Revitalising Logica
Andy Green joined Logica as CEO on 1 January 2008. In early 2008, Andy undertook an initial review of the business aimed at improving its operational performance and profitability. The conclusions of this review were announced on April 22:
Since announcing our plan in April, we have made good early progress in each of the components of our four-point plan and are on track to achieve our long term targets. Our most recent progress was announced on 14 August 2008:
- Focus for growth >>
Winning new business is a crucial component of the Programme for Growth. We have begun to redirect resource towards improving our sales and marketing capability. In the first half of 2008, we committed to investments of £8 million in the focus for growth areas and have made important strides in three areas:
- recruiting the right people to deliver growth;
- winning new orders; and
- outsourcing.We have appointed leaders in the focus for growth areas and defined the requirements for recruitment in consulting and account management. At the end of July, we announced leaders for our high growth and consulting practices who are actively building teams to support them. We have also launched our consulting recruitment campaign, based on initially attracting senior business developers with the skill sets identified in April. We expect to increase the number of new joiners in a controlled manner as we go through 2008 and into 2009.
We have identified the key accounts that we intend to target, with account managers in place or identified for most of these accounts, and recruitment underway for a further 14 roles. The strengthening of our account management and sales capability is aimed at improving our penetration of major clients. Our top 10 customers accounted for 15% of Group revenue in the first half of 2008 (2007: 16%) – with our largest single client accounting for around 2%.
We are continuing to build our Outsourcing Services organisation. In addition to appointing a new Chief Executive for this activity, we have strengthened our outsourcing sales capability in the UK and Netherlands and added a number of large deal specialists. This will allow us to be better placed for larger prospects such as the system support component of the €2.1 billion European Space Agency (Galileo) procurement, for which we announced our intention to bid in late July.
All major countries saw success in winning long-term orders in the areas which are the focus of our growth ambition, leading to improved order momentum in the first half of 2008. Book to bill for the Group was 105% in the first half with a good order performance in all our major geographies. This represented a strengthening over last year (2007: 100%). Wins included a significant extension of work with a major French financial services provider, a five year contract with KPN for maintenance of their network systems, a seven year £12 million contract with Wiltshire County Council for transformation of the organisation’s support services and a new five year £40 million contract with Elexon for electricity balancing and settlement systems. In the Nordics, a string of outsourcing wins contributed to a stronger book to bill.
In the first half of 2008, revenue from outsourcing was 31% (2007: 31%). While it is too early to have generated significant order momentum, we have seen early signs that the introduction of an Outsourcing Services sales team is giving greater clarity of engagement with customers. As we strengthen the Outsourcing Services business, we expect to improve the book to bill for outsourcing from its first half level of 102% and to increase the percentage of revenue delivered from long-term outsourcing. In addition to Michelin’s selection of Logica as its leading provider of applications services (announced at the beginning of the third quarter), other wins have included an application outsourcing contract with the Dutch Department of Immigration and Nationalisation (IND) and a four year development programme with the Finnish State Treasury.
- Accelerate Blended Delivery >>
Headcount in our nearshore and offshore centres increased from 3,450 at the end of 2007 to over 3,900 at the end of June, with the largest increase (a net addition of almost 400) occurring in our centres in India. We are also continuing to grow our Moroccan capability and leverage this into French accounts.
We are seeing increased appetite for offshore in our Nordic and French markets. Increased numbers of larger bids now include an embedded offshore component. We had almost 1,300 offshore resources deployed on UK business at the end of the first half, compared to around 1,100 at the same time last year.
In the first half, we reviewed major bids to ensure we are maximising the use of offshore delivery. We have also identified around 500 jobs in existing programmes in areas (such as software development and application maintenance) which we will transition offshore over the coming months. Offshore targets are in place in all our major geographies and will be an important metric in our revised incentive plans.
The strength of our brand is key in attracting the right talent. The number of new joiners in India has increased by around 90% when compared to the second half of last year. Our second Indian centre in Chennai will be officially opened on 18 September, with around 100 employees already in place.
We expect to invest around £8 million in this area in 2008.
