Sara Driscoll: What is happening with CC services division?
Simon Walsh: Computacenter (CC) was founded in 1981, and was then a reseller out of a shop in 1983 from Swindon. Over the next 20 years it progressed from a reseller into doing more systems integration work, like Morse. Then we built a maintenance business, and then over the top of that we built a managed services outsourcing business. So between 2000 and 2004 that business was all mashed together and controlled by five vertical markets at the time, so we ran our business on a government, financial services, retail-type basis. Each of the vertical markets had a bit of our VAR and bits of system integrator and our outsourcer embedded within them.
At the end of 2004 and through the first half of 2005, we took that organisation and formed it into two divisions that report to the board: one run by my colleague John Joslin, who runs CC the reseller and one by myself that runs CC the services. Two quite distinct businesses were formed, still leveraging the shared sales force, but two businesses very much focused on their respective product offerings, their respective competitors, and their appropriate market opportunities relevant for their product sets.
So pretty significant organisational change, plus more importantly a significant focus change in that John and I have accountability back to the board to build product sets and propositions that are attractive to the market in terms of delivering value to the customer and are much more competitive than the competition. So he [Joslin] is looking at this from: ‘Right, how do I build resale volume, because Dell is the enemy and HP [Hewlett-Packard] is my key partner along with IBM and Cisco and Microsoft etc and I want to be the largest reseller in the UK’, and I’m looking at this from the perspective of: ‘Right, I’m in systems integration, I’m in maintenance, I’m in service desk, I’m in services, how do I build a very compelling set of business propositions that are much more attractive to the customer than my competitors’?
SD: So what is the cause of this latest re-focus?
SW: It’s not exactly a re-focus. Our business continues to grow year on year – our services have gone from being a reasonably small component of the business to an increasing percentage of the overall company and we wanted to give it a much greater degree of focus.
[This will] make sure that all of the organisational costs are apportioned in the right way so that we run the businesses on a full P&L [profit and loss] basis. That way you can make sure that when you are pricing to the market you’re pricing purely on the existence of the services business, or purely on the business of the product business. It makes it much more fleet of foot; you can be much more agile as you are not carrying overheads that aren’t applicable to what you do. So I don’t carry any warehouse overheads because they are part of the product business. I have a helpdesk in Milton Keynes with 500 people n it and obviously John shouldn’t’ carry overheads for those 500 personnel carrying first and second line support. So what you have is two businesses fully configured to be as autonomous as is necessary, but wholly joined up because we have one sales force.
SD: So have you had to re-educate your sales force into selling both products and services?
SW: They could sell both before, it’s not like it [services] wasn’t growing, but it’s an increasingly competitive market and we’ve got to be much more agile in both the products that we
offer and the commercial models that back them up. I have a bunch of sales specialists that work inside the business and they are there to complement the account managers. The account managers run the customer relationship and the specialists are there to be trained as sales experts in their set of product offerings.
SD: You mentioned CC began life vertically aligned, are you still aligned around this or is it simply products and services now?
SW: In the past we had five businesses: one was called financial services, one was called government, one was called retail, one was called telco and one was called Scotland. So we had five UK businesses. Now we have two. One is called product and one is called service. Instead of those two businesses being configured on a specific vertical, they are configured specifically on what it is they do and then they leverage a shared sales force that is vertically or regionally aligned. So we still have a City sales force and a retail sales force, and we still have a northern sales force and a west country sales force, but the company is configured behind two significant pushes: one to be a number one reseller, and one be a top five services provider.
SD: How does this fit in with CCD and CC Direct?
SW: They are both still under the product division, so they are run by John. CC Direct is our telesales and cheaper to operate from our perspective in terms of selling into the SME business. This has opened up a whole new revenue channel for us because it was a market place we weren’t directly serving to in the past. CCD is our distribution business and it will continue to be our distribution business as it utilises the CC scale for selling to tier two resellers.
SD: Has your latest announcement to the City regarding the termination of the proposed management buyout (MBO) had any effect on your services strategy?
SW: We announced last week was that there is no longer an MBO because it was called off. The company strategy, whether public or private, will be the same. We undertook a significant strategy review in Q4 2004 and Q1 2005, we implemented the outcome of that strategic review in Q2 and Q3 of 2005 and if you look at when the initial commencement of the MBO started, I believe it was very early in Q4, so the strategy we started in the second half of last year will be the strategy that we are pursuing for the next three to five years. What we are saying is we are serious about being in the reseller business and we are very serious about accelerating our growth in the services business. Rather than being seen as a reseller that bolts on services, we are now saying ‘yes of course we’re a reseller, we supply one in three of every corporate PC in the UK, we’re a major force in the reselling business, but actually unbeknown to most people we’re also a pretty major force in the services business’. I have 3,300 staff in services in the UK. Most people do not have any comprehension of that. People have no comprehension that we have been building this credible, scaleable services business. We are formalising what we have been doing in the background.
