Re-engineering CSC

Ask Computer Sciences Corp. chief executive Van Honeycutt about the recent departure of CSC's consulting guru James Champy, and he will dismiss the executive's exit as having "no real significance."

But it would be a mistake to attribute Champy's departure to the rise of CSC's new chief executive.

Instead, CSC's recent management alterations are more easily traceable to a strategic shift within the computer services industry. A wave of giant outsourcing contracts has revived a decade-old quest to determine the dominant personality of a business model, polarized by its consulting and systems integration roots.

"Our heritage was putting together winning teams of integrators for large government customers, and that is precisely the way we put the JP Morgan contract together," said Honeycutt, referring to a groundbreaking $2.1 billion outsourcing contract CSC signed with the global banking giant in May.

Unlike the high-profile Champy whose career at CSC largely involved consulting stints with clients outside the company, 51-year-old Honeycutt steadily rose through CSC's outsourcing and government services businesses, a career path that appears to have prepared him well for the operational challenges associated with the integrator's growing outsourcing opportunities.

For El Segundo, Calif.-based CSC, JP Morgan was only the beginning. In July, the $4.2 billion integrator signed a $72 million outsourcing contract with Hyatt Hotels Corp. as part of an alliance with Sabre Group's Sabre Decision Technology. More recently, CSC has been counted among the leading contenders for what may be the industry's largest outsourcing award yet, a contract to manage DuPont Co.'s global infotech infrastructure.

"It's our opinion that if we win the JP Morgan deals and the DuPonts and General Dynamics, these are what will put us on the map. I don't know why we'd spend a lot of shareholder money to be on the centerfold of Forbes," said Honeycutt, indicating his well-known preference for low-key marketing techniques.

Champy, on the other hand, is credited with being one of the services industry's great marketers. Having co-authored the best-selling book "Reengineering the Corporation," Champy brought untold attention to the integrator, helping grow its reputation beyond the government services market. Upon his departure, CSC officials said that after eight years with CSC, Champy was looking for a more entrepreneurial-like challenge. The company had been searching for a successor to Champy since January, according to CSC management.

"What may be more significant than [Champy leaving] is who CSC picked to replace him," said Christine Ferrusi Ross, an analyst with Dataquest Corp., Westboro, Mass. Gray, a former investment banker, is reputed to be less high-profile and have more operations experience than his consultant predecessor.

The outsourcing upswing and the operational challenges it poses are expected to spotlight a business model that in the past has been compared by certain analysts to a three-headed beast.

Beneath their well-knit covers, the industry's services giants are today composed largely of three different businesses -- systems integration, outsourcing and management consulting professional services.

In the case of CSC, the integrator's outsourcing and consulting professional services segments last year accounted for 37 and 38 percent, respectively, of the company's overall revenue. Two years earlier, outsourcing was responsible for only 29 percent of the company's revenue, while consulting professional services were responsible for 44 percent.

Of the $1.6 billion in consulting and professional services revenue captured by CSC during its 1996 year that ended in March, CSC Index, the integrator's management consulting unit, accounted for less than $300 million, a fact analysts say obscures the catalyst role CSC Index has played in the integrator's business model for nearly 10 years.

"I think CSC has maybe done it better than anybody else in the industry, as far as how these businesses can go to market together. But I would not describe it in any way as an integrated model. There is still a separate Index, a separate systems integration organization and a very separate outsourcing organization," said Champy, who today believes that for a model to be fully integrated, a company must build unified teams of consultants and integration strategists instead of having separate consulting and integration units.

"They are trying to create a more integrated model.... To accomplish this, they plan to play down the Index unit, as well as the different breed of character that a consultant sometimes represents," said an industry analyst who has followed the integrator's evolution for several years.

For its part, CSC has impressed both industry analysts and competitors with its ability to manage the different businesses' divergent cultures under a single roof. This is a sizable feat when comparing the characteristics of the typical hard-boiled government integrator executive to a noticeably polished management consultant.

CSC's achievement has recently gained new praise after Electronic Data Systems Corp. began experiencing its own business model problems relating to A.T. Kearney, the management consulting firm acquired by the Plano, Texas, integrator last fall.

"EDS and A.T. Kearney are two very separate organizations that are trying to put themselves together. Let me put it this way: They are trying to go to market together in some way," said Champy, who believes EDS is struggling to achieve the correct fit.

Meanwhile, CSC's JP Morgan pact is being closely watched by its competitors.

"I applaud CSC and I hope they're successful. In fact, I want them to be successful because if they [failed] this entire [outsourcing] upswing could stop and there could be some reluctance to continue," said George Newstrom, corporate vice president and group executive, EDS Government Services Group, Herndon, Va.

Asked about the operational challenges behind the JP Morgan contract, Newstrom said, "We took as much risk with the JP Morgan [bid] as we were willing to have and we drew a line in the sand. There are some places we are not willing to go for a single contract.... Clearly CSC elected to do something else."

About 900 JP Morgan employees are to be transferred to the team of contractors known as the Pinnacle Alliance. While CSC is the prime contractor, the team includes Andersen Consulting, AT&ampT Solutions and Bell Atlantic Network Integration. Together the integrators will assume ownership of an estimated one-third of JP Morgan's $1 billion annual technology expenditure.

Asked how CSC Index would work with the outsourcing organization, CSC's Honeycutt said, "Well, we've done it. And we've done it by recognizing the Index people are consultants and need to remain consultants. We let them operate as a significant consulting company inside a large public company."