STRATEGY MANAGEMENT II

ITES INDUSTRY

Submitted to
Prof. Anadi Pande

Submitted by
Group 4
Section A
Anoop Kumar Singh (wmp09006)
Harsh Sahrawat (wmp09016)
Hemant Kumar (wmp09017)
Love Abhishek Singh (WMP09023)
Praveen Kumar Singh (WMP09033)
Sandeep Rath (WMP09042)
Umesh Kumar Tiwari (WMP09054)

December 15, 2014

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Table of Contents
Introduction................................................................................................................ 2
ITES Industry.............................................................................................................. 3
Company.................................................................................................................... 4
Mission and vision................................................................................................... 4
Company Overview....................................................................................................... 5
Businesses.............................................................................................................. 6
Environment Assessment........................................................................................ 7
Financial performance............................................................................................. 8
CSC Strategy......................................................................................................... 10
Strategy implementation.......................................................................................... 12
Recommendations.................................................................................................... 14

Introduction
The ITES industry primarily constitutes of Electronic data Processing (EDP), Information
Technology Outsourcing (ITO), and Business Processing outsourcing (BPO). This industry
is highly subjected to technological changes. The technological innovation and changes very
often reshape the nature of business and engagements. The firms in this industry defines
their position and perspective based on external forces like technology changes,
international business & labor cost and through the internal focus like development of core
competencies in focus business segments. This industry is primarily skill and knowledge
based and firms can charge differential prices through consistent quality in service. The
firms try to reduce the cyclicity of their revenue by long term contract with large clients.
They also try to create interlocking with client by designing services in such a manner that it
become costly to change for clients. Overall this industry is agile and has to shape as
technology changes.

ITES Industry
The ITES Industry is mostly constituted by Electronic data Processing (EDP), Information
Technology Outsourcing (ITO), Business Processing outsourcing (BPO).

The recent market analysis of North America for IT enables services show moderate growth
since 2010. The market of fast changing and technological innovations are shaping its form. The
Industry is technology dependent and the very changing nature of technology has clear impact on
this industry.
Key facts of market analysis is as following

Market Analysis
North America (NA) IT has moderate growth rate since 2010. CAGR 4.1%
between 2009 and 2013
NA IT revenue $301.8bn in 2013.
Approx. Number of competitor in NA 10,000. 99% are SME.
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Major players IBM, Accenture, HP, Microsoft Corporation, Infosys Limited,

Xerox Corporation

Five force analysis of Industry

The supplier power of this industry is strong. To some extent large buyer can exert their power
because of having financial muscles. The rivalry, substitutes and new entrant are moderate on
power scale.

Buyer power

Buyers range in size from small businesses to multinational companies and government
agencies. Larger buyers, with greater financial muscle, exert more buyer power. Contracts
between industry players and buyers vary according to the service provided. Some IT service
contracts can last for several years, which can translate into substantial switching costs for
buyers if they wish to terminate the agreement early. However, consulting contracts tend to be
shorter and there is a growing trend towards contracts which have a shorter duration. Overall
buyer power is moderate

Supplier Power

An important input to this industry is staff with appropriate technical knowledge and expertise.
The other input is hardware. Generally hardware components are often purchased from sole
suppliers. Companies, such as IBM and HP, show some backwards integration with their own
hardware and software capabilities. However this industry is most dependent on human skill and
knowledge. So supplier power in this industry is strong overall.

New Entrants

Entry in ITES is bit easier. However most of new entrants are in niche segment. This industry is
largely subjected to technological advancement. Success of a company is highly dependent on
the ability to anticipate and adapt to such changes. Large companies generally become
acquisitory and industry tends to consolidate. The overall new entrant threat is rated a moderate

Threat of Substitutes

In house development team can be substitute; however it is not easy for small to medium scale
companies. All firms in ITES provide similar nature of services. The replication of models are
relatively easy to it reduces the threat of substitute and overall it is of moderate power

Degree of rivalry

The industry is fragmented despite the presence of large, international incumbents (IBM, HP,
First Data Corporation and Accenture), who together account for around 15% of global revenues.
The number of competitors varies between countries with the USA for example having more
than 100,000 software and IT services companies with over 99% being SMEs. The globalized
nature of the industry increases rivalry with regard to cost reduction, which has driven the rapid
expansion of services in India and China. In future the store cost will rise. Overall degree of
rivalry is moderate.

