Compaq Pitches Support Services Role

Compaq Computer Corp.'s subcontracting role on the recently announced $2 billion National Security Agency Project Groundbreaker ? won by Computer Sciences Corp. ? is more than just sweet success for the Houston company. It represents the federal unit's new emphasis on being the sole provider of both hardware and support services for integrators.When Ron Ross signed on as president of the federal subsidiary of Compaq last November, he decided the best strategy would be to stick close to the company's core strengths: the nuts and bolts of procuring and supporting desktop computers, supercomputers, handheld devices and servers.And he wanted to make sure that potential integrator partners know Compaq brings more than just hardware to the table."Systems integrators come into a company and build a structure to make it a better place. They can predict how many lines of code their coders can produce, how far they would get in a year, what the costs will be. They are in that business," Ross said.But systems integrators aren't as good at keeping up with the latest developments in hardware and related services, he said. That's Compaq's bailiwick, and it changes so quickly that specialized knowledge is required to stay abreast. "The life-cycle product for computer equipment used to be 23 to 27 months, whereas today it runs from 12 months. Systems integrators can't keep up," Ross said. By offering to partner on major contracts, Compaq can allow systems integrators to focus on their core competency and offer the latest solutions. That was the sales pitch that landed Compaq on the team led by El Segundo, Calif.-based CSC, which won the Groundbreaker deal. Compaq is the only manufacturer named a Technology and Service Delivery Partner."This validates Compaq's strong movement into the role of long-term integrator of enterprise solutions for the federal government," Ross said. The role that Ross said he wants for Compaq on large systems integration contracts is best illustrated through an IT solutions model that Ross shared with . The model divides the systems integration task into seven discrete components, with each layer representing a specialized function. Services residing in the upper layers include domain knowledge (expertise in the customer's operating procedures), custom applications, organizational structure and even customer relations. These are best handled by systems integrators, Ross said. But the services in the lower layers, such as IT infrastructure, hardware procurement and support, are the ones Compaq can best address with an end-to-end solution, Ross said."What we offer is an information technology solution, not a business solution," he said. "We can get integrators a more efficient IT infrastructure without impacting their overall margins." Compaq will continue to compete as prime contractor for deals that are heavy in hardware and related services, he said. For example, Compaq Federal LLC, based in Reston, Va., is bidding to retain the contract for the U.S. Postal Service's Acquisition for Desktop Extended Processing Equipment, due to be awarded in October. This five-year, $1 billion-plus contract with options for another four years, calls for computers, printers, disk storage, tape backup units and systems software as well as support services such as hardware repair, maintenance and replacement.Nonetheless, Compaq Federal will increasingly focus on forming partnerships with integrators and offering them hardware expertise and global support and services, Ross said. Compaq strengthened its services offering with the 1998 purchase of Digital Equipment Corp.Compaq does $1.6 billion in government sales annually, said Ross, who sees his strategy as key to achieving at least 10 percent to 12 percent annual growth for Compaq Federal in the coming years."Compaq is positioning itself in the value chain in a way that it's opening up new revenue possibilities and reducing possible competition," said Elizabeth Kennedy, analyst for Datamonitor plc, a London-based industry research company. She said Compaq Federal's strategy fits into the parent company's drive to grow services to more than 30 percent of its total revenue model. "Especially with the downturn of the economy, services represent a growing trend, or at least one that is stable," Kennedy said.Dell Computer Corp. of Austin, Texas, is another traditional computer company with a strong federal presence that chooses to stick to hardware and related support services, albeit its hardware offering is not as broad as Compaq's. Like Compaq though, Dell pursues the large, hardware-intensive government contracts, but also works with systems integrators for more comprehensive projects, typified by its recent partnership with Electronic Data Systems Corp. of Plano, Texas, for the Navy-Marine Corps Intranet program. "We're not application developers. We're not out to do Web sites or do that sort of thing," said Bob Barr, director of government marketing for Dell.Barr said that six months ago, Dell created two offices for pursuing federal contracts, both in conjunction with integrators and as a lead contractor. One office focuses on contracts more than six months out, and the other on near-term prospects. Barr said the company doesn't break out revenue figures for government sales or integrator partnerships. Still, Ross' seven-layer model of system integration is unique, some say. "You can cut the whole job up any way you like. This is the way of looking at it from an IT perspective," Jeffrey Grady, president of JOG System Engineering Inc. of San Diego, and author of the textbook, "System Integration."Grady said such a division would work well for IT systems, "where 98 percent of the work is IT management," he said. "It wouldn't necessarily be effective for larger work, such as building a new battle tank." Grady also said that systems integrators outsourcing all their IT needs isn't itself a new concept, at least not in the military, where companies such as General Dynamics Corp. of Falls Church, Va., have long provided the IT requirements for large contracts. In fact, such organizations were barred by regulations in certain cases to compete in other areas of the integration process. "Vertical specialization is the way of today's organizations," Grady said. "No one is smart enough to know it all."