Big fish meets big pond

Cap Gemini Ernst & Young S.A., the $8 billion consulting giant based in Paris, is plotting a fast-track approach to the U.S. federal information technology market.In July, the company won its listing on the General Services Administration's Schedule 70. It is pursuing a comparable listing on GSA's Management, Organizational and Business Improvement Services vehicle. And Cap Gemini has been calling on federal agencies, working to create an idea that there are meaningful differences between this company and other large consulting firms, such as Accenture Ltd., KPMG Consulting Inc., PwC Consulting LLP, Booz Allen Hamilton Inc. and Deloitte Consulting."A lot of our competitors have built these massive public-sector practices but have lost their connection to commercial practices," said Bob Patton, chief executive officer of the newly formed Cap Gemini Ernst & Young U.S. Public Services Group.Cap Gemini, a global consulting company, purchased the consulting arm of Ernst & Young, the American accounting firm, two years ago. "We were the first mover to break away from accounting," Patton said. Cap Gemini had a long tradition of public-sector services, while Ernst & Young had stayed out of the U.S. government space.It is natural to wonder why the company had not entered the federal space before, Patton said. The answer is that, since the acquisition, the company has been busy consolidating the organization, which is comprised of 55,000 employees, and going through the upheaval that accompanies such a major change.In addition, the downturn in the global information technology market led Cap Gemini to trim 2,500 jobs at the end of 2001, and in June the company said it would cut another 5,000 positions by the end of this year.In the face of that kind of pressure, jumping into the federal market makes sense for Cap Gemini, because it's a new market to tap, said Laurie Scardino, an analyst with Gartner Inc., an IT research company in Stamford, Conn. And the company can make a notable contribution, she said."I think this is good for the U.S. federal market, that Cap Gemini is coming to this space," Scardino said. "Yes, they're late, they've got a lot of ground to cover and a lot of relationships to build."But it is good for the government, because it gives agencies more choices. "When you talk about the really big programs and really big initiatives, having another choice is a good thing for the federal buyer," she said.Cap Gemini's Patton said the company will adapt quickly to the federal market for several reasons. It already has experience in meeting government requirements, especially e-gov projects, in Europe, he said. In addition, the company's new global CEO, Paul Hermelin, originally came out of the public sector "and has a real passion for the public sector ... a much greater passion for the link between the public and private sectors than in the previous Ernst and Young," Patton said.The events of Sept. 11 also spurred the company's decision. While the move into the U.S. government market was already on the drawing board before the attacks, Patton said, "post 9-11, there's a waking of corporate conscience. While we see an opportunity to do well, we see an opportunity to do good."Because of its overseas heritage, the company is setting up the required firewalls between itself and its U.S. government operation to address issues of "foreign ownership, control or influence," Patton said. Having a separate board of directors and controls in place to prevent the overseas parent from access to or control of classified information is a prerequisite for contracts with classified security requirements.The company has signed up Jacques Gansler, a former undersecretary of defense for acquisition, technology and logistics in the Clinton administration, and Michael Bayer, a member of the Defense Business Board, to take seats on the U.S. board, Patton said.Cap Gemini already is pursuing opportunities with the federal government. For instance, it is a subcontractor to IBM Corp., Armonk, N.Y., on its team pursuing the Defense Integrated Military Human Resource System contract, a project with a value of up to $1.5 billion to create and implement a fully integrated military personnel system.One of the company's strengths is its investment in "accelerated solution environments" and "advanced development centers," he said. The accelerated solutions environment is both a facility and a process, geared to crunching problem-solving exercises from months down to weeks, and weeks down to days. A center is scheduled to open in the Washington area in the fall, Patton said."Look at the challenges around the need for rapid collaboration on critical issues like e-gov [or] the homeland security department, which is supposed to integrate 22 agencies and 170,000 employees. Those require collaboration and rapid design [and] we believe our centers can play a major role," Patton said.The accelerated solutions environment might find a receptive audience in the government space."The thing about their offerings that intrigued me and a couple of executives is their accelerated solutions environment," said Audrey Davis, chief information officer for the Defense Finance and Accounting Service. She and other DFAS officials are checking Cap Gemini's references and looking at ways to make use of the company's capabilities."It's the potential to solve some really hard and complex problems. While we've not been able to take advantage of any of their services yet, we did visit their facilities in Cambridge, [Mass.] and were favorably impressed," Davis said.Patton said the company has very strong ideas about how to proceed in the U.S. federal space and a very definite game plan for getting there. The Washington office, located in McLean, Va., opened with 30 people, he said, but "between hiring and acquiring, we will add hundreds more over the next year."Acquisition definitely is a strategy the company is exploring, Patton said. The company is studying a number of prospects, but he declined to comment on specifics because of non-disclosure agreements. Cap Gemini has hired a banker, however, to work out details as evaluations progress.Patton also declined to comment on revenue projections for the government unit. "We are just now going into the 2003 planning process. Giving you a number now would be giving it to you before my boss," he said.