Positive

This document was revised on 23 March 2009. For more information, see the Corrections page on gartner.com.

In 2008, despite deteriorating economic conditions, CSC benefited from its performance in the U.S. federal government sector, and from renewals and extensions of existing outsourcing contracts. CSC signed one megadeal in 2008 (a renewal with Bombardier — $1.2 billion). Also, although it garners a smaller proportion of revenue, CSC's vertically oriented Global Business Solutions and Services organization showed the greatest growth and profit. In 2009, CSC's strength in the U.S. federal government should remain stable, while its performance in most other industries will suffer during the current global recession.

In our last CSC Vendor Rating (see "Vendor Rating: CSC"), we advised CSC to improve account management and maintain consistency in service delivery as it moved work and resources offshore. Clients have indicated an improvement in CSC's quality of account management. Since then, CSC has launched a vision and strategy for a "new" CSC. In 2008, the vendor implemented many changes in how it operates, and better positioned itself to respond to market changes as well as its competition (see Table 1).

In 2006, CSC appeared to be on the verge of acquisition. In 2007, with acquisition plans quelled, CSC shifted its strategy toward revitalization and reorganization, led by new president and CEO Mike Laphen via the launch of Project Accelerate. During 2008, CSC furthered its implementation of Project Accelerate's five-point plan, which focused on:

• Restructuring CSC's outsourcing services strategy
• Expanding business solutions
• Reorganizing with vertical industry orientation
• Growing the public sector
• Extending the CSC global delivery model (GDM)

In 2008, CSC moved its corporate headquarters from El Segundo, California, to Falls Church, Virginia. The vendor generates 60% of revenue from North America, including 35% from its North American Public Sector (NPS) unit. This unit (primarily the U.S. federal government) is a cornerstone of CSC's heritage focus, long-term contracts and service delivery capabilities. In FY08, CSC NPS announced new business awards of $11.3 billion, while its North American commercial business grew modestly. In 2008, publicly reported outsourcing contract signings were down, reflecting the softening economy. CSC's legacy is large and complex, with multitower outsourcing deals; however, with the trend toward smaller deals, cost-based outsourcing and multivendor environments, CSC will need to continue repositioning itself to address new and increased competition.

Europe, which constitutes about 30% of CSC's business, is a key part of the vendor's growth. Although CSC doesn't have the presence of leading competitors, it has penetrated France, Germany and the Nordic countries. The U.K. is CSC's primary European market, thanks to the vendor's multibillion-dollar deal with the NHS (National Health Service). CSC owes its position to the strength and depth of its technical capabilities, and its reputation for client focus. To enhance its EMEA position, CSC will need to better promote its global delivery and its broad portfolio of services; use and clarify standardized solutions and processes across geographies; and improve the management of partners and subcontractors in complex engagements.

CSC is an established, full-service provider in Asia/Pacific, with mature service delivery models and management capabilities. In terms of 2007 professional service revenue, Gartner ranked CSC as No. 6 in the region, with a 17.5% compound annual growth rate over 2006. CSC's core strengths are in consulting, system integration (SI) and IT management, selling particularly well in the financial services vertical industry. As with many competitors, more than 75% of CSC's Asia/Pacific business is in Australia. In the rest of the region (except for Japan and China), CSC goes to market jointly via its subsidiary, Automated Systems Limited (ASL). This approach dilutes the brand power of CSC regionally. CSC seeks large clients and support for global accounts, but given the number of small and midsize businesses in Asia/Pacific, CSC should target these segments for growth.

CSC's global delivery strategy is a work in progress. The vendor's goal is to have 50% of the resources supporting commercial clients located in emerging market centers by 2011 (compared with 31% today). To achieve this, CSC's global delivery strategy has primarily focused on the growth of its CSC India Direct model as well as global expansion in Latin America, Eastern Europe and Asia. Today, CSC has more than 21,000 of its 92,000 employees in India and other offshore centers (specifically, 19,000 are in India and approximately 2,500 are in Western and Eastern Europe, Asia/Pacific and the Americas). CSC still lags key competitors in global resource scaling, investments and market awareness; the vendor's large, traditional competitors have up to four times as many resources in offshore delivery centers, and higher percentages of work being performed offshore. This is partly due to CSC's heavy involvement in U.S. federal government business, where the vendor doesn't leverage offshore resources. Although scale isn't the only indicator of maturity in a global model, consistency in processes and standardization are required. CSC has shown substantial improvement here, implementing centralized management and standardized process consistency. CSC currently has more than 50 application centers certified at Capability Maturity Model (CMM) Level 3 or above, and is ISO/IEC-20000-certified and ISO-9001:2008-certified across all its global infrastructure centers. CSC primarily delivers application services, a growing set of infrastructure services, and, to a lesser degree, industry-specific business process outsourcing (BPO) via offshore resources. CSC's growth initiatives are supported by its commitment to:

