On paper, BPO looks like one of the areas where the combined CGI/Logica organization stands to gain the most through the recent merger.
Both suppliers had some interesting pockets of BPO (or BPS as both label it) activity in their respective regional strongholds.
In North America, CGI is an established player of back office services in areas such as banking (trade services), government (housing contract administration) and healthcare (billing and enrollment).
On the other side of the pond, Logica provides payroll services to 50% of the UK central government market and some of its largest recent wins have strong BPO elements – including the €300m deal (with Fleetcor) in 2011 to manage Shell’s commercial fleet card technology.
Neither could claim to have leadership positions, but with BPS representing around 20% of the combined company’s CAD10bn revenue, it has a substantial base on which to build.
Last week, PAC met with the senior European BPS management at CGI, who set out their plans for growing the business in 2013 and beyond. The dust is starting to settle on the merger, and the two companies have put most of their management teams in place. CGI’s UK BPS business is led by Andrew Marsh, with Chris Sutton heading up the newly formed global BPS practice in CGI corporate.
The former Logica business has taken some major strides in improving the performance of its BPS activities and has straightened out some troubled contracts during the last two years. Marsh says that there are no red lights currently flashing on any of its engagements, while the company’s key delivery center in Bridgend has won several awards for its contact center/service desk activities.
The merged company is sitting on some 100+ proprietary software applications, some of which it is hoping to spearhead future BPS engagements. These include the Collections360 product for collections and recovery management, which CGI had been selling through its European operation, pre-Logica.
PAC believes that CGI stands a better chance of relocating some of its IP-led offerings across the Atlantic than others. For example, it will be difficult to grow market share around the Advantage product (its local government ERP system in North America) in the already competitive local government space (where the likes of Oracle, SAP, Microsoft and Unit4 have strong positions), and the related BPS opportunities around areas such as revenue and benefits is already mature (in the UK at least).
HR outsourcing was Logica’s strongest suit but it remains a tricky space for suppliers, with few large, broad-scope opportunities coming to market. At the other end of the scale, the payroll space is highly mature and growth is limited (the company already processes 50% of payslips in UK central government).
So where will the growth come from? CGI processes payroll for more than 28,000 businesses in Canada, but given the highly localized nature of most payroll business, the merger will not suddenly open the doors to a slew of international business.
The company’s recent contract win with the Department of Health points to one area of opportunity. Under that deal, announced earlier this month, CGI will be a preferred supplier of managed payroll services to some 30,000 staff at the newly created Arms Length Bodies (ALBs). Shared services vehicles have, at best, a mixed record in public sector, but CGI says that there is some interest from local government and police forces in signing up.
But in order to go beyond the payroll level, CGI is also beefing up the number of HR experts in its consulting wing, with the aim of getting into accounts earlier and engaging with buyers on wider HR areas such as recruitment and benefits.
In terms of industry-specific BPS offerings, CGI’s two largest markets are public sector (which is run as a separate business unit in North America) and financial services. PAC believes that while a lot of vendors, both generalists and specialists, are targeting the latter area, there is a big opportunity for CGI to build on its base of business in the North American insurance market.
Both general and life insurers are under major cost pressure and are looking to pull together their highly fragmented systems and processes in order to get a better view of operational data. Both CGI and Logica have some strong references in supporting IT consolidation programs in this sector, and CGI had some interesting BPS deals to manage processes such as policy administration and accounting for firms such as Universal Insurance and OneBeacon. It will be interesting to see if it can build momentum with this offering on the other side of the pond.
Another sector where CGI has the makings of a strong story is the energy and utilities space. Its is the ex-Logica business that brings the most to the table here, with its experience in areas such as energy trading, smart meter reading (it currently enables data reading from 225,000 smart meters in the UK), and loyalty card management schemes.
The company remains in the hunt for a deal to handle a key component of the UK’s national smart meter program. And while this is largely a technology role, there is big potential for CGI to handle functions such as document management, contact center, collections and accounting services around new smart metering ventures and for smart emerging energy suppliers in both Europe and North America.
The sweet spot for CGI will always be those areas of BPO with a very strong IT element underpinning them, and it also makes sense for the company to stick within the industry domains it knows best.
The company will struggle to build a profitable, growth business around vanilla, horizontal services. The market is too competitive, and while CGI has developed a solid network of offshore/nearshore delivery centers for BPS, it does not want to get into a pricing battle with some of the larger players in this space – particularly with the Indian heritage suppliers.
Industry domain expertise and technology skills are CGI’s biggest assets, and it is by combining these two in the right vertical niches that the company will build momentum in BPS.