What CSC-HPE says about today's market

Let’s put aside for the moment whether the soon to be minted DXC Technologies keeps or jettisons its federal public sector business.

Commercial and public sector IT – at least the parts that are growing—are so intertwined that looking at the combination of Computers Sciences Corp. and Hewlett Packard Enterprise’s services business says a lot about the trends in both markets. (HPE is merging its IT services business (the old EDS business) with CSC to create DXC Technologies. The new entity goes live Monday.)

I was struck by several things that Mike Lawrie, CSC CEO and to be CEO of DXC, and other executives of the new company said during an investor day on Wednesday.

Traditional IT is dying. As Lawrie described it, business models are going through a major disruption. It is hard if not impossible to grow the traditional IT business especially as customers modernize their IT to lower their costs. DXC’s strategy is to convince customers to not just focus on savings but to reinvest those savings to build digital platforms for their business, which he says increases efficiency effectiveness.

The shift to more next generation IT work drives higher profits and revenue growth for providers such as DXC.

Lawrie said that CSC and now DXC will not take on IT modernization efforts with a commit from the customer to invest in digital.

He described a meeting with a CEO of a customer company and having that conversation. It isn’t always easy to tell a customer what to do but if you are building a partnership you can have those conversations.

Granted, he was talking about a commercial customer but it still illustrates a truism for the government space. If you want real change, you have to have buy-in from the top. But Primes need to lead those discussions. It is “outside-in innovation,” Lawrie said.

Another sure sign of the change is the talent mix companies like DXC need to grow. Currently, about 75 percent of the company’s workforce has traditional IT skills. The other 25 percent are the next generation skills around agile development, DevOps, solutions architects.

But this is changing rapidly. In three years, he expects to see the split being closer to 50-50.

The move to digital platforms means increased use of the cloud, analytics, Internet of Things, and social media. Overarching all of that is cyber.

The shift means there is a significant change to the workforce. In addition to hiring and training its own people, DXC is developing a crowdsourcing platform to increase its use of freelancers. The platform will give the company a way to draw in freelancers, evaluate them, reward them and assign them new work. “It will bring in a new group of people into the DXC ecosystem,” he said.

I’m not sure how that will play in the conservative public sector space, but it is worth watching.

Lawrie also spoke about how DXC cannot go it alone and will continue to develop partnerships with other companies. He called them “joint innovation partners” and they include a large number of well-known names in both the government and commercial markets – Amazon, IBM, Microsoft, Dell-EMC, AT&T and ServiceNow. (If you download the slides, page 33 breaks down of DXC’s partner network.)

Interestingly, CSRA (which of course at one time was CSC’s government business) also has many of the same partners.

And this takes me back to my point at the beginning.

The tech ecosystems of commercial and private sector are so intertwined that it doesn’t really matter if DXC keeps or sells its public sector business. They are still a company worth watching to see how they navigate this shift in the market. Because where the commercial world goes, the government is sure to follow.