Capita states it believes the acquisition would:
Capita has been in discussions with Xchanging since early August regarding a possible offer, upping its initial 140p offer to its final 160p proposal on September 24 - which Xchanging’s board confirmed it would be willing to recommend on September 29 should Capita make a firm offer. Capita was granted due diligence access and had until 5pm on November 2 to make an announcenent.
There is another suitor, Apollo, with whom Xchanging has been having discussions about a potential 170p offer. Will this announcement push Apollo into making a counter offer? Xchanging's share price has surged since the news of the potential talks (over 165p at the time of writing, though still below its one-year peak).
Xchanging has been contending with a range of issues, and its global portfolio lacks coherence, partly a reflection of its heritage in a few large and diverse “Enterprise partnerships”. Xchanging is currently between CEOs, Ken Lever having announced his intention in July to step down at the end of the year, and new CEO Craig Wilson not yet started.
If Capita were to complete, this would be its largest ever acquisition, dwarfing its second largest, the £157m acquisition of avocis this February (though there have been a number of £50m+ acquisitions since 2011, helping Capita expand into new markets or extend its IT capabilities). So why is Capita so interested?
In recent years, Xchanging has repositioned and invested to emphasize its capabilities in “technology-enabled BPS”- exactly what Capita is emphasizing with its own various BPO offerings. Also, the private sector is increasingly important to Capita (over 60% of its current pipeline is in commercial sectors) and Xchanging would increase its presence in the Lloyds market, where Capita already has a presence for specialist services.
Looking in more detail at Xchanging assets that would be attractive – or at least very relevant - to Capita:
And less attractive to Capita?
But overall, Xchanging’s portfolio is particularly well suited to Capita's business and where it is looking to develop over the next few years. And the cost synergies from the head office rationalization are also a particularly good match.
We thus believe is highly unlikely that, even if there is a higher counter offer from Apollo, the Xchanging board will change it recommendation to shareholders: Capita presents a better option longer term. Howver, a counter offer from another IT services vendor might be more attractive.
NelsonHall has just published a comprehensive Key Vendor Assessment on Capita. We have also historically included Xchanging in the KVA program.
]]>Q2 FY 2015 revenue by service line (with y/y revenue growth) was:
HP ES contributed 18% of HP Group revenue and 8% of Group EBT (up from 5% last quarter)
HP Group is nearing the completion of its 2012 restructuring plan. In Q2 FY 15, ~3.9k people exited HP making the total reduction to-date ~48k. The program has a total of 55k people expected to exit by the end of FY 2015, so a further 7k departures over the next two quarters.
HP has maintained full FY 2015 guidance for Enterprise Services of a revenue decline of between 4% and 6% on a constant currency basis, with an improvement in H2.
So where are the positives in HP ES' performance this quarter?
But the problems continue at HP ES’ ITO business. It not only continues to be impacted from contract runoff from three large accounts continues, but is also being challenged by the evolution in the market. Meg Whitman refers to “risk in the longer term sustainability of this profit level if we don’t do further cost reductions”. As such, the current intention is to streamline HP ES and take up to $2bn of gross annualized costs out of the business over the next three years in pursuit of a longer term EBT margin target of 7% to 9%. The likely charge represents around 9% of HP ES overall revenues - and 14% of the revenues of the ITO business.
The restructuring actions in HP ES and in particular ITO will include initiatives such as further offshoring, data center automation, pyramid management… the same actions highlighted by CSC earlier this week.
Nevetheless, Whitman has made a clear statement of commitment to the future of HP ES: "the Services business in ES - (and the) - TS Consulting businesses are becoming more strategic to the future of Hewlett-Packard Enterprise…. “increasingly, services is becoming the tip of the spear”.
]]>The acquisition will enhance Accenture’s digital capabilities in analytics, cloud and mobility for federal agencies. It also will add agile delivery expertise. Agilex brings in capabilities in agile software development for digital solutions. The company currently serves a number of federal departments and independent agencies, such as the VA, DoD, DHS, and Department of Commerce. Commercial sector clients have included Amtrak.
Agilex was founded in 2007 by the late Robert La Rose (who had previously founded Advanced Technology Inc. and Integic, both of which were subsequently acquired), Jay Nussbaum (ex. Citibank and Oracle) and John Gall and quickly attracted senior talent to its leadership. The company offers services around
Agilex has grown from 20 employees in 2007 to about 800 today. Nussbaum and Gall will leave when then acquisition closes, while the company’s leadership team will be integrated into AFS.
