Technology Solutions Corp. Abandons Federal Market

P> CHICAGO -- When federal funding cuts eviscerated the budget for the B-2 bomber in 1993, Technology Solutions Corp., a nearly $70 million federal systems integrator that had recently gone public, withstood some major collateral damage.

Technology Solutions was getting out of the government contracting game and going into the consulting, systems integration and client/server market in the commercial world, for clients such as Ameritech, the Chicago Board Options Exchange and other leading companies. That choice has proven to be crucial. Sales rose 25 percent last year -- and now are back to their previous level. "We redirected our efforts into consumer products and the commercial manufacturing area for mid-sized and large companies. Government contracts take too long to pay. They take too long to land. And they're quite burdensome to administer," said Kohler.

Fiscal 1995 revenues at TSC were $65.8 million. Net income rose to $3.4 million, compared with $35,000 for fiscal 1994. The company added 41 new projects last year and 46 new clients, bringing its total number of customers to 79. The company also saw a 27 percent increase in billable hours. Almost all revenue comes from systems integration or related consulting services -- only $113,000 came from software and hardware sales. And in December, the company announced still more significant results. Its fiscal 1996 second quarter revenues of $23.3 million, for the period ending Nov. 30, represented a 50 percent increase from the same period a year ago. Clients include AT&ampT, Aetna, Borden, GE, Goldman Sachs and others.

The performance has impressed analysts, who were pessimistic about the company's prospects just a few years ago. "TSC has successfully repositioned itself to take advantage of the growth in the systems integration market," said Siew-Joo Tan, an analyst at International Data Corp., Framingham, Mass. "Its business model is rigorous, and its value proposition is attractive. Specialization in growing niches such as call centers and application development will enable TSC to develop a competitive advantage."

The re-engineering trend also has helped TSC, which uses skills in client/server telecommunications, relational database management, voice and data integration, image processing, intelligent networking and object-oriented software development to find new commercial clients who want to use infotech to reduce their personnel.

Just three years ago, approximately 35 percent of TSC's sales came from government-related aerospace and defense contracts. Now, TSC sees no revenues from that sector. The company provides a model of sorts for contractors in the Beltway, squeezed by the reinvention of government, and searching for a commercial model for their computer consulting skills. TSC proves it can be done in a short period of time.

"We were forced with retrenching and... re-engineering our consulting staffs," said Kohler.

The two niches TSC aggressively targeted were automating customer service and providing administrative efficiencies. In fact, the biggest growth comes from customer service clients in the financial services, health care, manufacturing and consumer products sectors. "Expenditures in that sector are growing at about twice the pace of the systems integration market," said Kohler. "This entails re-engineering their supply chain and time to market for products. This capitalizes on electronic commerce. The second area that is treating us well is the customer service call center area. In that area, companies are changing their relationship with their customers and doing it through customer service centers. And that requires true systems integration of many technologies."

One TSC client is Whirlpool. The company's 800 number network supports new product introductions, parts and inventory, and product delivery. It has two customer service centers, each handling 4 million calls per year. Whirlpool wanted to make its agents accessible and informed. Deploying client/server architecture, TSC integrated voice and data systems, enabling the company's telephone network to work seamlessly with its mainframe computers and gave customer service agents access to database information.

Now, service agents immediately can identify callers and retrieve their files from the database, allowing customized and personalized attention to the caller. Meanwhile, an imaging system enables agents to retrieve parts or warranty data on-line. Calls for repairs and orders are handled this way also. Whirlpool reported savings of $5 million a year in reduced service calls and a 40 percent increase in productivity, as well as a reduced spare-parts inventory.

Kohler said the company just opened an office in London to pursue European opportunities in these areas, where potential clients such as British Telecom and large financial institutions are based.

TSC is not alone in this niche. Companies such as Andersen Consulting and the consulting units of the Big Six accounting firms provide fierce competition, according to Input, the San Francisco market research firm.

Another potential threat is that TSC's four largest clients account for 32 percent of its business. "This represents some risk," said Tan. "Losing any one of these accounts may send some shock waves through the company, as happened with the B-2 saga."

Challenges for 1996 include capitalizing on strengths, adding new clients and entering the international market, and continuing to attract and retain top talent, said Input.