Wednesday, 13 February 2013

Is CSC Cutting the wrong costs?

One of the comments made to the blog led us to the Computer Weekly web site that reviews CSC UK performance. See CSC paid 0.5% tax on £1.5bn outsource
The article which focuses on CSC joining the ranks of low corporate tax payers has some interesting charts. Taking the charts as a starting point and analysing them further one can see that CSC’s cost cutting seems to have focused entirely on driving out wage (people) costs while other costs are left almost as is. See first chart.

If this information is expressed in percentage terms, see second chart, it is more and more obvious that people costs have been radically reduced while non-wage costs remain high. 

To us it is obvious that CSC by cutting people costs and not addressing non-wage costs, that are back where they were in 2004, has now reached the limit of diminishing returns. The question is why are non-wage costs so high? Is it because of internal pricing mechanisms needed to pay for the two corporate jets (yes we know that jets have finally been sold) and the costs of the elite in Falls Church HQ? Is it because capitalisation of costs at contract start up to avoid showing them as expense thus reducing margin is still on the books for some one else to take the hit on?  Is it because the offshored labour is not as productive as home labour? Are non-wage costs ‘stuck’ and unchangeable? 

Given that CSC in the UK had a share in the single largest IT project (NHS IT) in world throughout this period and a billion dollar earning Royal Mail contract the results are pretty bad, Whatever the reason CSC still has a long way to go to show it can run productive businesses.


1 comment:

Anonymous said...

The news from CNBC about the defense contract is awful.Under the Headline THE FLEECING OF AMERICA

Wasted one billion dollars

John McCain says when asked to compare this with other contracts that went bad for a $600 toilet seat "at least those contracts got a toilet seat" "this one has delivered nothing"

Quote "a company not up to the task"