Federal Wins Inspire New Hopes for Unisys Comeback

Unisys Corp. may be experiencing setbacks in its bid to transform itself from mainframe manufacturer into a major infotech contender, but for added inspiration, it need only look to its Federal Systems Division.

"They've really been setting the world on fire," says Bob Dornan, senior vice president of Federal Sources Inc., a research company in McLean, Va.

The division significantly supports the corporation's overall goal of getting away from installing and maintaining its own aging proprietary systems and into the arena of information management. Today, more than 66 percent of the group's business involves infotech services such as systems and network integration, application development, outsourcing, management consulting and maintenance of commercial, off-the-shelf hardware and software.

For the still-troubled Unisys, the federal wins have been nice, but greater restructuring initiatives have been needed. The corporation last year sold its defense business -- which included its air traffic control, radar, submarine navigation and postal groups -- and reorganized its operations into three separate business units: Information Services, Computer Systems and Global Customer Services. The radical steps helped create a leaner and meaner Unisys, but they also contributed to a $745 million loss for fiscal year 1995. The changes are expected to pay off, however; James Unruh, CEO and chairman, believes his company will save $500 million in operating costs in 1996 and an additional $600 million in 1997.

While most of Unisys' attention has turned to capturing niche commercial areas such as banking and insurance, the smallish but scrappy Federal Systems Division is, nonetheless, delivering the financial goods. The group accounted for 32 percent of Unisys' overall 1995 revenues of $6.2 billion. Company policy does not allow revenue breakouts by division, but the annual report stated gross profits of $530 million in 1995 from work done for federal agencies. Division president James McGuirk says his group is on track to improve profitability by another 30 percent in 1996.

"We really see ourselves as a microcosm of the corporate strategy in a very focused marketplace where we had a domain knowledge and a pretty large presence," he explains. "Now obviously, the corporation itself is going after multiple marketplaces, which makes its job a little more difficult than ours, but I believe our success is really the proof that the approach the company has taken is proper and that it can work."

Whether any of this will make a difference in the long run to Unisys' shaky health is a matter of conjecture. Bob Djurdjevic, an analyst with Annex Research in Phoenix, doesn't think that the Federal Systems Division is stout enough to offset the decline. "Relatively speaking, its importance as a contributor to Unisys revenues and profits has slumped off from what it once was," he says. "So even though it's doing well, I'm not so sure it's big enough to make that much of a difference overall."

But Dornan disagrees. With the recent changes in procurement rules and the emphasis on reinvention and downsizing, he believes that government agencies offer surprisingly large opportunities to compound the current revenues of services-oriented players. "The old adage that says that government is not the best business to be in may be changing," he states. "We're seeing the acquisition cycle radically shortened, and systems integrators will see a big jump in the amount of revenue that they find and land in the same year. The business cycle has really shortened so it's becoming much more like selling to private industry. The money is flowing freely, the vehicles are in place to facilitate that, and Unisys' Federal Systems Division is well-positioned to take advantage of all of that."

For Unisys, its success in the federal arena marks a complete metamorphosis in its image as well. In fact, there was a time when agencies looked upon the company with some contempt. "In the late 1980s and early 1990s, we viewed them as the worst kind of contractor," says one procurement official, who asked not to be named. "They had a kind of take it or leave it philosophy and did not negotiate fairly. But since McGuirk came on board, we have seen the most incredible performance with them. They are very cooperative, they are very competitive in terms of their pricing, and they communicate any problems or concerns. They've just impressed us tremendously with this new way of doing business."

A new way of business is earning recognition from any number of agencies. The Treasury Department, for example, lauded the group's "impressive outreach and subcontracting program" with its Large Business Partner of the Year Award, and NASA awarded it a Contractor Excellence Award in 1994.

"In today's federal government, past performance has really become such a predominant evaluation factor in awarding contracts that I would have to assume that all of Unisys wins reflect what must be an outstanding performance record," states Dornan.

McGuirk attributes success to selectively pursuing contracts that tie in well with Unisys strengths rather than simply scouring the government for quantity business. "We have really tried to focus on our competencies, which are services and technology," he says. "We don't go after anything that's not in line with those capabilities, no matter how big or prestigious that contract might be, and that's really been the key for us."

Looking ahead, McGuirk wants to double the group's current revenue over the next three years. "To accomplish that, we must have a compounded growth rate of well into the double digits," he says. "So our goal is really to build our backlog of business by about 50 percent and to double our size in three years through internal growth and wins."

In seeking those wins, the Federal Systems Division has recently begun concentrating on what it believes are the three major growth areas within the government: communications and networking, imaging and decision support.

The communications and networking area has already proved a boon to Unisys, which, with its recent IWS/LAN win, has been tasked with integrating networks over 1700 Social Security offices in an 18-month period, as well as developing and integrating a new information infrastructure at the Defense Finance and Accounting Service. Unisys only began pursuing imaging contracts this year, but was recently named one of 20 prime vendors on the ImageWorld program at the National Institutes of Health. (See related story on p. 24.)

As for the burgeoning decision support area, the company hopes to earn some opportunities to provide software maintenance and systems consolidation services to downsizing agencies; they've gotten a foot in the door by assisting the Air Force and DISA with their data consolidation activities.