Company
Computer Sciences Corporation (CSC)

Mission and vision

CSCs Mission:
To be a global leader in providing technology-enabled business solutions and services
CSCs Vision:
Vision of CSC is not explicitly mentioned but we can extract it from following statements of
Chairman and CEO of the company.
Establishing leadership in next-generation IT services while delivering outstanding value
to our shareholders.
-Rodney F. Chase
Chairman

We are assembling the key assets, capabilities and strategic partnerships to execute on our
strategy of leading the next generation of IT services and solutions.
-Mike Lawrie
President and CEO

With this company has also stated its Values as C L E A R

C - CLIENT FOCUSED
L - LEADERSHIP
E - EXECUTION EXCELLENCE
A - ASPIRATION
R - RESULTS
-Source: CSC C3 portal
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Company Overview
Computer Sciences Corporation (CSC or the company) is a provider of information technology
(IT) and professional services and solutions. The company operates in North America, Europe,
Asia and Australia. It is headquartered in Falls Church, Virginia and employed approximately
90,000 peoples of March 29, 2013.
The company recorded revenues of $14,993 million during the financial year ended March 2013
(FY2013), a decrease of 2.4% compared to FY2012.The operating profit of the company was
$607million in FY2013, compared to an operating loss of $4,323 million in FY2012. Its net
profit was $961million in FY2013, compared to a net loss of $4,242 million in FY2012.
Computer Sciences Corporation (CSC or the company) is engaged in providing information
Technology (IT), business process outsourcing (BPO), consulting, systems integration, and other
IT services to the US federal government and commercial clients. The company serves
approximately2,500 clients in more than 70 countries worldwide.
The company operates its business through three service lines: managed services sector (MSS),
North American public sector (NPS), and business solutions and services (BSS).
MSS Service line provides information systems outsourcing services to clients in a broad array
of industries, including financial services, healthcare, manufacturing, and other diversified
industries. The companys IT outsourcing include operation of all or a portion of a customer's
technology infrastructure, including systems analysis, applications development, network
operations, end-user computing and data center management. In addition, MSS provides an array
of emerging services in the areas of infrastructure-as-a-service (IaaS), software-as-a-service
(SaaS), business process-as-a-service (BPaaS), platform-as-a-service (PaaS), cyber security
managed services, and other emerging technologies and associated service delivery models.
The NPS service line provides IT-related and mission/operations-related services to the US
federal government. The company provides systems integration and outsourcing to complex
project management and technical services. Its key offerings include enterprise modernization,
telecommunication & network managed services, base and range operations, training and
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simulation. NPS' customer base includes branches of the military and many civil departments, as
well as the Department of Homeland Security and the National Aeronautics and Space
Administration (NASA).
CSCs BSS service line offers industry-specific solutions in areas such as consulting and systems
integration, BPO, and intellectual property-based software. The company offers these solutions
to chemical, energy and natural resources, financial services, technology and consumer,
manufacturing, healthcare, and public sector organizations. Its consulting and professional
services include advising clients on the strategic acquisition and utilization of IT and on business
strategy, security, modeling, simulation, engineering, operations, change management and
business process reengineering. Systems integration services encompass designing, developing,
implementing and integrating complete information systems.

Businesses
Computer Sciences Corporation (CSC or "the company") is a provider of information technology
(IT) and professional services and solutions. The company's key products and services include
the following:
Managed Services Sector

System analysis
Applications development
Network operations
End-user computing
Data center management
Infrastructure-as-a-service (IaaS)
Business-process-as-a-service (BpaaS)
Platform-as-a-service (PaaS)
Cyber security managed services

North American public sector

System Integration, Outsourcing services, Project Management

Technical services
Enterprise modernization
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Telecommunications and networking

Managed services
Base and range operations
Training and simulation

Business solutions and services

Consulting solutions

Advice on strategic acquisitions

Utilization of IT
Business strategy
Security solutions
Modeling and simulation
Change management solutions
Business process reengineering

Systems integration solutions

Designing, developing, implementing and integrating information systems

Environment Assessment
Computer Sciences Corporation (CSC or "the company') is a provider of information technology
(IT) and professional services. The company's strong customer relationship is evident from the
long term contractual relationships and client retention rates provide a base for establishing
stable revenue base. However, reduction in the defense spending could result in less number of
contracts, which in turn would impact CSC's sales.

Strength

Weakness

Strong customer relationships form a base

for stable revenues

Lower offshore penetration and growth rates

indicate competitive disadvantages

Higher revenue mix from relatively noncyclical federal customer base

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Robust network and alliances

Opportunities

Threats

Growing demand for cloud based solutions

Changes in budgetary priorities of the federal

government could impact business

Big Data represents potential growth

opportunity

Foreign exchange currency fluctuations

Growth in cyber security market

Intense competition
Compliance with government regulations

Financial performance
The company recorded revenues of $14,993 million during the financial year ended March 2013
(FY2013), a decrease of 2.4% compared to FY2012. In FY2013, the US, the company's largest
Geographic market, accounted for 62.3% of the total revenues.
CSC generates revenues through three business segments:

Managed services sector (MSS) (42.7%of the total revenues in FY2013),

North American public sector (NPS) (35.7%) and
Business Solutions and Services (BSS) (21.6%).

