Service Executives See Growth, Battle IssuesBy John Moore | Posted 2005-05-18 Email Print
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Demand for services remains high, but VARs are having to deal with turnover and complex contract issues on their way to pick up the fatter margins from services.Demand for services remains healthy in areas such as outsourcing and health care, but integrators grapple with issues ranging from contract management to turnover.
That's the word from executives presenting at the 33rd annual JPMorgan Technology Conference this week. Executives were generally upbeat about the industry's growth prospects, with some citing interest in large-scale projects not seen since before the tech bust.
"I see the demand backdrop as very positive," said Rod McGeary, chairman of BearingPoint Inc.. "Companies that have not had the size of projects that existed back in 2000 are starting to think about major projects; 'transformation' all of the sudden is a word that is acceptable again."
At Affiliated Computer Services Inc., outsourcing ranks among the top demand areas. Within that space, health care represents a huge market, according to Warren Edwards, ACS' executive vice president and chief financial officer. He said the "fair amount of inefficiencies" in the market make it ripe for outsourcing.
ACS ranks among the IT services firms that have pursued acquisitions to broaden their health care reach. In January, ACS purchased Superior Consultant Holdings Corp., which provides IT and business process outsourcing services. Accenture Inc. and IBM also have recently acquired health care specialists.
At Unisys Corp., Janet Haugan, the company's chief financial officer, cited strong order growth in services, emphasizing gains in outsourcing. In April, Resolution Life Group extended its business process outsourcing contact with Unisys to the tune of $90 million. Overall, Unisys expects outsourcing to lead services growth at a 9.1 percent clip through 2007.
That market potential could help Unisys rebound in outsourcing, which ranks among the company's top goals for 2005. Haugan said Unisys aims to rebound in outsourcing this year. In 2004, the company slowed the growth of its outsourcing business to address problems on some transformational business process outsourcing contracts, Haugan explained.
In the transformational contracts, Unisys aims to introduce new systems as part of the broader task of running a given business function on the customer's behalf. Unisys has been able to meet customers' service-level agreements regarding day-to-day operations. But the company has experienced difficulties in deploying new processing systems on schedule, Haugan said.
In response, Unisys has changed the management team on each of its large transformational business process outsourcing contracts and created a global review board to keep tabs on large contracts.
BearingPoint, meanwhile, has been contending with turnover among the company's managing directors. In an April filing with the Securities and Exchange Commission, BearingPoint reported its global turnover rate among managing directors was 16.6 percent during the first quarter of 2005.
To address retention, BearingPoint in April approved a restricted stock grant to its "current managing directors and to newly-hired managing directors and a limited number of other key employees," according to an SEC filing.
The company's overall turnover rate is around 25 percent, which McGeary said is higher than normal. "We intend to drive that turnover down," he added. ACS, for its part, has been working to plug gaps in its services portfolio. The Superior Consultant acquisition, for example, extended the company's consulting capability on the provider side of the health care market. ACS has historically been strong on the payer side.
"We needed to have a little better consulting capability," Edwards said.
The company's acquisition earlier this year of Mellon Financial Corp.'s human resources consulting business fills a similar hole in the company's HR service offering. The consulting addition augments the company's back-office processing operation and lets the company compete more effectively against rivals such as Hewitt Associates, Edwards said.
Edwards, however, declined to comment on published reports that Walt Disney Co. plans to outsource IT work to ACS and IBM.
IBM, distributors pursue blade market.
IBM on Tuesday tapped two distributors to help roll out an integrated blade solution for SMBs (small and medium-size businesses).
IBM eServer BladeCenter Business Express lets resellers craft customized solutions that fit customers' specific business settings or industry segments. The offering is available immediately through Avnet Partner Solutions. Agilisys Inc. will provide the BladeCenter solutions on June 1.
Resellers will be able to provide a range of solutions built around IBM Express Middleware. The middleware is preloaded on BladeCenter systems running Windows or Linux. Other solution components available through BladeCenter Business Express include Workplace Services Express, Express Runtime, WebSphere Business Integration Server Express and WebSphere Portal Express.
"The whole thing is very flexible and customizable to the end user's environment," said Vince Cobelo, account development manager at Avnet Partner Solutions. He said IBM's offering provides a "tremendous opportunity" for channel partners. "It's a new concept that will create a tremendous amount of interest," he noted.
Blades haven't become as mainstream as industry would like, noted Scott Abbott, vice president of business development at Avnet Partner Solutions. But BladeCenter Business Express provides performance at a compelling price point, he added.
The IBM Financing Advantage Program offers leasing for SMBs with pricing starting at $120 a month for a portal server able to handle 20 users. IBM said list prices for the "solution building blocks" will generally range from $4,500 to $9,000.
Avnet, however, isn't limiting itself to IBM's software components. The distributor plans to integrate BladeFusion Ltd.'s Secure Production Environment into its BladeCenter Business Express offering.
Cobelo said BladeFusion's product "adds a layer of high availability." The product, he said, lets an organization deploy a standby blade in a server for failover purposes.
"The benefit to that is you don't have to have total redundancy; you don't have to have two blades running the same application," Cobelo said. The approach also eliminates the need to purchase a failover license, he added.
In other features, Secure Production Environment provides load balancing and dynamically allocates resources within a system, according to Cobelo.