Small and boring wins the day in the new age of services

Profile picture for user slauchlan By Stuart Lauchlan February 3, 2014
Summary:
BT and CSC are among those services giants facing up to the new reality that small can be beautiful if you've got your act together in time.

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Gavin Patterson

Who wants to be boring? Well, BT does, since you ask.

Or at least, it wants to be boring when it comes to how it approaches its Global Services strategy - which given the turbulence in the market sector is probably a very pragmatic approach to take.

Fresh from his digital prognostications at Davos, BT Group CEO Gavin Patterson told analysts last week:

“The way we're managing Global Services is we're not getting too carried away with ourselves. There's much better predictability, consistent delivery now in the numbers. We want them to be consistently boring.

““Don't take it that there's any lack of confidence going forward, but we just want to be measured in terms of how we think about the business.”

The reason for this is at least in part the shift across the services and outsourcing markets away from the ‘big ticket’, multi-year, multi-billion contracts of old and towards a more agile (with a small a) approach of smaller contracts delivered over shorter periods of time.

This can be seen in the private sector of course, but it’s in the public sector that the ‘pain’ of this transition is likely to be most strongly felt for the traditional suppliers to government - the so-called oligopoly of providers which have dominated delivery (or non-delivery) of key public services for decades.

BT Global Services has been exposed to a taste of this, with its government revenues down year-on-year. But Patterson is clearly convinced that there is (a) more and (b) worse to come. Hence the need for stability and predictability in the face of what he calls the headwinds.

“Some of the big contracts that I think we've had in the government sector, for example, the signs are that those might not be procured in the same way going forward and that we might need to compete for smaller contracts.

I feel very confident that we'll have a compelling proposition for government, but that's something we need to be wary of, for example. And there are clearly some evidence within the local government sector that is already happening.”

Little acorns, mighty oaks

It’s not a problem unique to BT of course. CSC CEO John Lawrie admits to the same issue, but makes the case that the firm, already in the midst of its own internal transformation, is ready to benefit from the new world:

“’Were continuing to see the shift in the IT marketplace as current and prospective clients are changing how they buy and consume IT services.

“Clients are looking for greater operational agility from next-generation IT services. They're looking to benefit from the insights provided by mobility, social media and big data analytics.

“But at the same time, they continue to see significant cost reductions by migrating from traditional IT infrastructures to the cloud.”

He adds:

“We’re seeing really significant growth, but the big growth is under the $100 million and the big decline is in the deals over $100 million. This is very consistent with an industry that's beginning to shift and experiment and try new things.”

From the sell side, Lawrie argues this is a cross sell and up sell opportunity. He cites the example of an unnamed Fortune 500 company client as a case in point:

"The first deal we did was $600,000. Over a period of 6 months, that progressed to another order for $22 million.

“What we're seeing is a lot of smaller deals: getting started with cloud, getting started with application modernization, getting started with a consulting engagement.

“But what we've done now is link these offerings together. So when we go into a consulting deal, that sells an application modernization or it sells a Storage as a Service or it sells a cloud opportunity, that's the cross-sell that we're trying to build into our sales process.

“We're seeing more smaller transactions. We've got a pretty good win rate on those smaller transactions, and we're beginning to see repeat business and bigger deals that emanate from those smaller deals."

Costly transition

But there has been a lot left on the table to get to this point, he adds:

“When I got to this company, we had so many bad contracts. We dug our way out of that. We're down to really a handful that we've still got some work to do on. I wanted to make sure we had some repeatable processes in place.

“I’ll tell you, you can blow a 10-year contract in 90 days, if you don't handle the transition right.

“We lost some big deals that we really went after. We were cautious in how we bid some of those things. The keyword was discipline, because I didn't want to go sell a lot of stuff and then just recreate the problem that was created over a period of 5 years in CSC.”

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Mike Lawrie

As importantly, CSC wasn’t cost-competitive in its dealings with the new order.

“We had outdated pricing models. I don't think we had updated our pricing models for 10 years. Ten years! Oh my God, you got to be kidding me. When we did some of these bids, we had - I don't even want to talk about it. That drives me crazy - but I mean, hundreds of pricing models to come to a bid!”

That’s changing now with greater standardisation of pricing that supports an as-a-service economy:

“Our confidence is beginning to grow that we can now bid more aggressively. We got the discipline in place, and we've got the ability to do the due diligence to grow these things. We over-engineered a lot of these solutions. Everything was highly customized in CSC. We’re making a dramatic shift to more standardized offerings. We were probably 20% standard, 80% custom. We want to move to more like 80% standard and 20% custom.”

It’s essential that CSC - and others like it - get their houses in order as the other critical factor in the ‘smaller, but more’ contract landscape is the need to be able to move quickly:

“Our momentum in these smaller contracts is important because, typically, these contracts do not require a long procurement process.

“We often can convert to revenue more quickly and are often much more profitable and lead to larger opportunities in our account base.”

Verdict

Size really does matter - whatever they tell you.