Aggressive moves

If Computer Sciences Corp.'s new companywidestrategic plan is successful, CSCwill see double-digit growth rates in the nextfive years, including a targeted 10 percentannual increase in its government business.It's a horizontal strategy that CSC executivesand analysts see as pivotal for the company'sfuture in the commercial and public sectors.Project Accelerate, initiated severalmonths ago without public fanfare, wasspurred by Mike Laphen, CSC's chairman,president and chief executive officer.Commercial clients account for 60 percentof CSC's business, said Mike Gaffney, presidentof business development for the NorthAmerican public sector. "We have the abilityto pull through a lot of the best thinking andshow it off to clients and say, 'This is not justyour old, comfortable CSC contract.' ""What they're trying to do," said BobWelch, group vice president and generalmanager at research firm IDC GlobalServices, "is build as consistent a business onthe commercial side asthey have in the federalsector." He calledCSC's plan an absolutenecessity."The presence of[CSC's] broad footprint,its portfolio of contracts, has allowedus to shift resources pretty effectively to go towhere there is money when money starts tobecome scarcer in other places," said JamesSheaffer, president of the company's NorthAmerican Public Sector. "We have done apretty good job of being able to react to amarket where budgets on the civilian sidehave been tight."Nevertheless, he added, it's not easy for alarge organization with some $5.4 billion infederal revenue to grow 10 percent annually."You have to effectively create another$500 million company every year in order todo that," he said.The immediate goal is to expand CSC'scommercial business with significant opportunitiesfor growth in the federal sector aswell, Sheaffer said. The company has almost70 indefinite-delivery, indefinite-quantitycontracts, many of them with civilian agencies."We view some of that business as ourcore business," he said."There is no agency of note in the federalgovernment that we haven't done businesswith for a long time and aren't doing businesswith today," he said, adding that the firstgoal of Project Accelerate is to retain thosecontracts and win others as opportunitiesarise. Defense Department customers makeup about 67 percent of CSC's governmentrevenue, and civilian agencies account forabout 33 percent.CSC recognizes that business with somegovernment agencies will grow faster andprovide a greater return than with others,Sheaffer said. So the second goal is to focusinvestments and talent on those federalagencies that can generate the highestreturn. "We call that element of our strategyour high-growth market segment strategy.""The marketplace is changing," said KurtPotter, research director at Gartner Inc. "Inthe past, a lot of the large providers ? likeCSC ? for the most part would bid on outsourcingcontracts and be successful. Nowthey have to change the way they do things,"he said. There are fewer large federal contracts,fewer partnering opportunities andincreased international competition, especiallyfrom India.Project Accelerate targets six specific governmentmarkets for CSC's growth: healthservices, logistics, training and simulation,command and control, identity managementcredentialing, and infrastructure services.Sheaffer said they represented about 30 percentof the company's government businesslast year."We think budgetary trends, demographictrends and other drivers in the market allpoint to those as being areas of significantgrowth opportunity," he said. "We believethey will grow faster than other aspects ofCSC's government business.""The benefit of this Project Accelerate isthat they're focusing. And where you focus iswhere you are going to have growth," Pottersaid. "If you try to focus on everything, thennothing grows, so this is the beauty of it all.[If] they focus on their strengths, [then]everything is going to be wonderful for themgoing down the road."But CSC also plans to expand into sectorsin which it traditionally has not been a majorplayer, including Canada and U.S. state andlocal government markets. As a first step, thecompany's Canadian business unit has beenplaced under Sheaffer's aegis in the NorthAmerican Public Sector group.CSC does about $450 million in governmentand commercial health services domestically,Sheaffer said. For example, CSC managesthe New York state Medicare-Medicaidprogram, which accounts for 8 percent ofMedicare/Medicaid processing in the UnitedStates, second only to California."We're taking that capability and exportingit into other states where we feel we candeliver that [system] effectively," he said,adding that CSC is pursuing some large contractswith the Centers for Medicare and Medicaid and the North CarolinaMedicare/Medicaid program. "Then we'regoing to look at some of the other large [statecontracts] coming up."CSC's main competition for state and localhealth care contracts will come from EDSCorp. and Affiliated Computer Services Inc.,Sheaffer said.To further strengthen its offerings in thesix target markets, CSC also plans to make anumber of acquisitions. "It's part of a broadercorporatewide acquisition strategy thatincludes the Covansys Corp. acquisition andthe upcoming acquisition of First ConsultingGroup in health care," Sheaffer said.Within the federal sector, CSC will takeadvantage of its best innovative thinking andapply the appropriate concepts to its civilianand its military customers, Gaffney said.As an example, he cited the company's rolein accelerating the training of Army helicopterpilots using sophisticated simulators. "It'salmost like thinking about a supply chain,"Gaffney said, by counting the number oftrainees in the system, assessing how manytrained pilots are needed, and determininghow quickly they can complete that trainingand be ready to fly.That same simulation technology and supplychain concept can be applied to trainingair traffic controllers for the Federal AviationAdministration. "We started looking at whatthe techniques [are] that we can bring fromour capabilities that we've honed in the militaryto the FAA," Gaffney said. By improvingthe flow of trainees through the system, FAAwill turn out more air traffic controllers faster.Identification management credentialingis another growth target for the company."We think it is going to be significant, especiallyin homeland security, but it actuallyextends beyond [the Homeland SecurityDepartment] into places like theDepartment of State," Gaffney said.It's too soon to know how well the new corporatewideplan is working. Sheaffer said itwill take a year's worth of financial data tobegin to show results. That won't come untilthe middle of 2008."Any improvement in their revenue growthrate would be a sign of success," Potter said,and he added that another indication wouldbe CSC's market share against its main rivals,IBM Corp. and EDS. "They have to maintainor increase their market share by a half percentor two to show success," he said.But even without firm numbers, "we'repretty excited about what we think we'veembarked on," Sheaffer said, "and we're comfortablethat we're seeing the kinds of successwe wanted to see early on. But we still have alot of work to do."