So why the acquisition?
Accenture’s 2013 acquisition of ASM Research expanded its presence in the military healthcare market (DoD and VA) - and Accenture has worked alongside Agilex in projects at the VA.
]]>However, IBM is in the midst of a major adjustment of its portfolio. In line with this, the company is reporting $25bn in revenues (and 16% revenue growth) in 2014 (out of a total of $92.8bn) from its "strategic imperatives". IBM's acquisition of Softlayer, where it continues to invest strongly, appears to be delivering $3.5bn annual "as-a-service" run rate and IBM reports that its "Cloud" business had 2014 revenues of $7bn and 60% revenue growth (this includes hardware, software and services),
The revenue growth reported from IBM's other "strategic initiatives" were:
Maintaining a high mix of software remains important to IBM but its strategy is now much more nuanced than the simplistic "software good" strategy the company sometimes appeared to adopt in earlier years, with the company rediscovering success in IT infrastructure management. Indeed IBM's acquisition of SoftLayer and its ongoing investment in Cloud infrastructure including in additional in-country SoftLayer data centers and cloud enablers such as security and its Bluemix cloud development platform is arguably having more impact on its signings than any of its investments outside Watson and analytics. In Q4, IBM's cloud infrastructure business moved way beyond the standard fare of IaaS contracts with start-ups to facilitating major infrastructure transformation contracts with values of a $1bn+ with the likes of Lufthansa and WPP.
Indeed, while the impact of SoftLayer was insufficient to lead to material growth in IBM's outsourcing revenues in Q4 2014, its impact is certain to be felt on outsourcing revenue growth in 2015 as a result of these and additional major transformations to cloud infrastructure. Led by these deals, IBM's outsourcing signings transformed in Q4 2014, up 31% (in constant currency and adjusted for disposals). IBM now just needs its application management business, which is continuing to decline under competitive pressure, to undergo a similar transformation.
]]>Bit of a mixed bag from Wipro this quarter, generally positive, but with a few areas where we would hope to see improve over the next few quarters.
Looking at overall topline performance, revenues were towards the higher end of prior guidance of $1,715m-$1,755m, and the 9.6% reported y/y growth was the best quarter’s growth since Q4 FY 12. However, the constant currency growth of 8.1% was lower than that achieved in the previous two quarters.
Operating margin continues to see y/y improvement (2.8 pts to 22.8%), reflecting, inter alia, continuing improvement in utilization (now at 77.9% excluding trainees).
Wipro has introduced a new service line reporting segment, called the somewhat splendid “Advanced Technologies and Solutions” (seems to be comprised of the former Analytics and Information Management segment plus around $70m of business from other service lines such as Global Infrastructure Services, and Business Applications Services). Whatever the segment may include, it is not yet a growth engine for Wipro, having contributed between 11.5% and now 11.3% in the restated segment breakdowns for the last five quarters.
This segment restatement makes assessment of any new developments in y/y growth patterns difficult. Three service lines delivered double digit growth this quarter: infrastructure services (16.7% growth, ~$63m in incremental y/y revenue, over 40% of the total incremental revenue, Business Application Services the other major revenue engine, with $50m in incremental y/y revenue, and ), BPO, which had a very strong quarter of nearly 21% growth.
Looking at the verticals, media and telecoms had its best quarter for years, continuing to accelerate from the 10.5% CC growth achieved last quarter. This sector group has more than just stabilized; it is now delivering growth above overall company levels. A recent outsourcing win at Sanoma (see here: http://research.nelson-hall.com/sourcing-expertise/search-all-content/?avpage-views=article&searchid=29555&id=203303&fv=2) illustrates Wipro winning cost-take out IT outsourcing deals in the challenged media sector. The Energy & utilities sector slipped below double digit constant currency growth for the first time in years - but the Atco win (the largest in Wipro's history, see here http://research.nelson-hall.com/sourcing-expertise/search-all-content/?avpage-views=article&searchid=29555&id=203338&fv=2) will return its E&Ubusiness to being its fastest growing vertical.
