DEBUG: PAGE=domain, TITLE=NelsonHall Blog,ID=1469,TEMPLATE=blog
toggle expanded view
  • NelsonHall Blog

    We publish lots of information and analyst insights on our blogs. Here you can find the aggregated posts across all NelsonHall program blogs and much more.

    explore
  • Events & Webinars

    Keep up to date regarding some of the many upcoming events that NelsonHall participates in and also runs.

    Take the opportunity to join/attend in order to meet and discover live what makes NelsonHall a leading analyst firm in the industry.

    explore

Subscribe to blogs & alerts:

manage email alerts using the form below, in order to be notified via email whenever we publish new content:

Search research content:

action=something else...array(7) { ["program"]=> int(-1) ["analyst"]=> int(-1) ["industry"]=> int(-1) ["serviceline"]=> int(-1) ["vendor"]=> int(-1) ["country"]=> int(-1) ["application"]=> int(-1) } array(0) { }
from:
until:

Access our analyst expertise:

Only NelsonHall clients who are logged in have access to our analysts and advisors for their expert advice and opinion.

To find out more about how NelsonHall's analysts and sourcing advisors can assist you with your strategy and engagements, please contact our sales department here.

Salvino Takes The Helm at DXC

The big news this week has been the announcement late on Wednesday of the appointment of Mike Salvino as CEO of DXC Technology, with immediate effect. Mike Lawrie stays as Chairman until the end of the year, whereupon he will retire. Apparently, Lawrie and the board began discussions about a planned retirement about a year ago; Salvino has been on the DXC board since May 23, so he has some knowledge of the company.

Warning to readers: this note does not contain any lame jokes about Mikes; but it does contain plenty of mixed metaphors.

Without doubt, loss of market confidence has been a contributory factor to Lawrie’s abrupt departure: DXC’s share price has taken a hammering since the company posted disappointing Q1 FY20 results.

But the company that Salvino is now taking the helm of is in better shape than when it was created in April 2017 by the merger of CSC and HPE ES. All the major IT services companies have been going through fairly major transformations in recent years as they seek to adapt to the disruptive forces of Digital – and indeed continue to do so.  For some vendors, the drive to adapt has been about ensuring their very survival. If we go back in time a few decades to the early 1990s, CSC and EDS were at the vanguard of huge monolithic outsourcing deals with the likes of Du Pont and GM. But that is history: they were like dinosaurs striding the planet before the cosmic impact of cloud and other digital technologies.

Lawrie’s tenure is commonly acknowledged to have been brutal in style - but it was effective in many ways in pushing through massive change. Gross and operating margins have improved. The problematic North American public sector business has been successfully carved off and he has created shareholder value. The portfolio has been further streamlined and standardized. The organization has been streamlined and delayered. The company has been catching up with automation through the Bionix initiative and now scaling out Platform DXC. He was quick to take corrective action with any area of underperformance (for example, in centralizing the hiring of digital talent). The series of acquisitions under his leadership at CSC and then at DXC have brought in new specialist capabilities: for example, DXC now has very sizable ServiceNow, Microsoft Dynamics and Salesforce practices; Molina Medicaid Solutions reinforces DXC’s dominance as a Medicaid fiscal agent; and Luxoft has made a major difference to its agile capabilities. But topline growth, even in the acquired businesses, has proved elusive.

It is, arguably, more difficult than it has ever been in this sector for a single leader to oversee all the phases of a global turnaround, and Salvino brings in the kind of fresh approach needed for the next phase (managing the return to growth), honed by his experiences in leading Accenture Operations and then by three years at Carrick Capital Partners. We spoke briefly with Salvino the day after the announcement: he had already communicated his intention to use a ‘playbook’ of 1) employees, 2) clients, and 3) business that he has successfully deployed in the past.

Promoting a People Culture

Salvino’s placing of employees at the front of this list communicates clearly his recognition that employee morale needs urgent attention (and we have noted in our recent Key Vendor Assessment the company faces several challenges in being seen as an employer of choice for the very best digital talent). He intends to hold a series of Town Halls and emphasizes his desire for the company to become more people focused. Whether this translates into more attractive employee policies and bonus structures remains to be seen, but there may be a bigger focus on retraining on digital skills, rather than replacing existing talent than there has been. Certainly, there will be a stronger emphasis on career progression, and incentivizing people to embrace desired behaviors than possibly there has been. Salvino has a strong track record of building, enthusing and motivating teams. He is also is very well connected and is likely to bring in fresh talent to augment specific areas. He thinks the Build/Sell/Deliver structure is sound, so it is likely to remain.

