CSC's IBM cloud alliance reflects shift to partner-led outsourcing services
- Summary:
- CSC's announced a new cloud services alliance with IBM, nicely timed to draw the eye away from a bump in the road of its attempts to revive its fortunes.
The morphing from traditional outsourcing towards a cloud services business model continues apace for CSC in the form of a beefed-up alliance with IBM, nicely timed to draw the eye away from a bump in the road of the former’s attempts to revive its fortunes.
The main points of the new love-in between the two firms:
- A CSC Center of Excellence for IBM Products and Solutions will provide advisory services for customers adopting IBM technology and support joint solution-definition, applications integration, sales and delivery activities.
- CSC will certify up to 2,000 consultants, project managers, architects and developers over the next three years on selected IBM technologies, notably SoftLayer and Bluemix cloud services, as well as IBM developer and integration tools such as WebSphere and Cast Iron.
- CSC will offer elements of IBM MobileFirst application development as-a-service, combining CSC’s mobility services with IBM technologies to bring clients mobile app development, as well as strategies to secure mobile devices and data.
- Standardizing on the IBM MobileFirst portfolio, CSC will launch a mobile healthcare program for its Lorenzo healthcare software product. Banking and insurance market versions will follow.
- CSC will provide Applications Management services to clients for IBM-designed apps, as well as extend app development as-a-service to IBM mainframe Z environments.
- CSC will make SoftLayer’s global cloud footprint compatible with its ServiceMesh Agility Platform, enabling clients to assimilate SoftLayer into hybrid-cloud environments.
- The companies will jointly develop use cases for the ServiceMesh Agility Platform on SoftLayer and Bluemix to complement IBM offerings
- IBM will offer the ServiceMesh solution in the IBM Cloud Marketplace.
The alliance was announced on the same day that CSC rolled out some lackluster numbers that reminded us all again that CEO Mike Lawrie’s efforts to breathe life back into the outsourcing giant is a long term project, with no guarantee of success.
For first quarter fiscal 2015, CSC saw:
- Revenue fall 1% to $3.24 billion
- Net income fall 1.2% to $159 million.
- CSC Global Infrastructure Services revenue fell 1% to $1.13 billion
- Operating income decreased to $304 million from $332 million.
Two bright spots were cloud and cybersecurity with commercial cloud revenue up 55% year-over-year in constant currency and commercial cyber revenue up 21% year-over-year in constant currency.
Lawrie says:
We continue to position the company to take advantage of the shift in the marketplace. Clients are clearly seeking to modernize their applications and orchestrate workloads across multiple cloud environments, which are much more agile and cost-effective, and CSC is well positioned to benefit from this market shift.
Alongside the IBM relationship, Lawrie points out that CSC has actively partnered with cloud providers as well as other services and infrastructure firms:
In our cloud business, we're investing in the next version of our industry-leading private cloud offering, BizCloud, and we continue to integrate our ServiceMesh Agility Platform with our cloud partners, Amazon, Microsoft, VMware and now IBM.
We're working with HCL to build not only a world-class application modernization delivery network, but we've identified over 500 million in potential opportunities, which we are jointly pursuing.
We partnered with AT&T to transition our network management and create the foundation for a hybrid cloud environment. And together, we built a pipeline of new business opportunities that now exceed $2 billion. As a matter of fact, today, we're awarded our first win of $150 million.
This is starting to pay off, he argues:
During the quarter, a major commercial bank selected CSC to assist with the company's transition to a hybrid cloud infrastructure, which includes both BizCloud and ServiceMesh. And I think this is a terrific example of the early stages of traction around that strategy.
It’s clear that Lawrie is looking to partnership deals as a growth mechanism and a leverage to open doors to CSC which means adapting to an ecosystem model of go-to-market thinking:
We are bidding a very large deal that involves infrastructure transition to cloud and application modernization, both key enterprise line of business applications, as well as other applications. We are bidding with SAP, we’re bidding with Amazon, and we are bidding with HCL. The way we've done this, the go-to-market, is we've actually come together as one team. So we're actually sitting in a room. In the country where we're doing this work, we've sat together as a bidding proposal team for the last 2 months, and we are working as one team.
