It’s hard to be CSC


Let’s face it: Outsourcing is one of the most difficult businesses where you can charge a premium. Margins are constantly squeezed, and the only way to increase profit is either to become more efficient, or win lots of new business (lots is important, because the cost of sales is through the roof, too). CSC, with its latest results, has failed to do either, with flat revenues and declining profits.

It’s hard to be CSC. A perennial subject of acquisition chatter, it has built in poison pills in the form of gnarly government contracts with lots of limitations on who can own them and what can be done with them. This represents a disproportionate part of their revenue when compared to their competitors. This is not all bad. Government work tends to be stable, durable, and high margin, if notoriously slow to close. But acquiring government work is expensive, and if CSC has operationally squeezed out all the margin that it can out of its behemoth public sector contracts, then investors should prepare for many more quarters of bad news. An outsourcing company that is not getting more efficient at constant revenue might just be in trouble.

Again, its hard to be CSC. It lacks the scale of IBM and HP, the brand and loyalty of Accenture, and the relatively low overhead of the leading Indian IT providers. It is, effectively, stuck in the middle, similar in size and approach to European competitors that most of the time don’t bother to compete with these companies we listed. But even those European competitors have a more defined brand and mission in the enterprise world (as opposed to strength in the public sector).

So what can CSC do to show the world better numbers three months from now?

  1. Be absolutely ruthless in streamlining operations. Review every account for opportunties and have the difficult conversations with the clients and account managers.
  2. Turn on the enterprise sales engine. If the excuse for poor performance is “government contracts are slow,” well, then, get out there and win some non-government business!
  3. Invest in the brand, especially in the enterprise market.
  4. Study larger acquisitions that will create a splash while adding scale, new capabilities and price competitiveness. Heaven forbid, maybe it could even start to look at developing some BPO expertise that could be very effective in some of its core industries such as healthcare and manufacturing.  It could even look to support public sector shared services initiatives as it seeks to streamline operating costs.

CSC is a capable, trusted veteran of this industry, and it need not disappoint the market—but it does need to refocus and find a new direction, if it is going to keep pace with the competition.

Posted in : Cloud Computing, Healthcare and Outsourcing, IT Outsourcing / IT Services



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  1. A bold and very honest piece of insight. CSC’s public sector legacy is clearly preventing it from developing a commercial business that can compete with the likes of today’s lower cost, more nimble competitors, such as Cognizant, TCS etc. Also, their offshore capability is much more limited that the likes of Accenture and IBM. As you correctly point out, they need to act swiftly to stop the decline, of they’ll get left firmly behind in today’s aggressive environment. Maybe it’s time they were acquired by one of the larger services businesses, or even one of the offshore giants needing more onshore presence?


  2. The IT services business is moving too fast for the likes of some of these “traditional” integrators, like CSC. For them to make many of the changes you mention will simply be “too much too fast”, unless they are really prepared to be radical and make bold investments and sweeping changes to their management. They can probably stroll along as a government focused IT services business for a while yet, but you can be certain that the more enterprise-focused IT services firms will eventually move more aggressively into public sector, With the onus on public sector budget cuts, the future for CSC is bleak if it can’t break this holding pattern it’s found itself in.

  3. Strong stuff, but right on the money. With all the aggressive growth of the India-based providers, something has to give. It’s simply becoming a different business these days for the likes of the CSCs to contend with. They need to make radical shifts to move the onus away from being so government-focused with their growth strategy. Government IT is not the growth industry it once was.


  4. Good article with good insights on CSC & what it needs to do. However, its not as bad either.

    With revenues of $16.1 Bn (& this after 3 yrs of flat growth) & flat single digit margins, CSC is still the 4th Largest in the world, double the size of the largest Indian Pure-play vendor – TCS ($8Bn.) & just below Bahamas-based Accenture ($21Bn.). IBM-GS-Daksh clearly is the leader with est. revenue >$50Bn (no way of finding out how good or bad they are in terms of margins 🙂 HfS… would love to see you dissect their info) & HP-EDS-Mphasis (with revenues of >$35Bn.).