Salvino will be racking up the airmiles as he also, unsurprisingly, intends to visit major clients. His expertise in pressing the flesh will be critical both in providing reassurance, and also in spearheading a push for DXC account managers to become what he calls “customer curious”, becoming more closely familiar with clients’ specific business challenges and priorities.

“I want (us) to sell solutions, not individual widgets”

DXC (as did CSC and HPE ES) has found it challenging to cross- and up-sell, something at which Accenture excels. Without doubt, Salvino brings in experience of account mining; DXC has already started work on this with the creation last year of Digital Account Managers, but Salvino will be looking for the salesforce to progress from a mindset that has essentially been one of a product led sales approach focusing on discreet offerings from within the nine ‘families’ (reflecting a strong background in IT infrastructure outsourcing), to one of solution selling, something that Salvino claims has not been done to date by DXC. Certainly this is in line with market demand for integrated services, often platform-based, that have a clear focus on desired business outcomes.

Leveraging and integrating recently acquired assets such as Luxoft, also the expanding DXC Eclipse units, will be critical to this. Luxoft CEO Dmitry Loschinin is on the Exec Committee and there is already a drive to aggressively cross-sell Luxoft’s offerings to DXC clients. But Salvino is looking to drive something that goes beyond previous ambitions of selling Luxoft’s services as an add-on, for example cross-selling its product engineering capabilities into North American and Asian automotive clients. DXC has a large enterprise client base for IT infrastructure services of around 200 accounts, and it has been building a broader set of capabilities. Salvino’s ambition, to move up the digital stack with large accounts, is to be expected, though easier said than done. He has a track record of doing this effectively at Accenture Operations, taking capabilities from across the business, including cloud, analytics and BPS, and selling these into diamond accounts as an integrated value proposition. Salvino acknowledges that client referenceability needs to improve, and referenceability is likely to be strongest in this kind of relationship: he will be measuring how many of the blue-chip clients are being taken through the digital journey playbook. Drawing together various capabilities from across its ECA, Luxoft, analytics and Industry IP businesses will be key to this. As will the PwC relationship (one nurtured a few years ago by HPE ES), but it will be augmented increasingly by DXC’s own consulting capabilities. And Salvino is likely to want to be able to increase the investment in opening more digital transformation centers and digital innovation centers.

Several newer areas of the DXC portfolio have been underperforming, including its Industry and BPS businesses. Given his experience, Salvino should find it relatively easy to oversee a tweaking of this part of the portfolio. Expect to see a stronger push into expanding Industry IP (DXC already has major assets in insurance, travel and Medicaid), in targeting cross-functional BPS opportunities, and also to strengthen and broaden the reach through acquisitions.

Will there be further changes to the portfolio? There will be more tuck-ins, the priorities perhaps shifting from the Enterprise & Cloud Apps business to expanding capabilities in analytics, cyber and probably adding to argo design, also perhaps in newer target sectors. Salvino says he will be taking a fresh look at the portfolio, so we might see some small-scale divestitures (perhaps of small-scale units acquired with the likes of Xchanging), but these will be tweaks. We should not expect any more dramatic carve-outs from the core ITO business.

Operational excellence in delivery

Salvino has deep understanding of operations management and the application of intelligent automation to transform service delivery from his time at Accenture, and at Carrick he continued to develop his knowledge of ML/AI. We believe DXC has some catch up to do in industrializing the use of AI, analytics, automation and Lean methodology in the delivery of managed services. And DXC is presumably looking to Luxoft for new approaches, including in dynamic resourcing for projects.

Reset of the Three-Year Plan?

Last November, DXC shared some three-year financial targets for FYs 20-22. The revenue model assumed a 4-7% annual decline in the mainstream business, but DXC has subsquently seen a much steeper rate of decline than anticipated. Salvino is not able to say yet whether there will be a reset of the model; nevertheless, achieving the targeted growth in the Industry & BPS and Digital businesses becomes even more pressing. We think the 4-6% targeted CAGR for Industry and BPS could be stretched. 

In short, Salvino cannot directly repeat the Accenture story at DXC – the companies have very different capabilities - but he is particularly well equipped to oversee the next phase of the company’s history, one which will be marked by an accelerated shift to digital, with a concomitant move in client interactions from MIPS to business-based discussions.

NelsonHall recently published a Key Vendor Assessment on DXC that includes a detailed look at the three-year plan, also of the company’s key offerings. For details, please contact Guy Saunders.

No comments yet.

Post a comment to this article:

close