Monday, 11 February 2013

Further thoughts on CSC Q3 Results and Analyst Call

Below are some further thoughts on the challenges facing CSC after its Q3 2013 results announcement. These are based on feedback we have received, some of which can be seen as comments by readers of the blog, plus our own reflections.

It has to be said that in turning around CSC Mike Lawrie has a very difficult task ahead of him. Any major change program in a global corporation is bound to attract questions, concerns and criticism, and CSC is no exception. However.....

 Market needs and competitors 
 CSC operates in an innovative and fast changing market with new competitors emerging at every turn. CSC has failed to keep pace with market changes for most of the past decade and failed to invest in new service offerings. The executive management seemed to be stuck in the old “Infrastructure and Apps IT outsourcing megadeal” mindset as the market moved on. They allowed a once-vibrant consulting practice to wither; they failed on many high-profile systems integration projects due to a failure to value project management skills; they failed to build on a leading position in software applications for the financial services industry by treating this sector as a cash cow. 

While CSC focused on the bottom line to the detriment of its services and skills emerging market suppliers like those in India, and new technologies like cloud computing, Apple iPad apps and Google services are showing real growth.

Has CSC slipped behind and become another “me too” player? Many employees say so. The challenge to CSC is to find areas of genuine competitive advantage. 

 Cost Take Out 
 This is very much needed, as the cost structure, especially overhead and headquarters costs, had been allowed to get out of line with the reality of the revenue level. 
 One challenge to CSC is to protect the costs needed to create the future. These include investing in employee skills, development of new services and products, and continuous updating of the infrastructures offered to clients. Instead we are hearing about yet more reductions in the capital base, of offerings being out-of-date and staff not being trained. Another challenge to CSC is to reduce work and tasks in line with headcount and costs reductions. 
In the past, there was an attitude in CSC that workload could be increased and headcount reduced if the employees would just show enough 'commitment' and make more effort. We would also make the observation that forcing staff to bring forward or reschedule vacations to reduce a particular quarter’s costs gives a very poor message to the outside world, as well as creating bad feeling amongst hardworking employees. 

 Headcount reductions 
 This is closely related to cost take out programs. CSC needs to be open and honest with employees about this. We see conflicting messages along the lines of : ‘We need to build a sustainable company together. Anyone highly skilled and motivated should do well. But we are moving your job to India anyway so please ensure adequate knowledge transfer ’. 

 It is a statement of the obvious that CSC needs to choose carefully which employees to retain and which to let go. But we hear that the decision criteria are unclear and that it is Boston Consulting Group which is making the decisions based on……. the relative cost of different employees. CSC needs to treat employees who are being terminated with the respect and sensitivity they deserve. 

In addition there are many stories of managers ducking their responsibilities in terminating employees, preferring to have an HR administrator handle the difficult conversations or just sending a letter to the employee’s home. Our suggestion to Mr Lawrie is that any manager who does not have the courage to tell an employee directly they are being terminated should be put at the top of the termination list. Headcount reductions, if not handled well, will have a significant negative impact on CSC, as well as destroying employee trust in the new management. 

 Selling non-core businesses 
 A necessary step, but what is “core”? Are regional accounts, as opposed to the Global 1000 accounts, core? The challenge is to get the whole business model and management system aligned in support of the strategy of “core”. In the past there seemed to be examples of “strategic” or “core” activities being starved of investment funding, while peripheral activities, businesses or accounts were allowed to mushroom and/or lose money. If selling off non-core stops this waste of investment funds, it will help. 

Management renewal 
 The employee comments are overwhelming in their view that a radical management renewal was needed. But have the incompetents been replaced by good guys, or just by a different set of incompetents? Only time will tell. 
 It is hoped that CSC has reference checked the new senior executives very thoroughly as recent management failures suggest that CSC HR either has not been thorough in its reference checking or does not know how to do it effectively. The challenge to CSC related to this renewal will be to create a single management culture. Textbooks are full of examples of large-scale management renewals which failed due to the absence of a positive management culture. 
 A specific challenge for the new executives will be to figure out which “inherited” managers and employees contribute and perform well and which are just good talkers. And the new executives must avoid the trap of assuming that anyone who worked with the previous senior executives must be by definition “not up to standard”. 

 Renew the Culture 
 There is no evidence we can see (although we are willing to be corrected) of a renewed culture being built. A culture where homophobia and bullying are no longer tolerated, where open and frank discussion is welcomed provided it is professional and objective and where turf wars are stopped. 
A challenge for CSC is to stop the slavish attention to minute details by out of touch senior executives who act as if employees cannot be trusted. This needs to be replaced by confidence that middle management and employees will try do the right thing; also by a process of monitoring and review which has objectives to develop and support business improvement, not to figuratively kick people around and engage in public humiliation of staff. 

Years of bad management, turf wars, under/bad investment, and a top down bully boy culture has left CSC behind without credible service offerings or an ability to deliver on the large scale complex projects that it was originally founded to do. 
As examples there is in the UK the NHS IT program, the single biggest program of its kind in the world, that has failed to deliver on time and with the functions the customer thought they were buying. In the USA there are several large projects for the Government, the single largest spender on IT in the world that have gone wrong. Can CSC really afford to upset such large customer?
The key question: Is the restructuring of CSC going to address these issues? 

