Tuesday, 28 March 2017

Come in Cassandra, your time is up! Time to move on.

"Moving on does not mean you forget about things. It just means you have to forget about what happened and continue living."

As CSC turns the page on almost 60 years of existence, we think the moment is opportune for Cassandra to turn the page too. 

This blog started in early 2009 and quickly focused on CSC; in February of that year we gave our reasons for believing that the much-vaunted NHS IT system would not work. We were also concerned about the impact of that project on CSC itself. Sure enough, after three years of booking non-existent profits and top management “looking the other way” to avoid seeing reality, NHS IT almost destroyed CSC and in doing so it contributed to change so fundamental that Computer Sciences Corporation, or CSC, will soon be consigned to history and oblivion. 

CSC’s demise can be traced back over 20 years, to the retirement of a visionary leader, Bill Hoover, and his replacement by the sales and deal-oriented Van B Honeycutt. It is hard to remember today that CSC was a, or maybe was the, global IT services leader under Hoover. The groundbreaking General Dynamics and British Aerospace IT outsourcing deals were won during his tenure. They were followed up by similar wins in DuPont, JP Morgan and others during Honeycutt’s time as CEO. One of CSC’s sales weapons at that time was that client staff who moved over to the bid winner as part of outsourcing deals often expressed a preference to move to CSC with its open inclusive culture rather than what was rightly or wrongly perceived as the more monolithic cultures of IBM and EDS. CSC was also strong in the consulting and software arenas too. Index, the creators of “Re-engineering” became part of CSC, as did Continuum, a market leader in software products for the Insurance industry. So by the beginning of the 21st century, CSC seemed well placed to continue as a global industry leader. 

But it did not consolidate its leadership position, it muddled along seeing cuts to investment in training, people and infrastructure as the way to improve profits. This led to an inevitable decline as services suffered and clients sales stagnated. It focused on “deals” and was slow to respond changes in the market. It still looked for mega-deals when the full sized Apps and Infrastructure outsourcing deals were disappearing; it failed to plan for off-shoring; it missed the insurance BPO market; it created a rewards systems which encouraged management silos with local barons who were absolute rulers of all they “owned” to the exasperation of global clients and of many CSC staff.
Then came the single greatest strategic error in CSC’s history, the nomination of Michael W Laphen as Chairman, President and CEO. The only other strategic error which even came close in its enormity was the decision of the CSC Board of Directors to keep Laphen in place when it was clear to everybody that he was driving the company to its ruin. Laphen’s tangible legacy when he was finally removed from office was a 50% drop in share price, constant revenue declines, declines that wiped all the profit made under his tenure, an SEC investigation followed by fines, class action lawsuits against CSC and himself, $100 million of accounting irregularities, an NHS write-off of $1.5 billion, goodwill impairment of $2.7 billion and amazingly a massive pay-off for Laphen himself. His intangible legacy was the destruction of a once-admired company culture. 

Then in came Michael Lawrie in early 2012 to try to salvage something from the train wreck he inherited. 
We initially thought Mr Lawrie would try to make CSC a market leader again. This was an error of judgement on our part. Instead he focused on driving up the stock price with single-minded (some would say ruthless) cost cutting, off-shoring and shedding jobs, especially those with higher skill levels. His public performances at Investor days and Analyst meetings were polished, articulate and backed up by a consistent set of messages and a convincing CFO to support them. 
From the perspective of the shareholders, his results have been outstanding. When he took over at CSC its share price was around $25. Today it is around $69 per share, but one needs to factor in the $10.5 per share special dividend and the CSRA share price of $29 to get a real comparison point, which is about $109 per share, an increase of over 300% in 5 years. Which shareholder would not have signed up for that performance? And he managed to do this in face of consistent revenue declines and growing discontent from employees who felt they were being treated as expendables. All of which shows us that share price performance today is driven more by spreadsheets of financial indicators generated by professional analysts than by outdated concepts like customer value, employee satisfaction and revenue growth. 

Mr Lawrie’s final contribution to CSC was to conceive and drive a merger with HP Enterprise Services, which is a derivative of CSC’s old competitor EDS. And with this merger we turn the final page on CSC as it becomes DXC. 

So thank you all for reading our blog for so many years and for your excellent comments, opinions, and insights. It was an interesting journey for us. We hope it was for you too. 

Goodbye from the Cassandra Team. If only....sniff...blub..!

 Time to Say Goodbye.

Saturday, 4 February 2017

CSC Q3 FY2017 results – No surprise that there were no surprises

CSC’s announcement of its Q3 FY2017 results this week was a “no surprise” event. Which is what we expected. 

Revenue for the quarter, at $1.9bn, was up 14% from Q3 FY2016 thanks to the inclusion of the XChanging and UXC revenue. Non-GAAP EPS was $0.81, some $0.11 above analyst expectations. GAAP EPS was $0.20, but nobody seems too worried about that. Bookings were $2.4bn or 1.3x revenue. Next Gen revenue was up 60% year-on-year. All told, these are respectable financial results. On a geographic basis, the performance was also healthy, but Mike Lawrie made a point of mentioning that UK was the only area to suffer a constant currency revenue decline year-on-year. This not does bode well for CSC UK employees! 

The analyst questions focused far more on the merger with HPE Services than on the past quarter’s results. Mike Lawrie reported that the merger plans were progressing well, threw in a few anecdotes and specifics and everyone seemed happy. He sensibly dodged the questions on the potential impact of the Trump Presidency by saying it was too early to tell. 

CSC–HPE Newco top management has been identified and today the composition of its Board of Directors was announced. We are dismayed that Mike Lawrie has been named Chairman, President and CEO. It is poor Corporate governance to have one executive holdings these 3 roles. How quickly CSC has forgotten the dramatic consequences of the last time one executive held all three roles! There was a good reason to split the roles within CSC just before Mike Lawrie joined. The reason is still valid today, irrespective of the name of the jobholder. We hope that Meg Whitman and the other non-executive directors will show the determination and cojones to provide real oversight and challenge Lawrie as needed in order to offset this concentration of power in one man. 

So CSC successfully moved a step closer to its merger with HPE and to another massive payday for Mike Lawrie.