SD: Do you have target plans?
SW: I can’t reveal these, but there is a very high expectation.
SD: A lot of vendors are turning to services now, do you see this direct services strategy as a threat?
SW: No. I see that we work in quite a mature market place, and on one day we may compete with an HP-type organisation and the next day they may chose to sub [contract] to us or vice versa. It’s very co-operative.
SD: Is there one particular vendor or player which you feel encroaches on your business?
SW: We all compete against each other. In the Ovum Holway report there are 25 IT services firms out there; we are third place behind HP and IBM in the support services market (see box, page 31). My revenues are more than [Ovum predicted] because I also do consulting and project work and technical architecture work, so we have quite a lot more revenues. HP are doing a good job, and IBM are doing a good job, but I actually think there is a better opportunity for CC to work as a sub contractor to the system integrators where it is a total outsource. If a customer wants someone else to run their IT, and they give it to CSC or IGS, ultimately they can’t necessarily be cost competitive to do it all themselves so they need to subcontract and I think we’re the logical place to go. We’re a niche service provider, in that we only do infrastructure services. We’re not doing application development or business process outsourcing.
SD: Is there a target customer size for your services business?
SW: We are infrastructure, so if a client wants someone to do its application development we won’t bid. But if there is a company with 100 employees that wants some maintenance and help desk services, of course we can service you. Historically those customers are the last to adopt, because in the main they haven’t got the expense of operations as a bigger organisation. But we support quite a lot of organisations with 1,000 users, we support a lot of companies with between 1,000 and 5,000 users, and increasingly have customers of over 5,000 users. This doesn’t mean we won’t support less than 1,000 it just means that that market place is not yet really proactively adopting third party service partners.
SD: So is this where you can see CC services selling in the future?
SW: Absolutely. I can see CC Direct taking some of the services offerings that we have productised, packaging them up and taking them out to the mid-market, and because of the scale engines I have built in terms of capacity I should be able to bring the cost point down to be very attractive to these SMEs.
SD: What kind of services do you imagine will be in these off the shelf services packages?
SW: We’re doing disaster recovery services and maintenance services that we have already packaged up. We’re also doing remote monitoring and help desk services.
SD: How have these been received by the market?
SW: It has not picked up with huge speed, but we only really started that in Q4 and the SME is not the fastest adopter, but it is obviously the largest market in terms of sheer volume of clients. The majority of our contracts are still in the UK corporate or UK government sectors, but we increasingly see us taking point services into the SME.
SD: How do you compare yourselves with SCC and Morse? Who is your peer group?
SW: John peers with SCC from a reselling perspective and I think SCC also has a reasonable maintenance offering, which is part of what we do. Some of my business is abso-lutely what Morse does, in terms of systems architecture and design, installation, more system integration work. From a selling to the system integrators perspective, we see Phoenix as a competitor, one that we are absolutely excited about beating. The rest of our competitors are more HP, IBM Global Services, CSC, Unisys, Siemens Business Services, Fujitsu Services.
SD: How do you think the services market has changed?
SW: I think it has changed dramatically in the last three years. I think customers are completely happy with compromising on the bells and whistles services quality for an OK service quality for a much better price. I think increasingly customers are prepared to put more with a third party. This is about the business pressure that companies are under. I see this not slowing down, in that our customers are under their own business pressures from economic drivers with inflationary pressure driving cost up, and price pressure driving prices down. So our customers are being squeezed everywhere and IT has to enable those business to be more competitive and nimble and therefore the IT department cannot spend as much time as it used to on keep the existing systems operating. So the IT department is increasingly saying: ‘Right, our job is to be business systems analysts, technical architects, change managers and program managers and as an nIT department our job is to enable the business strategy to come alive. We have not got enough time to manage our operations ourselves and there are professionals that do IT operations for a living, lets get them to do it for us’. The IT department can spend their own time helping its business achieve its business results. I don’t see IT budgets growing, as I think customers will expect their operational costs to reduce and the spare money from this will be freed up to help them change the business using IT.
SD: Can you see a time when CC is only selling services?
SW: No. Why would it? We arevery good at what we do in the reselling of technology. There is a role to play to help customers select the right technology and supply it in the most efficient, fast fashion. And because technology does not come from one, two or three vendors only, I absolutely see a role for CC and we will not be exiting the reselling of goods. The reselling of goods, supplying of software licenses, printers, IT equipment for data centres, equipment for VoIP [voice over IP]; it is absolutely what we do.
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