Revenues by segment*
In FY2013, the MSS segment recorded revenues of $6,457 million, a decrease of 2.2% compared
to FY2012.
The NPS segment recorded revenues of $5,391 million in FY2013, a decrease of 5.5% compared
to FY2012.

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The BSS segment recorded revenues of $3,272 million in FY2013, an increase of 2.9% over
FY2012.
[*The corporate revenues and the eliminations do not form the part of the segmental revenues.
Hence, segmental revenues do not match with the total revenues.]
Revenues by geography
The US, CSC's largest geographical market, accounted for 62.3% of the total revenues in
FY2013.
Revenues from the US reached $9,345 million in FY2013, a decrease of 1.4% compared to
FY2012.
The UK accounted for 11.5% of the total revenues in FY2013. Revenues from the UK reached
$1,729million in FY2013, an increase of 9.7% over FY2012.
Other Europe accounted for 14.8% of the total revenues in FY2013. Revenues from other Europe
Reached $2,217 million in FY2013, a decrease of 9.4% compared to FY2012.
Other international accounted for 11.4% of the total revenues in FY2013. Revenues from other
International reached $1,702 million in FY2013, a decrease of 8.8% compared to FY2012.
A Closer financial analysis of CSC shows fluctuation in its performance. Year 2012 was troubled
period for CSC. This is the time when profitability reached to its lowest, Net profits was negative
and increase in company distress.

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CSC's Cash to Debt is ranked higher than 52% of the 2074 Companies in the Global Information
Technology

Services industry. CSC's

Equity

to

Asset

is

ranked lower than 52% of

the 2003 Companies in the Global Information Technology Services industry (Industry Median:
0.60 vs. CSC: 0.35). Z-Score is 2.73 that show company is in grey region of distress. Financial
strength is rated 8/10(Reference- gurufocus.com).

CSC's Operating margin (%) is ranked higher than 78% of the 2058 Companies in the Global
Information Technology Services industry (Industry Median: 5.44 vs. CSC: 8.33).
CSC's Net-margin (%) is ranked higher than 73% of the 2058 Companies in the Global
Information Technology Services industry (Industry Median: 3.74 vs. CSC: 4.75).
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ROE( %) for CSC is 16.47 which is higher than Industry Median 7.17 .ROA(%) for CSC is
5.53 which is also higher than current Industry Median 3.76.
Last 5 year trend of revenue show that revenue for CSC is coming down consistent. Net income
Went negative to $(4.24)billion in 2012 from $706m in 2011. In 2014 net income improved to
$605m.Similar trend was shown in Operating Income too.

Net Income

Operating Income

CSC Strategy
CSC has presence in almost every sector of industries where Information technology can be
implemented. CSC strategy has been inorganic growth through alliances and acquisitions.
Company always focused on growth through next generation technology and services. Recent
setback in 2012 created profitability issues to CSC. Company went into distress. The company
recent acquisitions in pursuit of growth also contributed to this distress.

Recent Acquisitions/Alliances of CSC:

Target/Partner

Deal Date

Deal Type

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Deal Value (US$m)

Service Mesh (United States)

Oct 30, 2013

Acquisition

--

Infochimps, Inc. (United

States)

Aug 06, 2013

Acquisition

--

42Six Solutions, LLC (United

States)

Oct 03, 2012

Acquisition

--

InnovoCommerce, LLC (United Dec 05, 2011

States)

Partnership

--

AppLabs Technologies Private

Limited (India)

Sep 14, 2011

Acquisition

--

Maricom Systems, Inc. (United Sep 01, 2011

States)

Acquisition

--

iSOFT Group Limited

(Australia)

Acquisition

188.0

VIXIA Consultoria e Tecnologia Jun 06, 2011

Ltda. (Brazil)

Acquisition

--

SoftTech Engineers Pvt., Ltd. Structural Software Division

(India)

May 17, 2011

Acquisition

--

Image Solutions, Inc. (United

States)

Jan 12, 2011

Acquisition

--

CenTauri Solutions

Dec 20, 2010

Acquisition

--

Vulnerability Research Labs,

Oct 04, 2010
LLC - Business (United States)

Acquisition

--

Bass & Company (United

States)

Aug 30, 2010

Acquisition

--

Symetra Life Insurance

Company (United States)

Jun 29, 2010

Partnership

--

Jul 31, 2011

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Carefx Corporation (United

States)

Apr 22, 2010

Partnership

--

After Mike Lawrie took over as CEO of the company, he changed the strategy to achieve
profitable growth. Company stated focusing on profitable businesses and divestment of nonprofitable businesses to create value to the shareholders. SC had major alliances with emerging
technology leaders in the field of Cloud computing a, Big data analytics and cyber security.
Microsoft, Amazon, Google and Facebook have been recently partnered in this effort. CSC has
acquired Infochimps and ServiceMesh to strengthen its presence in cloud and big data analytics.