The Americas region (which for Wipro has predominantly been the U.S., though the Atco deal will soon increase its footprint in Canada) delivered its best topline growth, both as reported and in constant currency, for several years, reflecting improving commercial sector market demand. Topline growth in Europe slowed down slightly (in constant currency) – but for Wipro, Europe is not a new growth market: it is already generating around 30% of its revenues from the region. The India and Middle East business performed better than expected (up 13.4% y/y), as the elections did not have the negative impact that had been anticipated.
This is the first quarter in a year that Wipro has increased its headcount, with nearly 1,400 new net hires (the year-on-year increase is just 234). Does this indicate renewed confidence? Or are the new campus hires partly being done to contend with increasing attrition? Wipro reports its attrition in parts: excluding its India/Middle East business and BPO, voluntary TTM attrition is now up to 16.1% (Wipro doesn’t report involuntary attrition). BPO quarterly attrition was 11.8% (slightly down, but still an annual attrition of over 28%). A rough estimate puts Wipro’s voluntary TTM attrition, excluding the India and Middle East businesses, where attrition will be higher, at around 17.5%.
We also note Wipro has been making steady progress recently in increasing its share of wallet in some of its largest accounts but this quarter, the revenue contribution from clients 2 to 5 is down, from 13.2% to 12.7%.
Revenue guidance for next quarter is in the range of $1,770m to $1,810m, a y/y growth of 8.5% to 11.0%. With a number of large outsourcing deals coming online over the course of this year, we would hope to see Wipro return to double digit growth within the next two quarters.
]]>LMT continues to boost its civilian aviation capabilities to diversify from core defense and government sector business where revenues have been declining. IS&GS revenues were down 5% in 2013 to $8,367m. Beontra is its second acquisition in this sector in six months, following that of Amor Group, a supplier of airport products and services last September. Amor had an impressive year in 2012, with 27% organic growth. It brought to IS&GS products in civil airport operations which complement IS&GS’ civilian pilot training capabilities that it acquired in 2011 with Sim Industries.
]]>Around £110m of Capita's revenues will come from four clients that have already signed up to the framework for seven years. These four initial clients, which together represent 30 public bodies are:
A further 11 organizations are planning to join in 2014, following final discussions.
This important win for Capita builds its presence in the Scottish public sector, currently restricted to its one-stop travel booking contract for the Scottish Government that came through the acquisition of Expotel in 2012.
Over the years, Capita has made a number of acquisitions to enhance its IT services arms. The acquisition that is most relevant to this deal is that of Carillion IT Services Ltd (CITS) for £36m in 2009. CITS brought Capita capabilities in Scotland and added scale to its operations. At the time, CITS had ~440 personnel, including 190 in Scotland. Capita can also tap into capabilities that came with Synetrix, acquired for £75m in cash, also in 2009. These include the design and deployment of converged networks, hosted application solutions, managed security solutions and software platforms.
Capita and Updata beat competition from a joint Cable & Wireless and Virgin Media Business bid, and another by BT to win this contract. BT, which already supplies networking via N3 national communications network to NHS in Scotland, is less than happy about the outcome. It recently took NHS National Services Scotland (NHS NSS), which led the procurement on behalf of a consortium, to court for an allegedly flawed tender process. Media reports also suggest that BT may be suing NSS for £20m in damages.
SWAN has come out of the recommendations of the Scottish Government's McClelland Report and Scotland's national digital public services strategy Scotland's Digital Future: Delivery of Public Services. It should help the Scottish public sector achieve digital services, collaborate more and share data where necessary.
]]>Wipro’s Energy and Utilities unit, boosted several years ago by the June 2011 SAIC unit acquisition , continues to be a major revenue growth engine: E&U contributed an estimated 31.5% of the y/y growth this quarter. Wipro’s Healthcare and Life Sciences unit has also delivered two quarters of double digit growth.
BFSI continues to contribute around 20% of the y/y revenue growth, but it has been two years since BFSI, Wipro's largest industry group, achieved double digit growth. There will be some revenue contribution to BFSI in Q4 FY 2014 from the imminent acquisition of mortgage origination and servicing specialist Opus CMC. Optus will boost Wipro's BPO revenues in FY 2015, also expanding its onshore delivery presence in the U.S. Wipro is looking to leverage Optus to build an end-to-end mortgage BPO offering introducing more automation and increasing the application of analytics.