- One Logica >>
Having the right team with the right incentives to deliver the plan is crucial. We have strengthened the existing senior team, with three additions to the Executive Commitee since the beginning of 2008. Craig Boundy has joined as Chief Executive, Global Operations. Jean-Marc Lazzari will assume the role of Chief Executive, Outsourcing Services, taking over from Jim McKenna who leaves the company on 30 September. João Baptista will start as Chief Executive, International, taking over from John Coleman who will move to strengthen the UK management team in the role of Chief Operating Officer. We have appointed new CEOs in our Indian and Portuguese businesses. Another ten senior level joiners have also been recruited in the first half of 2008 in areas such as outsourcing sales, operations, HR and Finance.
In the second half, our incentive plan (the Partnership Plan) aimed at up to 250 top managers in the business will be rolled out through the Group, along with a global reward and recognition programme for all employees.
We have initiated a review of our tools, processes and systems and are on track or ahead on progress in all the programmes we set out in April. By the end of 2008, we expect to have standardised and improved processes in place around bid and risk management, applications management and development and systems integration. A common process will also be in place across the Group for access to all nearshore and offshore resources.
Having common back office functions shared across the Group will reduce costs and improve efficiency. The restructuring of our HR and Finance functions is underway to standardise processes and tools and to move to a shared services environment by the end of 2009.
Finally, the existing Logica University has been extended to include a group-wide International Leadership Programme for account managers, practice leaders and senior sales leadership. This was launched in the second quarter.
Currently planned 2008 initiatives are expected to cost around £2 million.
- Competitive costs >>
Cost savings of £5 million were delivered in the first half of 2008, mainly in relation to headcount reduction. The first half cost savings have been reinvested across the three areas outlined above. For the full year, cost savings will be in line with our April guidance of £15 to 20 million, with expected investments of £15 to 20 million.
The progress on shared service centres in the One Logica section above will deliver back office cost savings. The programme for rationalising and offshoring back office systems is underway and the first migration activities are scheduled to commence during 2008.
Changes in the UK business represent the largest component of the cost savings plan. In the first half of the year, we initiated the rationalisation of our UK property usage. A number of UK offices have already closed or will close over the coming months as a result of these actions, with much of the business moving towards “smart working” and our corporate headquarters relocating to Reading. We have begun consultations with employees affected by the property consolidation. We currently expect an initial round of these consultations to be completed by the end of the third quarter.
Across the Group, we have identified areas where we will target additional benefits from group-wide procurement and have begun discussions with suppliers. Our IT rationalisation has involved identifying a standard set of systems to be used throughout the Group. This will reduce external spend as a result of consolidated procurement, achieve efficiencies due to reduced training and ease of working and reduce external and internal support costs. Our initial achievements have been focused on infrastructure and application rationalisation.
We expect to incur one-off restructuring costs of £110 million over 2008 and 2009 to implement the plan. We have incurred £41 million in the first half of the year, of which approximately £6 million was a first half cash outflow. The first half costs reflect the early action taken to streamline organisational structures and consolidate real estate. These costs are expected to deliver approximately 40% of the targeted 2010 annualised cost savings of £80 million.
We continue to expect the 2008 charge to be in the order of £70 million. The cash impact is still expected to be around £40 to 45 million in 2008.
Below we have provided some background to the business review announcement and outlined some of the initiatives announced in early 2008.
Business review: areas of focus
The company is focused on creating an integrated European IT services company with a strong international capability.
Andy Green has said that the existing positives he sees in the business are:
- Strong local operations
- High quality customers
- A key partner for many customers
- Dedicated and skilled people
- Good blended delivery methodology
He has also highlighted what he believes are the areas for improvement:
- More focus on sales
- Investment in growth at group level
- Establish more competitive overheads
- Implement what it means to be a services company
- Expand the delivery model
- Develop a “One Logica” culture
Over the last few years Logica has taken a number of steps to create a leading European IT services company with a strong international capability. The objective was always to create one company with one set of values and one set of systems and processes. The adoption of the single Logica brand identity across the business is an important step towards this objective.
On 28 February 2008 the LogicaCMG group unified all its existing brands – LogicaCMG, Edinfor, Unilog and WM-data, under one new name – Logica. A single, clear brand across all Logica’s geographies will help to enhance its brand recognition internationally, drawing on the strong heritage and success of all the businesses that made up the LogicaCMG group.
The Logica brand will stand for high quality, innovative services supplied by committed local teams and supported by best-in-class global expertise and delivery. Logica combines the local strengths of all its previous brands with the scale, capability and reach to compete effectively for major opportunities and larger customers. The enlarged group draws on the strength of the local businesses, enhancing its ability to cross-sell propositions and capabilities.
