CSC eyes public sector for turnaround

After losing its main local outsourcing contract with the Old Mutual Group earlier this year, Computer Science Corporation (CSC) has vowed to bounce back and is eyeing potential opportunities in the public sector to drive its turnaround.

But, to exploit this sector, the company needs to find a suitable black economic empowerment (BEE) partner.

CSC has appointed a new country manager, Alan Hardiman, who replaced Martin Vergunst on 1 April, after almost nine years at the helm of the outsourcing group's local operations.

Hardiman has been tasked with developing a new country strategy, following the loss of the group's biggest outsourcing contract with the Old Mutual Group, which accounted for between 55% and 60% of annual revenue.

The contract, known as Project Rosa and hailed as the biggest outsourcing deal in the history of SA's financial sector, was snapped up by rival T-Systems in February. The five-year, R1.8 billion contract was for the supply and maintenance of IT infrastructure to the Old Mutual Group, comprising of Old Mutual SA and Mutual and Federal.

Hardiman explains that he was not party to the re-bid process for the Old Mutual contract and, therefore, is not able to comment on the reasons for CSC losing out.

However, market speculation holds that the decision could have been influenced by the relationship between the two parties, a change of personalities at the Old Mutual Group, as well as the quality of the bid.

The loss of this deal meant CSC had to transfer around 220 employees to T-Systems, under Section 197 of the Labour Relations Act, which stipulates that if a business is transferred as a going concern, the employees of the business are automatically transferred along with the business, unless agreed otherwise.

It also resulted in the transfer of a further 20 people to T-Systems, who provided IT services to CSC's retail client Woolworths. The retail client was sharing mainframe hosting with the Old Mutual Group, and Hardiman says it was simply not viable to keep Woolworths as a standalone contract.

"This means that we are down to around 300 employees in SA, falling into two business areas: onshore and offshore," he explains. The offshore, Cape Town-based business supports two UK and US insurance firms, while the onshore division has several local clients.

"We need to re-grow. We are below scale at the moment and losing the Old Mutual contract was certainly a blow."

Hardiman states that the company should be three times the size it is now, and says that a three- to five-year country plan is slated for completion with the current fiscal year (FY09). "However, I want it in place by Christmas," he adds.

Finding a BEE partner is key, he says, adding that the company is currently in talks with several entities. "Until now, we have partnered with BEE companies on specific contracts, but we haven't managed to empower the company, as such. We want to conclude a BEE deal that makes good business sense, instead of just selling 25% of the company to have empowerment credentials."

Hardiman says CSC's range of service offerings - from hosting to consulting - is ideally suited to the public sector, and has his eye on potential deals in that vertical.

Currently, the company has several clients in the financial services and natural resources verticals, but none of these contracts are the large-sized deals that the company would like to see. Its biggest local client remains Nedbank (which did not form part of Project Rosa), where it has been involved in Project Merlot, since 2005, managing the bank's infrastructure and network.

"Financially, we are under pressure, but I expect that we will beat forecasts for the current financial year," says Hardiman, who has already started streamlining the organisation and cutting costs.

However, Hardiman is adamant that no retrenchment programmes are planned at CSC in SA.

On a global scale, he admits that CSC in SA contributes only a small fraction to the group's overall annual revenue of about $16.5 billion, but says the local operation is of strategic importance.

"The importance of SA is not in the revenue, but as a launch-pad into the rest of the continent." This is a strategy that the company will pursue in future.