While Wipro’s telecoms business continues to be soft (the company does a lot of R&D work in the telecoms sector), it has now had two consecutive quarters of positive growth and appears to have bottomed out after seven quarters of negative growth.
If we look at service line performance, IT infrastructure services and Business Application Services between them contributed $81m of the $101m incremental y/y growth for Wipro. Its Analytics & Information Management is not the growth engine it was in FYs 2012 and 2013; it is now regularly delivering quarterly revenues of around $120m.
Where Wipro is underperforming, in particular compared to TCS, is in bread-and-butter ADM services. For TCS, ADM delivered an estimated $173m in additional revenue this quarter, more than Wipro achieved across all its service lines ($173m in incremental revenue for Wipro would have meant a growth of 10.8% for the company). In contrast, Wipro’s ADM business has now had six quarters of negative growth. Infosys has been focusing on getting back to basics and is now seeing a recovery in its ADM business: we imagine Wipro is looking to do likewise (though in its service line reporting, ADM is just 20% of its business).
With headcount down 814 sequentially and y/y growth trailing topline growth, expect to see utilization improve next quarter. Attrition in both the IT services and BPO businesses continues to increase, to a level that is possibly of concern.
To finish on a positive note, we have been keeping an eye on y/y revenue growth from Wipro’s top 10 clients; its efforts to strengthen key account management continue to pay off, with these accounts growing faster than Wipro overall.
]]>If we look at where the growth is coming from:
These data points, are, of course, simplifications, but they do expose significant gaps between the two.
Among the regions, y/y revenue growth, unsurprisingly, continues to be dominated by North America (an estimated $232m in additional revenue. But Continental Europe contributed an impressive $122m in additional revenue. If anyone is in any doubt about its penetration of Continental Europe, TCS is likely to achieve over $1.5bn in revenue in the region this FY, with the U.K. delivering around $2.3bn. It is a major player in EMEA, and by far the largest IOSP.
Looking ahead, TCS is very bullish about prospects for FY 2015. CEO N Chandra commented on expecting FY 2015 to be a "much stronger" year than FY 2014. With 16.5% topline growth in FY 2014 nine months year-to-date, that indicates very aggressive targets for next fiscal. Should we expect some acquisition activity for IP-based capabilities, to boost efforts to drive non-linear growth?
]]>This is the third quarter of improved topline growth. Management has raised revenue guidance for full FY 2014 to growth of 11.5-12% (up from prior guidance of 9-10%, and double the level of growth achieved in FY 2013). This would mean Infosys is getting back to Indian IT services market growth rates (NASSCOM predicted 12-14% for FY 2014).
So where has the growth come from this quarter? It is the last quarter of acquisitive growth from Lodestone (acquired Oct 2012) contributing 41% of the y/y growth (55% last quarter). Infosys’ traditional areas of ADM (which underperformed for much of FY 2013) contributed a healthy 28% of the overall growth. This indicates the effectiveness of the recent drive at Infosys to go back to basics; its BITS businesses overall contributed 55% of the overall growth this quarter. Management commentary on client budgets emphasized their ongoing focus on initiatives cost optimization, is where Infosys BITS service lines play.
In terms of service lines, BFS and Manufacturing continue to be the growth engines. But Telecoms continues to be a major drag (down an estimated 9.6% y/y): it has declined from contributing 12.9% of revenue in FY 2011 to 7.9% this quarter.
The revised FY 2014 revenue guidance implies anticipated y/y growth in Q4 of between 8 and 9.9%, thus H2 overall will deliver slower growth than was achieved in H1. Accenture also saw a slowdown in its quarter ended November 30: the indications from these two bellwethers are of slower revenue growth in Q4 CY 2013: we shall know more next week when more results are published.
The operating margin of 25.0% is up 322 bps sequentially (up 150 bps excluding the one-time visa provision last quarter). Infosys has been stripping out costs by offshoring both billable (where relevant, depending on service type) and non-billable roles (notably in marketing: sales & marketing expense is 5.0% of revenue, down from 5.8% last quarter, with management referring to increased investment in sales). Narayanan Murthy commented on ensuring that “all jobs that can be done in lower cost locations are done in lower cost locations”. Increased pricing also contribute to the sequential margin improvement. Nevertheless, this is the sixth consecutive quarter when operating margin is down y/y.