• Expanding globally delivered services that leverage remote, offshore-delivered infrastructure service offerings
• Growing its bench strength in India, China, Vietnam and Malaysia for application outsourcing (AO) to achieve parity with its largest competitors
• Expanding global centers in China, Mexico and Eastern Europe
• Using standardized processes, such as CMM Integration (CMMI), Rational Unified Process (RUP), Six Sigma, IT Infrastructure Library, TL 9001 and ISO/IEC 27001
• Rolling out skill upgrades in consulting, system integration, and related program and project management execution

Global delivery isn't the only important component in CSC's delivery of application services; compared with other large providers, CSC performs well in the nascent remote infrastructure services arena. CSC's GDM will prove its effectiveness by its capability to drive incremental commercial service revenue, thereby gaining broader awareness in the marketplace for this capability. This means that CSC still needs to show continuing consistency in the execution of globally delivered application services, ensure greater agility and responsiveness in key accounts to grow follow-on business for offshore work, and expand its "mind share" beyond its installed base for new application work. CSC's GDM strategy should position the vendor to achieve this.

During the past year, CSC shifted toward a vertically oriented, client-facing, go-to-market strategy. CSC's target vertical industries are:

• Financial services (banking, insurance and capital markets)
• Health services (payer, provider and life sciences)
• Manufacturing (aerospace, automotive, discrete industrial)
• Chemicals, energy and natural resources (chemical, oil and gas, utilities, mining, process manufacturing)
• Technology and consumer markets (high technology, communications, consumer goods and services, transport and logistics)
• The public sector

CSC's investment plans are to increase its client relationship management resources, solutions, sales support efforts, delivery specialization, consulting and partnerships in each of these markets. We still expect CSC to make acquisitions as part of its investment strategy (like the acquisition of First Consulting Group in 2008). We also expect some organic development of skills, capabilities and vertical specialization.

CSC reported $17.3 billion in revenue during the trailing 12 months that ended on 3 October 2008. The current economic environment is affecting IT service companies, and, for the third quarter of FY09, which ended on 2 January 2009, CSC reported revenue of $3.95 billion and a net income of $160.6 million — down 5% and 10%, respectively, from 3Q08. CSC's reported, year-to-date revenue of $12.6 billion is up 5% year over year.

CSC recognized that its brand, although well-understood by existing clients and in several key vertical industries (such as the U.S. federal government and financial services industries), lagged its competitors' brands. CSC's rebranding and repositioning are in the early stages, but should begin to improve in recognition and visibility across geographies. Rebranding, which started in 2008, is partly a comprehensive strategy on new business growth and employee cultural change. It's intended to refresh CSC's image and create greater awareness through marketing and advertising. CSC will be challenged to create greater brand awareness, and show strong-enough differentiation between its large, traditional rivals, such as IBM Global Services, and now the combined forces of EDS and HP, as well as the Indian "pure play" providers that are moving upstream into larger (that is, greater than $50 million) outsourcing deals.

CSC made a major shift in its go-to-market strategy and organization, moving from a geographic and line-of-business (LOB) orientation to a vertical industry orientation. CSC's approach is vertical-facing to its customers and supported locally by geographic presence, with services delivered by horizontal delivery capabilities in outsourcing, consulting and system integration. CSC moved profit-and-loss centers to the vertical industries, thereby making them accountable for the performance in customer engagements, and creating an environment that's more likely to motivate collaboration across the geographies and service delivery organizations. This strategy is much needed because client organizations are looking for vertical solutions and services that also gain from the economies of scale delivered through horizontal service delivery capabilities. This should enable CSC to bring its portfolio of capabilities to clients, and to provide industry-centric, client-facing teams to help match capabilities to client business challenges.