Strategy implementation
Moving from strategy of growth and leadership to Profitable growth is not easy for CSC. CSC
has already gone through many organizational shuffling and major restructures in recent years.
These moves were purely intended to cost contentment and making operation efficient and
effective. Mike Lawrie who took CSC as CEO in 2012 reorganized reporting structures (Exibit2)
to enhance profitability and shareholders value. A model similar to Mc Kinsey 7S has been
adopted for bringing the change.

Organizational Restructuring:
Organizational structure of CSC is a complex structure. A matrix structure has been layered with
geographical reporting (Exibit3). CSC recently went through Restructuring of organizational
layer. Organizational layers have been reduced to 8 from existing 14 layers. Flattening of
organization has been done to more productivity and reducing management layers. Experienced
resources were identified as people managers and individual contributors. Managers with
redundant roles were one fired first. Idea was to have Minimum management and maximum
productivity. CSC has presence in US, Europe, Australia, South-east Asia including India, Latin
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America (Brazil). All the regions had their multi-domestic structure. This multi-domestic
structure realigned to global structure with roles and reporting defined to one global format. This
removed extra layering and managing structure in multi-domestic regions and brought more
visibility in operations.

Operational Changes:
Mike Lawries main concern was to increase operational efficiency. He wanted to move in next
generation technology with emphasis on profitable businesses and divesting unprofitable
businesses. In this effort, he hired Mc Kinsey for operational efficiency in one of its poor
performing Global Infrastructure services (GIS) vertical. After months of hard work, Mc Kinsey
presented a model to reduce cost and increase efficiency in GIS.
For Global Business Solutions, an offshore model has been designed in which Development of
software and Delivery treated as separate entity. Development has been moved to low labor wage
countries like India, Bulgaria and Brazil while sticking the software delivery resources to
experiences local to client resources.
Skill Development:
CSC identified that people are their key resources and promoted resource skill development
programs. Resources are allocated to skill groups and globally aligned to share knowledge.
Company tried to associate Individual objectives with company objectives with various talent
management programs. Designing of internal knowledge sharing portal C3 and Employee portal
E3 along with Online CSC University for learning are example of such initiatives. Also,
employees were promoted to learn next gen technology to have in-house talents.

HR Policies:
One of the major hurdles with CSC was the pay structure of the employees. Opposite to industry
standards most of the employee pay was direct with minimum variable components. CSC
changed this policy to include more variable components in the pay. These variable components
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included two parts. One was the performance bonus that was dependent upon individual
performance. The other one was the company performance bonus which was the certain
percentage of profit that company earns through the year. This helped in aligning individual
performances to company performance to achieve greater results.
Shared values:
Existing clients are strength of CSC. CSC one global value system of C L E A R stated earlier.
C of this value list is Client focus. Clients were given priority along with Quality of service.
Future challenges:
Change is not always taken as it is. An Organization present resistance to any change. This has
also happening to CSC. Series of changes and firings created an atmosphere of insecurity among
employees. This resulted in talent drain. Attrition rate for CSC is still increasing. The challenge
for CSC now is to create appropriate environment that can reduce attrition.

Recommendations
CSC is a Client focused company. It provides next generation or future ready solutions to its
client. CSC also has US federal and other governments as its clients. Based upon its strength and
opportunities CSC can focus on following areas-

Application Modernization
Mobility
Cloud Based Solutions (Multivendor Hybrid)
Big Data Analytics
Cyber security

Instead of full acquisition, company should focus on partnership on above technologies as these
are dynamic technologies. With partnerships, CSC should also focus on building competencies
on these technologies by enhancing in-house skills.

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References
1. MarketLine Industry Profile, IT Services in North America, Reference Code: 0205-2313,
WWW.MARKETLINE.COM, Publication Date: July 2014
2. MarketLine Industry Profile, IT Services in India, Reference Code: 0102-2313,
WWW.MARKETLINE.COM, Publication Date: July 2014
3. http://www.csc.com/

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