Fears that LogicaCMG's plan to turn itself into a top-ten global IT services company would wither on the vine have eased after the Anglo-Dutch company called on the architect of BT's conversion into a global IT giant to drive its own revival.
The surprise announcement to appoint Andy Green to replace its long-standing chief executive Dr Martin Read was rapturously welcomed by the investment community who were relieved that LogicaCMG had secured such a big hitter to work his magic on the underperforming company. Shares in the IT services provider spiked more than 10 per cent on the news as analysts rekindled talk of LogicaCMG's growth prospects after a difficult year.
The search for a new chief executive has hardly been smooth. Last month, Dr Read left the company he had led since 1993, with investors demanding fresh blood after a profit warning too far earlier this year. Dr Read, who in 2001 held the mantle of the highest-paid executive in Britain, was well regarded within the City but his strategy of increasing the company's scale through a series of high-risk acquisitions in continental Eur-ope failed to find favour among investors who had grown weary of an inconsistent financial performance since the end of the dotcom boom.
LogicaCMG – soon to revert to the more palatable Logica – is the last remaining independent UK pure-play IT services company of substantial size and Dr Read's departure triggered a wave of speculation that LogicaCMG was a sitting duck for private equity buyers. The credit crisis put paid to those thoughts, yet the company appeared to be struggling to find an appropriate candidate, with Jim McKenna having to step in as acting CEO after Dr Read's exit. That move led to the resignation of Didier Hermann, head of the company's German, French and Swiss units, who refused to work with Mr McKenna. With the chairman Cor Stutterheim also leaving, investors started getting nervous that the company was in turmoil and might be forced to appoint an internal candidate.
Yet with one fell swoop, LogicaCMG has soothed those fears with the surprise appointment of Mr Green, who will take up the role in January. The highly regarded BT veteran was considered one of the strongest candidates for the top job at the telecoms giant when Ben Verwaayen moves on to pastures new. He only recently moved to a new role in BT as head of strategy and operations, leading a fundamental shake-up of the company's internal structure and processes.
Analysts were quick to label the 52-year old Mr Green as an "ideal appointment", given his experience leading BT Global Services, which is three times bigger than LogicaCMG. After turning around the company's payphones division and working on BT's original broadband launch, Mr Green took over BT Global Services in 2001 and inherited a disparate set of loss-making businesses with a bleak future. At that time, Gartner, the research firm, called on BT to shut the business while the US investment bank Morgan Stanley advised selling the unit on for the measly sum of £1.
However, Mr Green stuck to his guns and after closing down the worst parts of the business, he presided over a remarkable turnaround of the division which, alongside broadband growth, has offset the decline in BT's residential telephony business.
After winning a series of substantial deals with the likes of Unilever, Reuters, the National Health Service and Bristol-Myers Squibb, BT Global Services is now BT's largest division with £9bn in revenue, accounting for more than half of the overall company's sales. BT Global Services now operates in 170 countries and employs 30,000 people. Over the past two years, the division has also invested around £1bn in a series of acquisitions to bolster its product set and customer base.
All of which is music to the ears of LogicaCMG investors concerned that the company is vulnerable to competition from larger US rivals such as IBM and EDS, as well as low-cost Indian IT suppliers such as Tata Consultancy Services and Infosys. George O'Connor, an analyst at Panmure Gordon, said: "Andy Green has a wealth of transformational expertise – this is a key requirement for the job, which in our view is to create coherency across the acquired operating divisions."
Mr Green described leaving BT after 21 years as "a big wrench" but said he views the chance to lead LogicaCMG as "a massive opportunity to create value and turn a good company into a great one". He said he has "a great deal of respect" for LogicaCMG's business after working closely with the company during his time with BT.
BT Global Services and LogicaCMG are, of course, very different beasts with very different needs. Phil Codling, an analyst with the research company Ovum, noted that LogicaCMG does not enjoy the same ample cash position as its larger competitor and arguably faces a tougher competitive environment.
Telecoms analysts have also been critical of the margin growth at BT Global Services under Mr Green, something Mr Codling attributes to the company's sluggishness in embracing the offshore model.
Mr Green said his first priority is to listen to the needs of LogicaCMG's key customers but he identified three areas where the company can look to up its game. He said it has to up the stakes in its sales and marketing function, selling more to existing customers while identifying new customers that are not attracted to the giant US systems integrators nor the low-cost Indian offshore players. "We have to target selling and how we sell," he said. He added that the company also needs to integrate its two recent acquisitions of WM-data in Scandinavia and Unilog in France to bring to bear the benefits of scale.
Finally, and perhaps most significantly given his previous experience, Mr Green said it was important to invest in the company's global delivery system and exploit its offshore capacity. "We need to be pressing forward with our offshoring model. The bones are there," he said.
LogicaCMG is expected to have around 300 staff in the Philippines by the end of the year and around 4,000 in India. In contrast, its close competitor Capgemini of France has 12,000 staff in India, while Accenture has 30,000 staff in India and 11,000 in the Philippines.
Asked whether he would adopt a similar dream to that of Dr Read to turn LogicaCMG into a top-ten global IT services provider, Mr Green retorted: "My dream is about being a top-ten player in terms of shareholder performance".
That will go down well with investors who have been frustrated by the stock's volatile performance since 2001. While the stock has doubled over the past 18 months in line with its peers, its valuation is the lowest it has been in a decade as the share price has yet to reflect the increased size of the business following its acquisitions. Mr Codling said that Mr Green's good relationship with the City and his ability to explain complex strategies to investors is "useful experience given Log-icaCMG's recent mauling from the stock market".
For BT, the departure of Mr Green is considered to be a slight negative but it does clear the way for Ian Livingston, head of BT Retail and formerly finance director, to replace Mr Verwaayen when he leaves the company, or perhaps Francois Barrault, who replaced Mr Green at the helm of BT Global Services.
Mr Green said he feels that he has already put the right people in place to enact his vision of vastly improving customer service within the telecoms industry, by refocusing the company's internal processes and opening up its network. It is the third significant departure from BT after a period of management stability at the telecoms giant following the departures of Sir Christopher Bland and Paul Reynolds, head of BT Wholesale.Reuse content