European customers are increasingly demanding a blended delivery model. As a clear example of the company’s commitment to customer focus, Logica announced on 28 January the creation of an Outsourcing Services division which develops its existing outsourcing model. Since then the company has been working internally to ensure the right organisation is in place to take this business forward. The new model became operational in key European geographies at the end of Q1 2008 and will be in place across the whole organisation by 2009.
Key facts about the new division:
- It will take end-to-end responsibility for outsourcing services, ensuring that customers have access to the most efficient and cost effective blend of onshore, nearshore and offshore support.
- It will provide outsourcing sales and design specialists to all Logica’s customers via its local organisations. It will accelerate the standardisation of tools and processes and drive efficiencies across the organisation.
- The division will incorporate around 9,000 Logica employees working today in onshore, nearshore and offshore centres. This includes around 2,000 employees in its infrastructure management centres in Sweden.
- Logica expects its largest offshore centres in India and the Philippines to continue to grow within this division. They are already an important element of delivering outsourcing services to customers. [See below for further recent announcements on India.]
- Logica also expects growth in its onshore centres as well as in nearshore centres like Morocco and the Czech and Slovak Republics, which allows it to meet the varying language and cultural needs of its customers. The company expects to report performance metrics for this new division from the second half of 2008.
Strengthened Indian Operations
In March, Logica announced the signing of a new Indian site in Chennai and the strengthening of its Indian management team with two senior appointments. The new site, based at DLF IT Park, Manapakkam, Chennai, will cover over 120,000 square feet and make room for an additional 1,500 staff. The office is due to be open for business in July this year.
Abhay Gupte joined as Chief Executive of Logica’s operations in India. Previously Managing Director of EDS’s Indian Business, he brings with him a wealth of experience in running the offshore delivery operation of a global company. Abhay has taken full control of overall performance for Logica’s offshore operations in India, manage all aspects of delivery and quality control, and take responsibility for the planned growth in headcount.
At the same time, GBS Bindra, Global Director of Product Engineering at Logica, was promoted into the newly created role of Global Innovation Director. As Global Innovation Director, Bindra will play a pivotal role in leading a comprehensive program to design and implement a group-wide innovation strategy. He will help establish a culture of creativity by encouraging collaboration and developing innovative capabilities across the group, while continuing to hold his current responsibilities.
Chief Executive Global Operations
On 1 April, Craig Boundy joined Logica’s Executive Committee from Cable and Wireless as Chief Executive Global Operations. Boundy will be responsible for the management of Logica’s blended delivery programme, consolidating tools and processes across the business and managing the company’s offshore centres, currently based in India, the Philippines and Morocco. He will report to Logica’s CEO, Andy Green.
Other recent significant announcements
- 14/04/2008 – Logica Annual Report published.
- 01/04/2008 - Logica selects Autonomy as preferred partner for enterprise search and high-end information processing.
- 10/3/2008 - Logica to transform Wiltshire County Council internal business services. Wiltshire County Council has awarded Logica a seven year, £12m contract to transform the organisation’s support services as part of a business management programme to simplify, standardise and increase the efficiency of internal business processes and applications across the Council, which is expected to deliver savings of up to £11m a year.
- 07/03/2008 - Acquisition of Edinfor minority interest. LogicaCMG plc (“Logica”) announced the completion of the acquisition of the 40% minority interest in Edinfor from EDP, for £42.0 million (€55.0 million), as a result of the exercise of the put option held by EDP over its interest in Edinfor.
- 26/02/2008 - Logica and Swedbank sign off-shore partnership. Swedbank awarded Logica a five year contract for IT development and applications management. Under the agreement, Logica will set up a development and applications management centre for Swedbank as part of its operations in Bangalore, India.
- 25/02/2008 - Logica secured a £30m strategic IT outsourcing contract with Taylor Wimpey. Logica announced a five year contract worth £30m with the UK housing division of Taylor Wimpey plc. The outsourcing contract will involve the integration and management of all of Taylor Wimpey’s IT systems following the 2007 merger of Taylor Woodrow and George Wimpey and signals growth in LogicaCMG’s UK outsourcing business.
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Logica Media relations:
Louise Fisk / Carolyn Esser +44 (0) 20 7446 2887 / +44 (0) 20 74456 1786
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Tom Buchanan / Craig Breheny +44 (0) 20 7404 5959