In conclusion we would submit that tough though it is, slashing and burning is relatively easy. It is the need to plough, sow, and nurture through all weathers that are the real challenges. Or in consultant speak; invest, re-new, re-skill, earn back trust. 

It is hoped that Mr Lawrie and team can do this. 


 Some employees have made comments in various parts of this blog that the reader may have missed. We extract below a sample of these comments represent a cross section of the opinions: 

 Quite interesting to follow CSC employees' and applicants' judgement on their company in various countries. Germany: US: Seems esp. German (EMEA) employees are steadily loosing confident in CSC (incl. new Mgmt.), while the US and Overseas employees seem to be little more optimistic. Nonetheless, compared to competitors, especially in the german market (links below on kununu, a XING related site), CSC is way, way, way behind ... and customers and all do know and see the trouble. on CSC Results Q3 FY2013 - Our Analysis 

 Australia has a 'company shutdown' period for the last week of March and all employees not on billable work have been ordered to take leave. Even those with April leave with for the kids school holidays have had to bring it forward, and miss out on family time. on Two more CSC senior executives disappear.  

This is true in india too.. Senior executives are getting bonuses and Developers are getting pissed of. People are Coming in office reading news paper and going home. Daily Routine of our senior executive Come office check mail . coffee Play TT Lunch TT Tea Mail and Go back with Good bonus.. on Two more CSC senior executives disappear [QUOTE] 

In a recent mail in the UK, Liz Benison told staff to take 5 days leave in Q1 to cut costs. Is this even legal? She needs to be the next for the chop! [QUOTE] 

In Germany we were also requested to take 5 days in Q1 to avoid vacation accruals. But we are free in vacation. planning. It cannot be dictaded by the employer!!! 

 Like when CSC UK announced lay-off plan before having worked on it. Result, skilled staff resigned first. on How long will the CSC plane stay in the air? 

 More redundancies announced, 170 in the UK, more in Denmark and Sweden. Office closures in the UK and staff forced, with threats of disciplinary action if they don't, to take vacation ahead of year end to help massage the figures. Things are clearly not as rosy as the execs portray, especially if turning off the heating in the EMEA HQ to reduce costs is part of the turnaround master plan. What next, power savings at data centres jeopardizing customer facing services? on CSC - 2012 The Year In Review 

Well Australian staff are being replaced.. sorry being made redundant at a high rate, with jobs being restructured to India. Cases of staff who received pay rises for outstanding service previously in the year, being 'pruned' as they were too expensive.. Moral in CSC Australia is shot to pieces, many people are making for the door or waiting for the next swing of Mike "the Scythe" Lawrie, hoping for some payout.. but hey so long as those poor hard done by shareholders are kept placated then CSC is fine... on CSC - 2012 The Year In Review 

 You are not on your own in Australia ... I too had excellent performance feedback from my clients ... but it is water off a ducks back to CSC ... CSC do not even read employee appraisals! Career development is a laughable fantasy in CSC ... they do not even train people ... their purpose in life is to make money; fair enough they have that in common with most companies - but CSC are different in that they despise their employees as a necessary evil and dispose of them at the earliest possible opportunity. I cannot understand for the life of me why part of the company name is "Sciences"; they have absolutely no interest in computing science, only in profit by whatever means. They have destroyed my interest in business computing when it was vibrant before their arrival. And they do nothing for their clients either ... their method is to derive as much money as possible for delivering as little as possible - exactly the opposite of the clients expectations! Clients beware ... CSC on CSC Results - Is it the beginning of a real turn-round or window dressing for a sale?


Anonymous said...

Moral is down in Australia.
First we are being told to take an extra week before April.
Redundancies are occuring daily. I'd like to see CSC send out a survey on what people think of the company.

Sending the work to India is not a solution. Staff turnover there is very common. Just as you train a staff member they leave. Or you have other offshore staff members that have accounts and don't log into for over 2 years. Not until you threaten to tell their team leaders do they beg you not to.

Anonymous said...

Recents reports from Germany tell that smaller locations will be closed (e.g. Stuttgart, Duesseldorf-Ratingen), while cancellation agreements on work contracts still go on as an overall treatment to "adjsut" demographics, as well as "requested" taking of day-offs to save the numbers for the remaining fiscal year. This is just a short-term polishing treatment on effects obvious for years, but not a stable concept for fighting the reasons. If only analysts were capable of looking behind the scenes, instead of believing the window dressers in numbers...

Anonymous said...

It seems to me that the situation is not even as 'good' as you report. Computer Weekly has more detail

Anonymous said...

The purpose of this restructuring should perhaps be read in the share price of CSC.
Financiers took power.
You must increase your profits by 10% in a world where the economy grew by 1%
Mike Lawrie has no industrial project, only increase the value of CSC in the stock market.
Maybe in few month, CSC will be sold...

Sorry for my english, i am a french employee of CSC

Anonymous said...

The statement regarding minute details is 100% accurate along with not reading employee feedback. I would also add client feedback is ignored.Employees below VP level are treated as if they were entering pre-school. Most VP's particularly those in the P&C sector cannot even prepare their own presentations either because they lack creativity or are just lazy.