So when I approved the pricing, it's myself and in some cases the other CEOs who were approving the pricing. We've architected the solution together. So our solution architects and engineers, their solution architects and engineers, all working as one team. As matter of fact, when we do the orals, which is part of a big deal like this, where you have to present it, we're presenting it as one team. And the customer is actually beginning to see us work as one team.
All for one
That’s a mindset shift for a traditional big hitter like CSC which is used to leading the advance. Lawrie says:
I don't want to make this sound like it's a simple thing to do because you have to learn to work with sometimes competitors in other situations, but we're learning how to do that. The client is seeing the benefits of that. The overwhelming benefit is that they are getting the best, the best solution the industry has to offer as opposed to having to sub-optimize around one vendor. We're seeing this play out now in multiple engagements. We're beginning to get some really good traction.
We had a big win with AT&T in one of our network deals. Again, that was something we priced together and we teamed together. So operationally, that's how it works. It's interesting when the CEOs get together and agree to do this stuff, but what's really important is how does it play out at the point of contact with the client. As you get some successes, you then share those successes on a global basis, and that's what begins to get the momentum behind the partnerships.
It is a completely different strategy than a lot of other players. We think that this is one of the key differentiators that we have to offer our clients, and by and large, they see it as a differentiation. But you must operationalize it, and you must come together as one team in front of the customer.
The US public sector remains a sweet spot for CSC, accounting for 31% of total revenue in the quarter, but Lawrie cautions that the wheels grind slowly across this market:
In relatively recent times, CSC analyst calls were dominated by the subject of the UK government’s NHS National Programme for IT (NPfIT), a multi-year, multi-billion pound programme to digitise patient care records which went hideously wrong over a ten year period.We’re getting to the end of the government's fiscal year. There is some talk that some awards may be made late in the fiscal year, meaning end of September, potentially early October. The proof point there is an increase in the number of awards that are awaiting final decision.
I don't see any substantial change in the overall environment as we go forward. We are bidding on some very large deals like this Department of Defense Healthcare Modernization, and that's not going to play out probably this fiscal year. But we're seeing some additions to some of the contract negotiations. So that's what gives us some modest hope that there may be a little bit improvement in the spending environment. But if I had to call it right now, I think it would be pretty much the same.
CSC was one of the last men standing in terms of the core suppliers to the programme, despite ferocious criticism of its performance from legislators, up to and including Prime Minister David Cameron.
NPfIT was formally abandoned in 2011, but elements of it have survived, which means that CSC is still pulling in money from the remains of what once is generally regarded as the biggest ever IT failure in the UK public sector. CSC played hard ball with the British government in negotiations, with barely veiled threats of legal action in the air.
It seems to have paid off for CSC at least as Lawrie notes:
This thing cost us billions, and we're now making money in NHS.
When we renegotiated the contract, we sort of gave up our exclusivity with the region that we had been awarded by NHS. In exchange for that, we asked the right to compete throughout the UK.
Our anticipation is, yes, we can make money at it because we have now delivered the Lorenzo product suites. They're up, they're running, they're working, and there's very little additional development work that needs to be done for these new trusts that we are bidding on and winning.
So it's quite a turnaround in NHS. Even the press in the UK has actually turned positive around some of these things, which, in and of itself, is remarkable.
Lawrie now sees healthcare globally as a growth opportunity:
This health care business, now on a global basis, is growing. This was a big drag on our performance a couple of years ago, and this business is beginning to grow again. And we're beginning to bid now on other opportunities around the world.
My take
I’m not entirely sure which press in the UK Mr Lawrie has been reading, but the stench from the failure of NPfIT still hangs over every UK public sector IT programme and CSC’s image remains tainted by association, even if it is finally delivering workable solutions into some NHS trusts. “This thing” may have cost CSC billions as Lawrie says, but not as many billions as it cost the UK taxpayer!
That said, the firm’s pragmatic acceptance of the need to partner in today’s competitive services market is sound and sensible. CSC’s also managed to pull off some good alliances, the IBM one being the latest, but the tie-ups with VMware, HCL and SAP are also worthy of note. The challenge of course is managing those relationships over time and the roles that each participant plays within the ecosystem.
But it’s a promising admission of the realities of today’s markets that this challenge is being faced up to and seemingly delivering early results.
CSC was frankly a basketcase of a company when Lawrie took over and no-one expected him to have an easy job to do in turning it around. He’s made some promising steps forward, but there’s still a long way to go.