Business restructuring for
an IT services MNC

A $16 billion IT services multinational company was experiencing slowing revenue growth, decreasing profitability at 4%, declining asset utilization, and deteriorating stock value as it was operating below its cost of capital of 7%.

The company comprised 18 business segments and 12 service lines. The business segments were a mix of geographies, including the following:

– U.S.

• Manufacturing
• Transport
• Government
• Financial services
• Health
• Energy
• Communications

– Non-U.S. Americas

– EMEA

• U.K.
• Benelux
• France
• Germany
• Iberia
• Italy
• Nordic
• Switzerland
• Middle East

– Asia Pacific

• Australia
• Japan

The service lines included the following:

1. Enterprise applications
2. Systems development
3. Systems integration
4. Systems improvement
5. Centralized system management
6. Distributed system management
7. Communications management
8. Enterprise customer management
9. Functional business process outsourcing
10. IT consulting
11. E-business
12. Transaction processing

The company was getting disrupted across most markets and most service lines, without apparent countermeasures to put in place.

• Restructured the business into four lines of business grouped by service line, including

• Processing
• Outsourcing
• Solutions Consulting
• E-business

• Exited Payroll Processing, Financial Processing, and Technical products through sale

• Deployed business units for growth, including

• dedicating resources to Outsourcing for greater market penetration
• improving Solutions Consulting’s weak position (ERP Implementation, Application Development, IT Consulting, Process Consulting) through a flagship acquisition and niche acquisitions to close capability gap
• exploiting fast-growing E-Business opportunities
• consolidating Claims Processing through acquisition

• Redeployed internal resources to develop higher value services, canceling other initiatives

• The net effect was to

• stabilize the company
• reposition the business units for growth in attractive markets
• reverse profit deterioration in the first year
• cut revenue by $450 million
• increase contribution by $60 million
• reduce operating assets by $585 million
• improve asset utilization to 1.7x
• exceed the cost of capital

1. Identified strategic industry trends, including
   • structural constraints due to labor shortage
   • increased value-added offerings through bundling, pricing models, branding, and broad service offerings
   • specialization by service x customer type
   • standardization of “formula” facilities to serve divers market needs
   • acquisitions for critical mass
2. Measured market size and future growth by service line
3. Estimated market share of company and leading competitors by service line
4. Conducted an in-depth analysis of the competition, axes of profitability, direct competitors, financial strength, and strategic direction of each
5. Identified four emerging economic models defined by
   • operating expenses
   • deployment of operating assets
   • financial performance measures, and
   • competitive strategy
6. Mapped the existing 12 service lines against the four emerging economic models, including
   • Processing
   • Outsourcing
   • Solutions Consulting
   • E-business
7. Developed the strategic direction and financial valuation for each, including grow, maintain, harvest, exit
8. Drew a summary plan with the CFO and quantified financial value