Another factor contributing to the sequential improvement in margin is the 1.1% q/q decline in headcount (the last time this happened was four and a half years ago, in the June 2009 quarter), or 1,823 employees.
Infosys has been looking to get utilization up to its 78% to 82% target range, but it has again declined sequentially to 76.9% (from 77.5% last quarter).
Attrition continues to increase, to 18.1%; this may be part of the drive to weed out underperformers, but is also possibly indicates a trend in employee morale, in spite of the wage hikes from July 2013. There has been a string of departures of senior execs in the last six months (since the return of N.R. Narayana Murthy) and this is likely to have caused some short-term disruption.
As part of a reshuffle at the top, B. G. Srinivas and Pravin Rao have been appointed as Presidents, with B. G. Srinivas focusing on global markets and Pravin Rao focusing on global delivery and service innovation, on top of their existing portfolios. These are clearly the two front runners for the next CEO after S D Shibulal retires in May next year, unless Infosys elects to go for an external hire. One indication of the level of rethinking that is going on at Infosys is that just a couple of months ago it significantly expanded its Executive Council. That same Council is being disbanded from April 1 with the two new Presidents being given responsibility to put in place “appropriate governance sectors for their respective areas”. Historically, Infosys was a company where any major changes tended to focus on its long-term vision and were planned in detail beforehand; today it appears to be focusing on shorter term imperatives.
Infosys continues to enjoy a very strong balance sheet, ending the quarter with $4,236m in cash, up from $4,130m in the prior quarter.
Looking ahead, management shared its outlook for FY 2015 client IT spending; the tone was cautious, referring to “a mixed bag” across segments.
So what should we expect from Infosys in FY 2015? The company is clearly making progress on getting back to basics with its BITS offerings and it continues to enjoy the boost from the Lodestone operation; next quarter will indicate whether Lodestone is helping drive organic growth in its consulting business. It is still too early to tell whether the newer PPS offerings, on which Infosys places so much store, will pick up steam this year and begin to approach, even outstrip overall company growth. PPS businesses currently contribute 5.3% of company revenue, down from 7.1% back in FY 2012. PPS is key to Infosys' long-term vision, but two years on it is hardly a success story. Indian media is speculating on setting up a separate subsidiary for PPS; we would expect to see some inorganic growth in the next year. Meanwhile, there are several new key roles still to be appointed including a global Head of Sales. Infosys is looking in a better shape now than it was three quarters ago but it going through an unsettling period.
NelsonHall will be publishing an updated comprehensive Key Vendor Assessment of Infosys within the next few days. For details, contact [email protected]
]]>Fiscal Q4 2013 revenue (and y/y and sequential revenue growth) by service type was:
IT outsourcing contributed 62% of HP ES business, application and business services ~38%.
Q4 bookings were up over 30% y/y, driven by strong renewals
FY 2013 results for HP ES were:
FY 2013 revenue (and revenue growth) by service type was
12-month trailing book-to-bill at end FY 2013 was approximately one in line with prior guidance.
For HP Group overall, fiscal Q4 2013 revenue was $29,131m. Revenue (and y/y revenue growth as stated and in CC) by region was
For HP Group overall, fiscal 2013 revenue was $112,298m (-7% y/y, -5% CC y/y).
- See more at: http://research.nelson-hall.com/sourcing-expertise/view-all-vendors/?avpage-views=article&id=201480&fv=2#sthash.O34tiq29.dpuf
HP Enterprise Services (ES) today announced its fiscal Q4 2013 results, for the period ending October 31, 2013:
Fiscal Q4 2013 revenue (and y/y and sequential revenue growth) by service type was:
FY 2013 results for HP ES were:
FY 2013 revenue (and revenue growth) by service type was
On the face of it, the decline in revenue across the board does not look very impressive, but in fact, the data shows that the "fix and rebuild" is broadly heading the right way.
Firstly, the revenue performance at HP ES throughout FY 2013, the "Fix and Rebuild" year, has been better than the guidance a year back of revenue decline of 11% to 13%. This is partly due to slower than expected ramp downs. However, the delayed revenue run-off will put further pressure on services revenue in FY 2014, negatively impacting Q1 growth and putting pressure on H1 results overall. Management highlighted that signings for "strategic" enterprise services, which include cloud, big data, application modernization and security, were up double digits. In FY 2014, HP ES is focusing in a sales force retooling program.