  5. @Tiger – great to hear that our influence now spans beyond the boundaries of outsourcing and technology 🙂

    CSC has a great brand, reputation for technical prowess and has some real potential, of it can somehow break itself out of its current predicament. Maybe part of the problem is its sheer size (as you point out), and multitude of contracts which are not overly attractive and hard to increase in size and profitability.

    I, personally, would like to see the firm move more aggressively into some business process areas that can leverage its developing Cloud IP and great infrastructure business. Beginning to see some signs of this in the financial services sector and some other verticals.

    End of the day, the world is changing fast, and all the traditional IT services firms, some of which you have pointed out, face similar challenges of finding new avenues for growth and/or profitability. CSC is certainly not alone with its future challenges!


  6. This blog post, along with the comments that have followed, bring up a few points that make for a interesting topic of discussion.

    As Global VP of the Trusted Cloud & Hosting business of CSC, I can say that we have been, and are continuing to, undergo numerous changes internally, which is never easy for a company.The investments made in 2010 in building a Cloud Computing Software and Services business, for example, is creating opportunity with many among new enterprise customers today.

    Today, CSC is the only provider with a private, on premise, billed as a service cloud that can be up and ready in only 10 weeks. In creating our BizCloud offering, we took everything we know about managed service and provisioning large data centers and applied it to a streamlined onboarding process for our customers.

    Since the release of BizCloud this past February, CSC has already implemented new enterprise customers and made traction with many more. While a portion of our contracts are federal, changes we are undergoing broaden our offerings to enterprise as well as federal, and CSC along with our partners VMware, EMC, Cisco and the VCE Company, are excited by the progress thus far and what is to come.

    Change is difficult but we are confident that the changes we are making now are an investment in the future of the company and what is ultimately in the best interest of our customers and their needs.

    – Siki Giunta

  7. As we all know, change is difficult. Whether you are an individual trying to kick an unhealthy habit or a company that needs to revamp its approach to the market, it takes a lot of effort and time to achieve success. I credit CSC leadership for recognizing that cloud computing represents a significant threat to their traditional outsourcing business model, but changing their business will take more than just a year to accomplish. It’s a delicate balance to maintain the old and create the new, that cannibalizes the old, while keeping the company moving in the right direction. More often than not, change is forced upon a company in a time of crisis such as bankruptcy, disruptive competitors entering the market, or failure to anticipate market change. The technology landscape is littered with companies, DEC and Wang just to name a couple, that failed to adapt.

    The company I work for is a strategic technology partner of CSC’s, and I see firsthand how the company is developing new and innovative cloud solutions to drive a technology agenda with their customers. The cloud group within CSC operates with a great sense of urgency, and I’m seeing that urgency start to permeate other parts of the organization. While it’s uncertain if these new solutions will become a multi-billion $ business for CSC in the next year or two, I believe that CSC is on the right track and with focused execution, continued rapid innovation, and heightened sense of urgency, they will be successful in the long run. And that’s what matters.

  8. We can draw an analogy between CSC and Keane…… Keane at one point in time had large federal contracts, low offshore presence, significant number of projects in legacy technology and Infrastructure domain.

    How CSC drives from here is a difficult choice to have…. Working with the federal setup has a number of advantages including steady revenue stream because of long term contracts.

    One of the directions that CSC can easily move into is branching into quasi federal contracts, for example working with large defense contractors like Northrop Grumman and Lockheed Martin, another area to explore is to research some of the business lines that the likes of SAIC have and replicate them.

    In my opinion growth that Indian providers are seeing should not be a benchmark for CSC as their growth is on a lower revenue base, IBM might not be a good example as it has a much comprehensive service offering, in fact in my opinion the only provider that straddles the whole IT Services portfolio.

    Mrinal Singh

  9. We appreciate the discussion, and we’re glad that a couple of people close to CSC weighed in. That kind of dialog is exactly what this blog is about. If indeed CSC is repositioning for the cloud, I have two concerns:

    1. We have a healthy skepticism for the private cloud. We appreciate the honesty of the 10-week claim, but we have other providers telling us they can be up in a week. For the record, we don’t believe them. Betting the business on the cloud, rather than depth and quality of relationships with clients, is scenario that scares us.

