architectures based on pre-integrating software and hardware elements.

The big news from CSC last month was the announcement of a global partnership with AT&T which will involve:

  • AT&T running CSC's communications network, also potentially CSC’s commercial managed network services clients. The contract is significant (NelsonHall estimates $1.5bn)
  • CSC merging its cloud hardware infrastructure with AT&T's, providing global scale to its cloud offerings.  The aim is to minimize the level of capital investment in next gen datacenters by leveraging AT&T’s existing footprint. CSC is to deploy its BizCloud VPE service offering in several AT&T datacenters immediately. AT&T is to adapt its cloud IT infrastructure to CSC's own cloud offerings within 18 months
  • CSC assisting AT&T (and AT&T's clients) in modernizing their application portfolio and moving those applications to the cloud. In a bold claim, CSC says it will achieve this for AT&T within approximately 18 months.

(See also http://research.nelson-hall.com/search/?avpage-views=article&searchid=393&id=200595&fv=2)

CSC highlights this is more than a loose joint go-to-market alliance; any new integrated services will be baked into the offering. This is a very early stage of the partnership in terms of joint R&D: CSC intends to launch internal pilots within the next few months and will then industrialize any new offering before going to market (a reflection of the stronger corporate focus on offering lifecycle management). But generally, the partnership will enable CSC to scale faster for cloud services. There is a clear emphasis across much of the portfolio on helping clients migrate legacy applications to the cloud.

A major focus is expanding the workplace services business: CSC currently runs 1.5 million end user devices (including mobile devices); its three-year target is eight million. Budzinski highlights the speed of provisioning and scalability of CSC’s virtual desktop offering – the aim is to provide a service that can “change the customer experience” at an attractive price to clients that can make money for CSC. This is a bold claim for a service that is generally price sensitive/low margin. The offering is on a stack that enables mobile/PC OS convergence) - something that is likely to be attractive to enterprises with large professional services mobile workforces. CSC is one of a diminishing number of global vendors actively interested in standalone end user outsourcing services.

So where is CSC’s GIS business looking to win the new deals that will return it to topline growth? CSC is doubling its sales force (see also our comments in Q1 FY 2014 results last month) and has implemented salesforce.com. For GIS, the sales force is both

  • Cross-selling into the existing client base: currently only 10% of accounts are buying services from more than one service line, so the opportunity is immense
  • Targeting large multi-tower IT infrastructure management contract renewals - and there are some obvious ones where AT&T is involved

Early signs are encouraging: in its Q1 FY 2013, GIS did $180m signings in TCV. Last quarter it secured $800m in signings, of which 10 were large deals - and at the other end of the sale, 785 deals had a combined value of £225m, showing CSC chasing and winning small deals. Overall with new signings, CSC claims to be seeing a strong shift to utility-based pricing.

CSC is bullish about recent successes in its cloud strategy. In its Q1 FY 2014, management highlighted 27% revenue growth in cloud services in the commercial sector, also that cloud deals accounted for ~30% of its IT infrastructure services signings in the quarter.

CSC has clearly been working very hard to rationalize and transform its GIS portfolio and is moving to a more asset-lite approach (leveraging EMC and AT&T partnerships) both internally in its datacenters and to clients. While CSC is not the only service provider attempting to be rigorous in portfolio transformation, it is moving fast. And the objectives are bold: with its 8m target, CSC wants to become possibly the largest vendor in the end user outsourcing space.

In some areas CSC has a job to change some negative perceptions formed from historic behaviors (reactive; not innovative; nickel and diming in large outsourcing engagements; execution that was patchy, particularly for mid-market clients). But it is clearly gearing up for changing patterns in buying behaviors.

Last month, our takeaway on the fiscal Q1 results was “...progress on cost take-out; too early to tell for future growth” (http://research.nelson-hall.com/blogs-webcasts/nelsonhall-blog/?avpage-views=blog&type=post&post_id=35).

At the end of our chat, Budzinski affirmed his confidence that GIS - and indeed CSC overall - will hit the next milestones in the turnaround program (details of the program laid out by Lawrie last year are provided in the NelsonHall Key Vendor Assessment on CSC).

Over the next year, expect to see:

  • New cloud offerings coming from the AT&T/CSC alliance
  • An increasing focus on industry-specific IP-based offerings coming out of the apps business, particularly in healthcare and insurance, the latter including BPO services.

Is CSC transforming its portfolio and its go-to-market?  Yes.

Will it pick up some of the major second and third generation ITO recompete opportunities coming up in the next few years? The AT&T/CSC alliance could potentially be a very useful weapon in some of these.

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