CSC announced the finalization of its organizational structure during its annual industry analyst event on 5 February 2009. Effective 1 April 2009, CSC will be organized around its LOBs, which are:

• Managed Services (MSS)
• Business Services and Solutions (BSS)
• The NPS

Included in MSS are outsourcing, world sourcing and CSC India. Included in BSS are its five vertical industries, as well as the Global Business Solutions and Services organization. The LOBs and vertical industries are then supported by CSC's local geographic presence, which is defined in five major regions. Shared services are leveraged for sales and marketing, innovation, processes, and standards. Driving service delivery and account management, consistency has been a key goal of the organizational change, with the vertical industries maintaining ultimate account ownership and accountability.

CSC continues as a leader in infrastructure outsourcing. As more infrastructure services become industrialized, CSC continues to adjust its strategy. It appears as a leader in Gartner Magic Quadrants, as a Strong Positive in the "MarketScope for Data Center Outsourcing, North America, 2007" and as Positive in two new MarketScopes in remotely delivered infrastructure services — see "MarketScope for Remote Monitor Services (Global)" and "MarketScope for Remote Support Services (Global)." CSC is successful in renewing and expanding long-term infrastructure outsourcing deals, even as the market has seen many deals move from single suppliers to multivendors. CSC will need to focus more on infrastructure utilities and standardized industrialized services as customers continue to push for greater efficiencies in the infrastructure layer. CSC's competitive factors are:

• It's the second-largest technology-independent external service provider in the market, and, therefore, isn't tied to a single architecture.
• CSC grew its pipeline of midsize deals.
• Managed network services are a key part of CSC's portfolio, contrary to a third-party approach used by many competitors.
• CSC pursues infrastructure deals bundled with high-margin business, and competitors pursue them case by case.

CSC continues to exhibit strong leadership in terms of execution and developing innovative communications offerings. CSC is a leader among noncarrier vendors serving the network outsourcing market, and innovates with its telecom expense management services. These services address corporate communications from a business process perspective, and offer services to large organizations to bridge technology and financial management. CSC invests in R&D for premises-based and "as a service" communications solutions, including IP telephony and broader, integrated unified communications. The communications-as-a-service solutions aren't generally available, and they're often purposely built for specific customer engagements. Since 2007, CSC's transitional support issues and levels of customer satisfaction have improved. New leadership in 2008 promises to increase investments and awareness in CSC's network offerings. In the "Magic Quadrant for Managed and Professional Network Service Providers, Worldwide," CSC was positioned as a leader.

CSC has created a strong road map for its hosting services, and is positioning itself to become a management consulting provider as well as an integrator of best-of-breed cloud services. Today, CSC has automation and virtualization capabilities built into its Web and application hosting portfolios, but most of its clients opt for dedicated offerings. CSC reorganized its hosting organization for agility in supporting infrastructure and application complexity, but this has led to increased lead times as well as inconsistencies in customer experiences. CSC's approach to Web hosting is more reminiscent of an independent Web hoster, emphasizing standardization and automation over highly customized solutions, but it needs to leverage open-source-based and Linux-based technologies to keep pace with smaller, cloud-based providers.

CSC has experience in managing large, complex projects and application portfolios in selected vertical industries. CSC reports that it has more than 45,000 professionals performing application work, with more than 25,000 in AO alone. CSC reports 50% transformational and 50% support and maintenance. CSC also reports that 50% of AO work is delivered via 50 offshore centers, all certified at Software Engineering Institute CMMI Level 3 or above. CSC has been building its global delivery platform with labor arbitrage as a key benefit. In 2008, CSC appeared as a challenger in the "Magic Quadrant for North American Offshore Application Services" and the "Magic Quadrant for European Offshore Application Services." In addition, CSC is attempting to move beyond low-cost process efficiencies to deliver industrialized AO services. CSC defines these as:

• Platform as a service, which delivers the underlying infrastructure
• Software as a service (SaaS)
• Capability as a service, which delivers application testing or application maintenance

Although these look like alternative delivery models (ADMs), they're really traditional services, except they're packaged and priced like ADMs. CSC's challenges are to move "downstream" to win midsize AO deals, ward off the Indian competitive threat, gain recognition as more than an IT outsourcing provider and compete with SaaS providers.

