A better brand

The familiar letters AMS are going, going, gone from the name of CGI Inc.'s American unit. Now, CGI Inc. of Fairfax, Va., is looking to boost sales in the United States, improve brand recognition and even acquire new companies in 2007.When CGI Group Inc. of Montreal in 2004 paid $443 million for the commercial and nondefense government business of American Management Systems Inc., the company bought its way into the vibrant U.S. IT market.That market, which McLean, Va., market research firm FedSources Inc. estimates at $117 billion, is between 10 and 15 times the size of the Canadian IT market, where CGI does two-thirds of its business, according to industry officials.Because the U.S. market is so vast, and CGI's market presence in it is comparatively so small, growing the company's revenue and profile in the United States remains a top priority, said Donna Morea, CGI president for U.S. and India operations."We still have a lot more work to do in growing the CGI brand, because the AMS brand was so strong that people still use that name," Morea said. That contrasts with the case in Canada, she said, where CGI is as much a household name as is Scotch Tape."We're at the beginning of the process of growing the CGI brand in the United States. We do want to be recognized in the same way that our competitors are recognized, like IBM and EDS and so forth," she said.The company cultivated such name recognition by retaining the AMS name as a hyphenate for two years after the acquisition, introducing government and commercial clients to CGI through its association with AMS, Morea said.The company's clientele has been impressed with the improvements in strategy and processes that followed CGI's acquisition of AMS. In October, Virginia awarded CGI a $65 million, five-year contract to continue to host, maintain and operate its Web-based procurement portal. AMS had won the original contract in 2001.When CGI took over management of AMS in 2004, the company brought with it more mature project management and other improved business management strategies, said Bob Sievert, director of the e-procurement bureau for the Division of Purchases and Supply within the Virginia General Services Department. A combination of better business practices and ongoing research into the market convinced Virginia officials that CGI's e-procurement offering remained the Old Dominion's best option, and the state renewed with CGI, Sievert said.Because such complex acquisitions can be problematic, however, Virginia officials watched closely to see how CGI digested the AMS acquisition."Any time an acquisition happens, you wonder, are you going to see some ramifications?" Sievert said. "But we have been very encouraged by how this has gone."Even Morea, who worked for AMS since 1980 and been its co-chief operating officer and general manager of its public-sector practice before the acquisition, doubted that CGI could rebuild AMS in its image.AMS built its go-to-market strategy around industry verticals, with sales teams dedicated to each industry sector, while CGI focused on geographic regions, allowing regional teams to sell a variety of solutions and services.Morea called the molding of AMS into CGI's model the biggest operational challenge the company faced."It was like taking 5,000 people and shaking them up in a bag, and then sorting them into a whole new arrangement," she said."I was a little skeptical about that at first, having grown up in the industry world and knowing how important it is to bring industry experience to the table. But I am a total convert to the metropolitan model," she said.By focusing regionally and expanding work with customers by pitching outsourcing or hosting services for CGI's enterprise resource planning and other applications, the company hopes to boost its U.S. business from roughly one-third of CGI's annual revenue to 40 percent of its revenue over the next two or three years, Morea said.CGI took a revenue hit in fiscal 2006 when Bell Canada, its largest customer, announced spending cutbacks, Morea said. CGI's fiscal 2006 revenue was $3.1 billion. In fiscal 2005, the company had $3 billion in annual revenue and in fiscal 2004 it had $2.5 billion."That had a significant impact on our organic growth for the overall company in the last year," she said. "When Bell Canada hiccups, organic growth catches the flu."To foster organic growth, CGI restructured its Canadian operations, cutting some employees and relocating others to less costly areas, such as Prince Edward Island in the St. Lawrence Gulf east of Maine, said Jason Kupferberg an analyst with UBS Financial Services Inc., New York. The changes will cost an estimated $90 million, he said.The reorganization should help boost organic growth in Canada in fiscal 2007, Morea said. But Canada is a mature market, and the company's position in it is unlikely to alter substantially.In the United States, however, the horizons for CGI are wider, and the company is taking aim at big growth and big opportunities.CGI will chase federal, state and local government work in financial management and administrative management, Morea said. The company also will pursue opportunities in child support enforcement and child welfare, procurement and strategic sourcing, and tax and revenue collection, she said.The company also will seek to grow its U.S. business through acquisitions. In fiscal 2005, CGI bought two small companies: Silver Oak Solutions Inc. of Boston, for $21.8 million, and MPI Professionals LLC of New York for $13 million.While CGI likely will consider buying niche companies with revenue of less than $75 million, it is, for the first time since 2004, in position to go after large, transformational acquisitions such as AMS, Morea said.But large acquisitions require time and careful planning, making any near-term acquisition likely to be of the smaller variety, Morea said.CGI has yet to realize the full potential of its AMS acquisition, but it may not be too long before the industry finds out if the Canadian company can make the jump successfully into U.S. waters."They're in a position to do it; whether they can execute is still the open question," Kupferberg said.Staff Writer Ethan Butterfield can be reached at ebutterfield@postnewsweektech.com.