Despite its status as a £265m company and one of the channel's biggest fish, Phoenix IT Group has long been a bit of a mystery.
After a series of acquisitions in the noughties, the firm operated a number of end-user brands, while keeping its eponymous third-party services often hidden from view. As of the start of this year, all brands other than the parent were laid to rest, as the organisation restructured into five new business units.
Now Phoenix is aiming to make its voice heard a little louder as it pushes on with ambitious growth plans, particularly in the cloud and hosting area of the business. ChannelWeb caught up with sales and marketing director John Hall and hosting business unit director Martin O'Donnell to discuss where the company goes from here.
Six months in, what has been the impact of the restructure? Is everything fully operational now?
John Hall: We went for a very quick integration. Our financial year [begins in] April and we wanted three months to bed in. We are now 85 to 90 per cent there in terms of our recruitment. We have created a much simpler sales organisation: account management teams and new business teams. Everything we are doing is about growing revenue and profitability, [and to do that] you cannot just rely on your existing customer base.
Will the new business sales teams you've brought in be focusing on any particular vertical markets?
JH: From a vertical perspective we are fairly light in financial services. We have expanded our sales force to address this market – not massively, because it is still quite challenged – but we have recruited a couple of expert people.
Why was this year the right time to rebrand everything as Phoenix? What has been the impact of this?
JH: We wanted a consistent message to the marketplace. We had multiple businesses, and multiple products hiding behind those businesses. We had multiple silos within the business. Now, from a sales perspective, people are clear who they are working for. [In the past] we have deliberately hidden [the indirect services] behind the white-labelling. A long way back that might have been a good strategy. But if you are going to expand your partner base, people need to know what you do.
Nobody knows us, that is what we intend to change. We are a £265m company that only sells services, and a tiny bit of product, unlike Computacenter or SCC, which are the exact reverse. This is why our profitability is so much more significant than theirs. The integration of the company is long overdue.
Martin O'Donnell: One of the things that assisted was [former Fujitsu Services boss] David Courtley coming on board. What David did, coming from the partner side, was say that Phoenix cares about [the branding] much more than the partners. They care about the quality of service, they are not that hung up on us competing with them [in some areas]. Most of those partners play in large government and enterprise opportunities anyway.
JH: I think it comes back to the growth argument. If you have two businesses, two companies, two sets of services, it is twice as challenging to grow an organisation.
Has your partners' reaction so far borne out David's belief that they are not concerned about the end user and channel businesses carrying the same name?
JH: Yes. We made a point of going to see all our major partners [before the rebrand] and we had some very good meetings. HP asked us a few questions, then proceeded to award us a £4m contract. We decided we were doing the right thing!
Having retired the Servo brand early in 2011, was it always the intention to do the same with the ICM brand?
JH: I would not say it was always the intention. [At the time] we felt that we could evolve into two different companies. Looking at it now, hindsight is a wonderful thing.
How big a task is the branding exercise? How much more do you need to get the Phoenix name out there?
JH: It is a huge task. We did an exercise last week with a group of potential customers and 75 per cent of the audience did not really know Phoenix or what we did. We have done an amount of brand awareness over the past few months. These are all things that we have not done historically.
Units of measurement
The January restructure reshaped Phoenix into five business units, defined by customer type. In its 2012 fiscal year, which closed at the end of March, revenue stood at £264.7m. The systems integration business provided £88m in sales, managed services chipped in £60m, comms added £49m, while business continuity stood at £48m and hosting and cloud at £19m.
All units are expected to post top-line expansion this year, with O'Donnell's cloud unit predicted to be a particularly fast grower. Hall talked up Phoenix's cloud opportunities, but stressed that the firm appreciates "that there is still a requirement for physical delivery".
"You may say you have everything in the cloud, but in reality you still have devices out in the field, you still have offices with LAN infrastructure, whether it is Wi-Fi or physical cabling," he added.
ChannelWeb: What are the key offerings that you are providing as cloud services? There is often a perception that businesses are happy to put email and niche applications in the cloud, but want to hang on to core infrastructure and data – is this the reality of the market?
MOD: Enterprise customers still have the view that [for example] their ERP solution is something they are still keen to keep in-house. In the mid-market – which we define as 200 to 2,500 seats – we find that they are more amenable to taking even their ERP, or whatever core application their business runs on, and putting it in the cloud.
Does your background as a services business give you an edge over competitors such as SCC and Computacenter that have long-standing reseller backgrounds?
MOD: They are still very dependent on vendor rebates, whereas we have always been more of an annuity-focused business. And if you take into account our business continuity business, which is very capex-heavy for us, [the cloud] model is not difficult for us to understand.
Are the M&A days on hiatus, or even completely over?
John Hall (pictured): I would not say they are completely over. There are some interesting opportunities out there. But we are interested in creating organic growth. There are a number of companies out there that have grown through acquisition very successfully, but they have not necessarily created value.
Has being a publicly listed company, operating in the glare of the markets, made the restructure more difficult?
MOD: What we do is in the public domain. There is a clarity and a transparency about what we are doing. This is not necessarily the case for companies that are privately owned.
JH: The fact that we have to go to market every quarter and track the business' progress, we could view that as a burden, but it makes us focus on what is important. [With] the big private companies, the likes of 2e2 and SCC, you have no idea what is going on. You get a statement and you have to interpret that, rather than having the clarity [that comes from being publicly listed].
In recent years companies including Capita and KCOM have withdrawn somewhat from the break-fix market, transferring contracts to Phoenix. Are you still committed to the market – and is there ample margin in it?
JH: We see it as very good business for us. There are a number of reasons why we see it as such and it is business that we actively pursue. Why [rivals] are doing what they do, it is not because the market is changing, it is because their models have changed.
If we look at the Capita deal, they bought Computerland, which seemed a slightly strange acquisition for a company such as Capita. They transferred 120 engineers, a small service desk, a small logistic operation. Putting that into our operation, we can drive economies of scale and we can drive the price point that Capita needs.
KCOM went through a complete transformation. They outsourced their network, they outsourced their staging capability. They are a virtual telco these days. One of the big drivers for KCOM was critical mass. They had an engineering force with not enough work. If you are KCOM and you have one engineer covering three quarters of Scotland, even if it is one or two calls a week, you cannot really get rid of him. We can get far more calls out of that engineer – two, three, four a day.
We have field engineers, site-based engineers, technical engineers, engineers sat in service desk environments, we have engineers sat in datacentres. We can do a four-hour fix anywhere in the UK.
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