    2. The fact that so little of the outsourcing world knows about this bet on the cloud reinforces the branding issue. When someone says “cloud” which are the names that first come to mind? CSC needs to invest in its brand as a cloud provider because we’re not sure its top of mind out there.

    We are absolutely rooting for CSC here. We’d like to see the effect on the industry of a well-run competitor that offers a real alternative in terms of size and presence. But the financial results need to appease the investor community if they are ever going to have the chance to shake up the industry and leverage their uniqueness to build growth and profit.

  10. @ Phil Ferst & Esteban: thanks for the comments. Agree that CSC has to show urgency. From early 2011, thats exactly whats been happening. Like Siki points out, Cloud (& its variations) is a seriously good offering from CSC. Having seen tremendous success in last few months, Siki/ team are flooded with orders. Excellent going so far there!
    There are CSC leaders who are already aware of this & driving this paranoia & need to change fast. Results (of the success of this initiative) should be out by year-end. Lets see!
    Agree with Gaurav above & Dis-Agree with Mrinal on the seriousness with which MNCs like CSC should treat Indian providers like TCS, Infy, Wipro & Cognizant. Ignore them at your own risk.
    Their hunger, ability to learn/adapt, Cash (from high margins; Infy ~29%, TCS~23%, Wipro~22%, CTS~20%) enabled deep pockets & high growth rates means they are in arms reach of the biggest & the best. Yes, they’ve shortcomings & a perception issue, but they could change that too. Just 12 years back, all they were good at was Y2K work, remember? 🙂
    CSC’s Market Cap is ~$6Bn. Wipro is valued >5X at $32Bn.! Theoretically, its owner Premji could sell 30% of his stock to buy CSC & still retain controlling stake of 51%! 🙂 Accenture,IBM-GS & HP-EDS recognise the Indian threat. Each’ve >100,000 employees in India now & are leveraging Global delivery model much better than anybody else now.
    People need to wake up to the new World order before its too late.

  11. @ Tiger, some of the strategies that India based providers are adopting is to ensure stickiness of deals that is where the engagement is long term. They are ensuring this by moving into engagement which involve consulting or platform based, outcome driven engagement.

    In this scenario what the likes of CSC need to do is to protect there home turf much more aggressively rather than foraying into new areas… In fact look at incremental growth rather than aggressively changing there business model

    To elaborate further a significant number of deals that India based system Integrators sign fall in the $3 Million to $ 50 Million bracket which might not be attractive enough for CSC..

  12. Interesting..

    Consutling with CSC for long years.

    Recently had been noticing need to improve on technology / business agility, Competitiveness (Specifically when facing, indian pure players), synchronization within geographical divisions, leverage strengths of acquisitions, open for innovations and emerging technologies (leverage CEM, Crowd sourcing with Acadamics, service vitualization, HBT) etc. This has a deep impact on winning deals.

    Good thing had been the leadership position shown in the area of Cloud computing – With trusted cloud and private cloud options.

    Focus more on being a technology driven company – rathar than HR / Financial driven

  13. […] perennial subject of acquisition chatter, CSC has built in poison pills in the form of gnarly government contracts with lots of limitations on […]

  14. The above review is accurate but allow me to give you an employee perspective.

    Currently CSC is finally doing the “coming under one umbrella”…streamlining organizations, i.e. HR, PMO, Networks under one line of service. That being said, during planning meetings upper management only discusses about getting more of the market without considering previlant issues such as not having enough resources. There are a few educated, dedicate resources that are highly in demand and utilized but completely overworked in an incredibly stressful environment. Because CSC operates in this mode across its organizations, people are not allowed to attend training classes to keep their skills honed and make them employable by other companies.

    One major mistake that CSC does on EVERY new contract is underestimate time and resource hours required to successfully complete projects on time and within budget. Clients suffer because of this and timelines are rarely met.

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