Secondly, FY 2013 operating margin of 2.9%, boosted by the 4.4% margin achieved in fiscal Q4, is at the high end of prior guidance of between 0% and 3%,
HP ES continues to focus on changing the mix of its portfolio towards services using the "new style of IT". This is being boosted by the added emphasis on innovation and an increase in engineering headcount announced today.
The group-wide focus on innovation has seen HP bring out new capabilities that HP ES could potentially leverage in its pursuit of "new style of IT" deals. Examples of recently announced technologies include HP OneView, unveiled in September, a new integrated software-defined management capability for converged infrastructure, extensively in virtualized BladeSystems and Rack server environments. Also new is Salesforce Superpod which was announced at Dreamforce 13. It is a dedicated instance in the Salesforce multi-tenant cloud, to run on HP's Converged Infrastructure for enterprise data centers. The Superpod is targeted at very large clients and will be offered to existing Salesforce clients at an additional fee.
HP ES continues to work on its turnaround strategy. Measures currently underway include:
These measures were covered in a recent NelsonHall blog "HP ES Turnaround Strategy Update - New Style of IT, New Style of HP ES" - See more at: http://research.nelson-hall.com/blogs-webcasts/nelsonhall-blog/?avpage-views=blog&type=post&post_id=73#sthash.b0nY9tIP.dpuf .
HP Group as a whole delivered >$9bn of FCF, well above its most recent outlook of ~$8bn. Net debt was reduced by >$1bn for the seventh consecutive quarter and HP has now achieved its net debt goal ahead of plan.
NelsonHall will be shortly updating its Key Vendor Assessment in HP ES to include these results.
Pindar has become the third CEO of a major U.K. outsourcing company to resign this year. The other two, Nick Buckles of G4S and Chris Hyman of Serco, both left behind companies that are being investigated for fraud by the British Government. No such allegations have been directed at Capita.
The company has done extremely well under the leadership of Pindar. In the past ten years alone:
Pindar leaves the company in good shape, with:
Today's announcement coincides with the news that Capita has resolved the problem of its under-performing personal insurance BPO businesses. It is selling Lancaster Insurance Services, Sureterm Direct, BDML Connect and Delta Underwriting to Markerstudy Group for an undisclosed price. The four businesses (685 personnel based across three locations) are expected to generate ~£47m in revenue and make a combined operating loss of £15m in 2013. Capita is also closing its SIP administration business based in Salisbury.
]]>PCO Innovation offers PLM strategy and process consultancy, application architecture, system implementation, data migration and application management. It specializes in PLM platforms including Dssault Systèmes, PTC and Siemens PLM.
Today’s announcement follows Accenture’s acquired of PRION Group earlier this year.
So why is Accenture focusing on PLM and developing PLM “business services”, a term Accenture is using to describe offerings that span management consulting, technology and operate services. There is a well-established market for services that leverage PLM, with the proposition including enabling faster time to market for product launches and reducing operational and product development costs. And Accenture is not interested in being a late entrant. The answer is possibly around its overall investments in what Accenture calls “digital”. Over the last four years, Accenture has made a series of acquisitions around digital marketing to build Accenture Interactive, aiming for this to be a $1bn business within a few years. PRION and now PCO Innovation indicate a newer interest in manufacturing operations and the new business opportunities to be derived from “the internet of things”. Another recent initiative is a JV with GE called Taleris focused on the aerospace sector with a predictive maintenance offering using analytics from sensors on aircrafts. Expect to see more emphasis by Accenture on its capabilities around digital transformation in manufacturing sectors.
NelsonHall has just published an updated comprehensive (97 page) Key Vendor Assessment on Accenture, available to subscribers of the KVA program.
]]>Turnaround activity includes:
The commitment to services, and also specifically to BPO, was reiterated by Mike Nefkens who leads HP Enterprise Services (ES). Nefkens stated that he was “committed 150%” to ES which he referred to as “a strategic asset” and as being a “stable and profitable” business. He also reiterated that BPO is a core part of the portfolio.
Stated priorities for HP ES in FY 2013 include:
HP ES is looking to shift its business mix from lower margin activities such as traditional workplace services, and take advantage of its skills and capabilities in the newer areas of mobility, information management & analytics, application modernization, security and cloud services. These will become more and more embedded in its core portfolio of data center management ADM, enterprise application services BPO, and industry solutions.
