Atos and Xerox exchange holiday gifts, but can they disrupt a market asleep at the wheel?

December 22, 2014 | Phil Fersht

So it turned out that there was a “Secret Santa” exchange going over the last few months, as Atos and Xerox worked out the terms of their exchange of Xerox’s IT Outsourcing business and an ongoing support contract for cash considerations of $1.05 Billion.

Yes indeed folks, two traditional incumbent service providers are getting active in a market that's been caught in somewhat of a holding pattern for some time, with many grimly clinging onto their labor-driven models in denial that big changes are already in the works to disrupt their cosy legacy worlds. So let's hear what the HfS analyst team thinks about it all...

The As-a-Service Economy beckons... and it's time for the contenders to step up and get focused

HfS believes that this was a good move for both service providers as it allows for each to concentrate on their core offerings, while leaning on the other for ancillary capabilities (IT from Atos to Xerox, HR and F&A from Xerox to Atos). Both service providers have had a relationship for some time, especially with Xerox's global BPO provision of services for Atos, and this will strengthen further now that there is no competitive overlap between their current offerings.

For Atos, unwrapping the present of Xerox’ ITO business greatly increases its presence in North America while raising the top line by $1.5 Billion + (not including $200M+ in contracts to serve Xerox). Traditional ITO is a scale game, and if it wants to take on the likes of CSC, Unisys, HP and IBM in North America more directly, this is way to gain a market and delivery presence with speed. We are confident that Atos will also be able to manage the integration of Xerox ITO (which was not especially integrated with Xerox BPO or Document Services to begin with) just as it has with several other recent ITO acquisitions, such as Bull and SIS.

For Xerox, the immediate present is in the form of cash and a greater clarity in its mission. Xerox is not suddenly technology-free, as long-standing offerings (e.g. Tolls and Fare Management) as well as new acquisitions (e.g. WDS) have their own integrated capabilities. Xerox BPO is also a significant technology user in the form of robotic process automation and analytics platforms, which won’t be impacted by this transaction either and they should continue to be integral to the capability strategy of Xerox. HfS also wants to see how Xerox will need to maintain and develop IT capabilities to further Business Platform As A Service (BPaaS) offerings but these will rest on a lightweight cloud infrastructure along with process redesign, SaaS-enablement, mobile enablement and analytics enablement that go beyond what is being offered by traditional ITO services.

So... what can we expect from both providers in 2015? 

For Atos, the immediate goal is clear  - to launch itself much more aggressively onto the US market, integrate the Xerox ITO business, increase brand awareness among US buyers and prove to the world it must be considered a leading global ITO service provider.

The billion-dollar question now is what Xerox may do with their cash in the post-holiday season.  It's been a while since its 2009 acquisition of ACS, and, to be frank, it hasn't exactly set the BPO industry alight outside of its document management business.  Now it has added funds and impetus to make a fresh play at the market in 2015.

Will the firm use it to pursue additional BPO capabilities in target markets such as healthcare by swallowing up the likes of an EXL, or will it pool the holiday cash with other savings and make a run at even larger targets, such as HP or IBM’s BPO units or really go for it by targeting Genpact? It’s also entirely possible that Xerox will play it more conservatively and invests in third parties with advanced technology such as HealthSpot or Emdeon, or goes after more businesses to digitize their business process operations, like WDS, which is actively disrupting the customer care market. Then it can keep the change to jingle for shareholder benefit as well.

The Bottom-line: Atos and Xerox are getting active, while several of their competitors are stuck in holding patterns

To summarize, this transaction focuses both service providers on their strengths and will help them be more effective in the emerging As-a-Service Economy. However, both have a lot of work to do - and fast - if they want to get ahead of the curve in today's fast-evolving services market.  Unlike several of their illustrious competitors, which have opted to stagnate and eek out whatever they can from their legacy businesses, at least Atos and Xerox and making aggressive moves in the right direction.

Posted in: Business Process Outsourcing (BPO)Cloud ComputingCRM and Marketing

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1 Comments

10 Comments

  1. Claire Callaghan
    Posted Dec 22, 2014 03:40 AM | Permalink Reply

    Phil and team - a really insightful article, thanks for sharing.

    Don't you think Atos would have been better off investing in broader BPO capabilities like its close rivals HP and Capgemini? Isn't it late in the day to be investing in ITO?

    Claire Callaghan

  2. Eric
    Posted Dec 22, 2014 02:30 AM | Permalink Reply

    Good analysis. Agree that focusing on the elements where suppliers can differentiate is the way to go. Seems smart for both parties here.

  3. Phil Fersht
    Posted Dec 22, 2014 06:39 AM | Permalink Reply

    @Claire - Providers need to invest where they can differentiate themselves in As-a-Service. I see Atos more as a technology-enabler, whereas Xerox is more of a process-centric business. As some point the two firms could potentially merge to form a BPO/ITO powerhouse, but most providers are not seeking massive scale in this market- they are seeking focus, depth of expertise and profitability. It's about finding the gold they can deliver and developing that... What will be significant is whether either firm makes further investments in the verticals, such as Xerox in healthcare, or Atos in energy and utilities.

    Interesting times...

    PF

  4. Arush Dixit
    Posted Dec 22, 2014 03:44 PM | Permalink Reply

    Nice article !!!

    Atos definitely is making aggressive moves, earlier in emerging technologies like Cloud, Big Data and Cyber Security through acquisition of Bull and now increasing presence in NA through this one.

    Would be interesting to see how competitor's react to this move.

  5. Kron Langer
    Posted Dec 25, 2014 08:02 PM | Permalink Reply

    Phil,

    Great article. I believe Cognizant is a big partner of Xerox on ITO end? If so, what happens to that agreement. Are there other vendors who are impacted by this selloff?

    Rgds Kron

  6. Phil Fersht
    Posted Dec 26, 2014 12:40 AM | Permalink Reply

    @Kron: From the sounds of it from the analyst call, Cognizant will continue to be a supplier to the Xerox clients. Not sure I see any real impact to partnerships, if anything, there should be more partnership opportunities for Xerox now they are out of ITO... Atos pretty much unchanged,

    PF

  7. Here are our Autonabilized 2015 HfS predictions
    Posted Dec 30, 2014 11:15 PM | Permalink Reply

    [...] the curve.  2014 already saw IBM sell off its CRM BPO business, HP split up its broader business, Xerox sell its ITO business.  We’ve witnessed Cognizant double-down on healthcare and Infosys transform it’s [...]

  8. Daniel
    Posted Jan 05, 2015 12:52 AM | Permalink Reply

    What do you think about with Xerox employees working in ITO?

  9. Here are our Autonabilized 2015 HfS predictions - Enterprise Irregulars
    Posted Jan 06, 2015 02:26 AM | Permalink Reply

    [...] the curve.  2014 already saw IBM sell off its CRM BPO business, HP split up its broader business, Xerox sell its ITO business.  We’ve witnessed Cognizant double-down on healthcare and Infosys transform it’s leadership. [...]

  10. ITO tech
    Posted Feb 03, 2015 04:46 AM | Permalink Reply

    I work for Xerox ITO. Xerox and Atos have worked together for quite some time now. When we are transferred to Atos we are staying in our Xerox offices and doing the exact same job. Cognizant mainly deals with application development and on-going application support. Cognizant doesn't deal with desktop support our network support. This has been in house until ITO is dogs to Atos. We will remain the desktop and network support. Cognizant will continue to do application services. (I've been with Xerox ITO over 3 years)

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