MCN Direct Newswire

Vol. 4 No. 12, 3 May 2005

This issue is sponsored by:

Geac

This issue news

1. IBM to buy healthcare consultancy
2. EDS shows signs of recovery
3. DMW names Malcolm Coster as chairman
4. Capita careers into new year
5. Outsourcing fails to deliver results
6. Further information - feedback/pass on to a colleague/remove from mailing list

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From strategy to reality: The key role consultants play

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1. IBM TO BUY HEALTHCARE CONSULTANCY

IBM is to acquire international IT consultancy Healthlink, strengthening its position in the global healthcare services market and challenging key competitors including Accenture, which is in the process of buying Capgemini's North American private healthcare practice.

IBM declined to detail the financial terms of the deal, which will see 625 Healthlink employees transfer to the company.

Healthlink was set up in Houston i0n 1992 and focuses on helping healthcare organisations achieve business and clinical performance improvement through the use of IT and process redesign. Last year, it opened offices in London and Washington DC with a view to extending its market reach.

Commenting on the acquisition, Neil de Crescenzo, global healthcare industry leader with IBM Business Consulting Services, said: "Improving healthcare is high on the agenda of public and private sector leaders worldwide. Addressing the challenge requires a combination of healthcare insight, clinical practice expertise, advanced technology and scale. The acquisition of Healthlink will establish IBM as a consulting and services leader in the healthcare provider industry."

IBM said the Healthlink team will become the core of its transformation practice for the health industry within IBM Business Consulting Services. Among the Healthlink employees who will join IBM are experts in clinical and financial system implementation, patient data management, clinical process optimisation, financial and operational management, and compliance.

2. EDS SHOWS SIGNS OF RECOVERY

EDS has returned to profitability in the first quarter of 2005, but has failed to stop a decline in revenue. Net profit of $4 million (£2.1 million) for the three months to 31 March reversed a loss of $12 million in last year's comparable quarter.

But revenue for the quarter fell 5% to $4.94 billion. Key contributors to the fall were the EMEA region, showing a 12% downturn to $1.5 billion - mainly because of the end of EDS' contract with the Inland Revenue - and management consultancy AT Kearney, which showed a 12% drop in revenue to $204 million and a loss of $11 million.

Despite the problems, EDS chairman and CEO Mike Jordan maintained a bullish stance, saying: "EDS got off to a solid start in 2005, as our operational improvements continued to gain traction. In an increasingly competitive market, we posted our strongest signings quarter since 2002, while continuing to invest in our capabilities. At this point, we believe EDS is on track to deliver on its long-term turnaround goals."

Jordan cited the company's HR business process outsourcing joint venture with Towers Perrin, ExcellerateHRO, as an investment for growth and said new signings were highlighted by strong government business including the $3.9 billion, 10-year UK Ministry of Defence Information Infrastructure contract (MCN Direct 4-4).

Total signings in the quarter, including the MoD award, were $7.1 billion, up from $3.8 billion a year ago.

While operating margins and cashflow remain perilously low, EDS is forecasting growth, with second-quarter revenues expected to come in between $5 billion and $5.2 billion. Full-year revenue is expected to reach $20-21 billion.

3. DMW NAMES MALCOLM COSTER AS CHAIRMAN

London-based IT consultancy DMW has chosen industry veteran Malcolm Coster as its first chairman.

Coster has spent the past 35 years building businesses in IT and technology, and has held a number of positions - including head of management consulting at former Big 5 firm Coopers & Lybrand and president of Unisys Europe. He is currently chairman of MTL Instruments Group and a director of BTG and the Performing Right Society.

Commenting on the appointment, DMW managing director Chris Dean said: "We have just reported the best year in our history and our reputation for quality work continues to attract some of the most successful clients and some of the best people in the industry. Malcolm's ideas, experience and knowledge of business development will complement the board's skills in the next stage of growth."

DMW has increased turnover by 10% in each of the past three years, ending the year to March with a turnover of £5 million and 28 consultants. Its client roster includes BP, the NHS, Marks & Spencer, Citigroup, the London Stock Exchange, BT and Dixons Group.

4. CAPITA CAREERS INTO NEW YEAR

Capita has achieved new contract awards worth £140 million in the first four months of its 2005 financial year and says its "prospects for future growth remain excellent".

Speaking at the company's annual general meeting, Capita executive chairman Rod Aldridge commented: "Across the group we are experiencing strong trading conditions and our track record of service delivery continues to be excellent. We started well with a steady number of key contract wins and contract extensions."

Wins to date this year include a £14 million, three-year contract with Eircom and a new contract with Chester Street Insurance Holdings worth £40 million over 10 years. Existing relationships with the Department of Work and Pensions, Norwich Union's Clubline and Mendip District Council have also been extended, with the potential to add revenue of £86 million over a period of three years.

"Our bid pipeline remains at a record level with a number of new bids entering the bid process. The UK BPO market is buoyant across both public and private sectors with strong drivers for continued growth. The prospects for future growth remain excellent," Aldridge said. He also confirmed Capita's 2004 results, noting that pre-tax profit rose 22% to £148.2 million on turnover climbing 19% to £1.3 billion.

5. OUTSOURCING FAILS TO DELIVER RESULTS

Large organisations are bringing some IT operations back inhouse because outsourcing is proving more complex than expected, cost savings are failing to materialise and flexibility is reduced, says a Deloitte study.

The survey of US organisations which currently spend a total of about $50 billion (£26 million) a year on outsourcing finds that 70% have had negative experiences with outsourcing projects, 25% have brought functions back inhouse and 44% have not seen any cost savings resulting from outsourcing.

Richard Punt, strategy partner at Deloitte, said that the same picture is emerging in the UK. He acknowledged that outsourcing remains a growth area in the UK and said it remains a valuable business strategy provided the conditions are right, but added: "This study has a global application. Both customers and vendors have the opportunity to learn from mistakes made by those who entered into outsourcing early."

The Deloitte study highlights the need for outsourcing vendors to change their stance. Among the research results, 83% of participants have renegotiated deals because of pricing and business, technology and regulatory changes, and 53% have moved from long-term contracts lasting 6-10 years to shorter contracts of up to five years, with a view to increasing flexibility and bargaining power.

Most are also working with multiple suppliers to reduce vendor dependency, and those that had previously made exclusive deals said they would never enter into them again.

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