CSC has proven capabilities in business operations and IT consulting in its targeted vertical markets. Consulting services can be bundled as part of an outsourcing service, as a solution implementation engagement or as a stand-alone offering. Feedback on these bundled consulting capabilities is positive. Clients that use CSC for solution implementation services praise the vendor's industry and business consulting capabilities as a result of its investment in packaged application solutions.

CSC offers development and integration services for front-end outsourcing initiatives, and as part of consulting and system integration project services. CSC is strong in U.S. federal government, defense and aerospace sectors, and has a growing presence in other sectors, such as healthcare and manufacturing. Like its consulting business, CSC's development and integration group is especially strong when delivered as part of a larger outsourcing engagement, and can also handle complex assignments.

CSC's BPO approach centers on specific vertical industries. Its performance continues to be rated as Promising because CSC's services aren't being expanded into comprehensive horizontal processes. Comprehensive BPO isn't part of CSC's active market strategy. The vendor's BPO services are focused on its long-standing experience with insurance BPO in the Americas, where CSC is considered a strong provider. CSC plans to apply its BPO vertical market successes to other industry-specific, transaction-heavy functions, where it can use its proprietary intellectual property. CSC also must strengthen its BPO position in Europe and Asia/Pacific.

During the past 16 years, CSC has evolved a market-leading project, development and delivery methodology known as Catalyst. It's a set of repeatable processes and techniques for analyzing a business situation, and for developing and implementing a solution. Catalyst is one of the few SI methodologies that organizations can commercially license for guidance with enterprise architecture, business process management, software development, project management and other disciplines. Catalyst accommodates a variety of tools, as well as analysis, development and governance techniques. Although Catalyst can be used to guide service-oriented architecture (SOA) initiatives, it isn't yet equipped with SOA-specific techniques. This situation is common to many SIs, which are investing heavily in SOA-enabling global methodologies.

CSC has continued to improve the operations of underperforming customers, not unlike most large service providers. CSC's efforts have been focused on automation, on industrialization, and on shifting resources to offshore locations. Although some of these changes initially caused disruptions, CSC is now offering some new pricing structures, thereby enabling it to improve its profit margin on established accounts and better compete for new deals. For consulting and system integration projects, CSC is developing more flexibility in its rate structure through its GDM.

CSC has established a new sales and marketing division. In addition, it's developing a sales culture with a sales strategy to defend and expand its core business in large enterprises, while also expanding into adjacent market segments. These include midsize outsourcing and managed service deals in geographic markets, such as Latin America, Eastern Europe and China. Sales is approached in three ways:

• Vertical industry Client Relationship Executives (CREs) work to maintain and expand business with CSC's largest and most-strategic accounts (that is, existing and prospective clients). These CREs have deep industry expertise, and can help clients identify and address their most-pressing business challenges.
• Existing clients, where CSC has a smaller footprint, and prospective clients that present significant growth potential, are given priority by vertical industry organizations. These organizations are assigned a vertically oriented account manager or account partner. These are somewhat similar to CREs, but are shared resources across a few client relationships.
• CSC's regional offices across the Americas use a local market presence as well as knowledge of regional client businesses to pursue smaller and/or opportunistic deals, and to pursue larger deals that are identified and developed regionally. These opportunities are then pursued by the vertical industry and LOBs at a national or global level.

The foundation of CSC's support model is its end-to-end Account Management System, which claims to offer repeatable frameworks, tools and processes to enable effective management of the outsourcing arrangement. The Account Management System is designed to look at governance models, account processes, performance management systems, client satisfaction surveys and Six Sigma continuous-improvement methodologies. Thus far, the Account Management System appears to be providing more consistency within its account and project management teams.

One goal of CSC's reorganization was to improve service delivery and account management through alignment with vertical industries. Historically, there was little incentive for business units to work together and deliver services to a CSC client, because the profits and losses (P&Ls) were held in the geographies and business units. Today, with P&Ls in the LOBs and vertical industries, incentives have been improved to drive collaboration and support across CSC's organization.