HP ES is also looking to grow its capabilities for “advise and transform” services, by which it means helping clients shape, implement and manage their journeys in what Whitman calls “the new style of IT” which includes big data, mobility, BYOD, cloud and security.
HP ES is becoming more selective about the contracts that it takes on. Deal governance is being tightened with more consideration given to ensuring appropriate deal framework and appropriate management of contracts.
There is much that is going on internally to re-align and re-energize HP ES. This includes:
Other activity includes Applications and Business Services (ABS) developing its approach to application development, including agile methodologies and use of social tools. A KM platform has helped with productivity improvement and the group has been flattening its pyramid: a significant share of new hires in ES has pay rates that are 20-30% lower those that have left.
On the delivery side HP ES is looking to hire more project managers. It is also hiring for vertical and technical specializations for business development.
(A description of the various initiatives the multi-year turnaround program for HP ES outlined in October 2012 is provided in article 76420, also more comprehensively in the Key Vendor Assessment on HP Enterprise Services).
In its fiscal Q1 2013, (the quarter ended December 31, 2012) HP Group revenue beat expectation and cash flow and net debt improved also. HP ES reported:
For HP Group overall, revenue beat expectation and cash flow and net debt improved also. Since the announcements of Q1 FY 2013 results on February 21, HP share price has risen by nearly 25%.
The turnaround at HP ES (and indeed at HP overall) is still in its early stages - FY 2013 is labeled the “Fix and Rebuild” year. There is a palpable sense of reinvigoration of HP ES, which has a new very experienced COO, JJ Charhon, and a new global head of sales. Larry Stack previously helped revitalize sales in Accenture’s Health & Public Service operating group; and he already has insider knowledge of HP ES, having previously worked for the Group. Among the measures that Stack is proposing to reinvigorate sales at HP ES is the revival of its Sales Academy, and as part of the drive to empower accounts execs, expect also to see a refresh of account execs over the next year or so, with an increased emphasis on recruits with industry knowledge. Among the service lines, HP ES particularly needs to strengthen its BPO sales ability to engage with clients about supporting them with their business issues.
There has been progress in sorting out unprofitable or underperforming accounts, the so called “red accounts”. On the project side of the business in Applications Services the number of red accounts is a fraction of what they were a year ago. BPO has no red accounts and is profitable. With IT infrastructure management red accounts, HP has sought to engage with clients’ senior execs to reach a new consensus on the work to be delivered and thus restructure the client relationships. In some cases, HP has elected to exit the contract. There remain a number of low-performing contracts, and addressing this will clearly continue to be a priority in the short term.
In investing in service enablement and automation and seeking to flatten its labor pyramid, HP is playing catch up with competitors who started these measures some time ago.
An obvious point, but one which is easily overlooked, is that HP ES is the enterprise services arm of HP Group, in particular its Enterprise Division, and is thus fundamentally different from standalone IT services providers. The CIO is the key target audience, and the focus is on bringing together relevant components of HP’s hardware and software and services capabilities into engagements. Cloud was a recurring theme during the two-day event, and where HP ES used to emphasize its ‘Converged Infrastructure’ abilities, it now highlights the ‘HP Converged Cloud’, offering clients both build and operate cloud services, and “consume” cloud services (managed IaaS and SaaS, public cloud). For HP ES, expect to see the messaging focus on its abilities to enable client’s journey to the cloud, even if the service is BPO.
There was no mention by HP ES during the event of its thinking about expanding in growth markets: this is something we would expect to hear more about in FY 2014.
The investment in portfolio is clearly in the areas of mobility, information management & analytics, apps modernization, security (one of HP ES’ fastest growing areas) and cloud services.
HP ES also arguably needs to invest more in its vertical capabilities, including within existing strongholds such as U.S. state government healthcare, where it has led the Medicaid market for decades. The contracts for health information exchanges (HIXs) are starting to be awarded. These would take HP ES into the new era of U.S. state healthcare following the reforms that are underway. However, competitors and new players are winning the contracts. For example Vermont, where HP recently won a Medicaid Fiscal agent contract renewal, awarded the contract to build its HIX infrastructure to CGI. And at Nevada, where HP ES is also the Medicaid fiscal agent, Xerox has won the contract to design and implement the state’s HIX.
]]>