Victory over IBM: ICL landed the big one when it beat off the US giant to provide British Gas with a national computer network. Jeffrey Ferry tells how Britain's biggest computer company secured one of the largest deals in the industry's history
Sunday 14 November 1993
It was 9.15am on the grey winter's day by the time Frank reached his destination, British Gas headquarters in London's High Holborn. He took the lift to the fifth floor and walked quickly down the corridor to John Allan's office. He was two minutes early. Allan's secretary took his coat and showed him into the office.
Frank almost froze in mid-step. Sitting on the sofa was his arch-rival, Martin Goodman. Frank was the British Gas account director for the British computer company ICL. Goodman did the same job for the American computer giant IBM. British Gas was one of the largest users of computers and computing services in Europe, spending more than pounds 100m every year on information technology. ICL and IBM competed vigorously for its business. IBM was famous for its aggressive sales force and Goodman fitted the mould. He was a wily character, a charmer and a hard worker who had snatched his share of business from Frank.
From behind his desk, Allan suppressed a smile. A pugnacious Geordie, the director of information technology at British Gas enjoyed provoking these two consummate salesmen every now and again. Allan kicked off the meeting.
'Gentlemen, as you know we've been talking to McKinsey for some time about our IT strategy, and we've made a decision which could have major implications for both of you. So I thought it only fair to get you both in and tell you at the same time.' At the mention of the management consultants McKinsey, Goodman's face brightened. The American consulting firm was a keen supporter of IBM. Allan went on to explain that British Gas wanted to rationalise, centralise and increase the efficiency of its IT operations. With 12 gas regions in the UK, each acting as an autonomous business, British Gas was doing many computing jobs 12 times over.
McKinsey's advice to British Gas was to choose one IT supplier to build a single computer system for all its IT needs. Allan wanted Frank and Goodman to provide written assessments within two weeks on whether a single system was a good solution for British Gas. The two shared the same thought: it was a huge job, designing and building a single computer system to handle 90 per cent of the households in the UK, transferring the relevant data from 12 regions to the new system, getting the new system up and running, training British Gas personnel in all 12 regions to use the new system. It would be the deal of the century . . . for the winner.
Goodman was smiling. He's eating this up, Frank noticed. It was hardly surprising: IBM was the computer industry's Rock of Gibraltar, the sun around which every computer revolved. As for ICL . . . it was a modest-sized British company with some interesting products and a chequered past. Frank stopped taking notes now and listened attentively, his brow furrowed. The final bids for the whole system, Allan said, would be due on 31 May 1991, and British Gas would make a decision in July.
As soon as he was settled in his car, Frank seized the carphone and punched the number of ICL's Slough office. 'Is John Jones about?' he asked, slipping instinctively into his usual bonhomie when the secretary answered. His tone changed when Jones came on the line. 'John, whatever you're doing, drop it. It's on. The big one. We need a meeting now. I'm on my way over to you. Call everybody on the team and tell 'em to be at Slough by the afternoon.'
Goodman had good reason to be optimistic. IBM dominated the computer industry.
Of more immediate importance to ICL, IBM had been progressively encroaching on its multi-million-pound business with British Gas. IBM now held five gas regions, compared with seven for ICL.
Since its privatisation in 1986, British Gas had been going through major changes. With 18 million customers, turnover of pounds 10bn a year and profits of pounds 1.5bn, it was in the top rank of global energy companies. But in an organisation that before 1986 was run like the Civil Service, there was plenty of room to increase efficiency. Beginning before privatisation, and gathering speed afterwards, the new management team at its head office centralised activities, reducing duplication, making the company less bureaucratic and more able to respond to change.
ICL's big losses of British Gas business were partly due to this change in the management style.
In the late 1970s, ICL computers supplied to British Gas also suffered badly from teething problems - 'crashes', 'bugs' and other breakdowns. Bill collection, customer services, even safety, could be hit by the breakdown of a vital computer system. By the mid-1980s the problems had been solved, but senior British Gas executives remained wary of ICL.
From the birth of the computer industry in the early 1930s until 1981, ICL and its predecessor companies had an obsession with engineering and technology, to the exclusion of business issues. This led to a series of near-failures and government-inspired mergers - in theory, a bigger company would spread its costs over a larger revenue base and gain from economies of scale. With millions in subsidies, this process produced International Computers Ltd in 1968.
But the problem with size was that it took a company further away from the marketplace. It removed the spur of competition. It encouraged bureaucracy. Before 1980, promotions at ICL depended on seniority, status and the old boy network. ICL lost focus and commercial drive. The company was managed by committee.
Rejecting a 'niche' strategy as beneath it, the new-born ICL wanted to continue making a full- frontal challenge to IBM. But like the parents of bride and groom bickering over the decor at the wedding, neither of ICL's parents would accept the other's system as the basis for the next generation of computers. Development costs, which carried on throughout the 1970s, plunged the company into two financial crises, first in 1971, and finally in 1981, when it came near to bankruptcy.
The Thatcher government agreed to guarantee pounds 200m of ICL bank loans, but demanded a new top management team. The new managing director was Rob Wilmot, previously managing director of Texas Instruments' UK business.
Only 36 when he joined ICL in May 1981, Wilmot was a commercially astute engineer, a short-tempered iconoclast, and a visionary. Many changes made by him and his team were painful. In one year, staff numbers were cut by 7,000 to 28,000. Losses in 1981 totalled pounds 130m.
Wilmot took the company out of most metal-bashing operations. The company needed to focus on its core businesses, computer hardware and software. It was a far-sighted move. A decade later, IBM finally began to look at the vast fixed costs sunk into the concrete and steel of its many factories. Within months, Wilmot signed a deal with Fujitsu for the Japanese company to manufacture the chips for ICL computers. The world's second-largest computer manufacturer, Fujitsu was eager for ICL's business as expanded production would help the Japanese company drive its unit costs down.
ICL was on its way to chalking up a third consecutive year of profits, over pounds 40m, when STC launched its takeover bid. The billion-pound telecommunications equipment manufacturer told the City it foresaw great opportunities in the coming convergence between computing and telecoms. ICL's senior management opposed the takeover, but they were powerless.
STC's promises of convergence, however, were little more than window-dressing for an acquisition that was designed to cover up STC's own problems, which became painfully apparent a year later when its profits collapsed.
'The day STC took over, I became non-executive chairman,' said Wilmot. It was left to Peter Bonfield, the new ICL managing director, to fight a rearguard campaign to keep STC's hands off his business. In 1987, Bonfield also became deputy chief executive of STC, and ICL's position was safe.
BONFIELD had joined ICL at 37 in October 1981, as an executive director in charge of worldwide marketing. With a small pointed beard, silver-grey hair and suits pressed sharply, he had a dapper charm.
As chairman and chief executive of ICL, Bonfield was relentless in his determination to refocus the company, to keep it abreast of the incessant changes in the IT industry.
As corporate users of computers moved increasingly to smaller units, Bonfield expanded ICL's selection of mid-range computers, signing a partnership deal with America's Sun Microsystems and Texas Instruments, which supplied the microprocessors driving ICL's DRS computers. In 1988, ICL made a big assault on the desktop personal computer (PC) market, aiming primarily at its traditional customers - medium and large companies. It doubled its PC production with the 1990 acquisition of Helsinki-based Nokia Data.
Bonfield observed that the crisis of 1981 had brought a new creativity to the company. The fight to win the deal to supply British Gas, however, would be a crucial test of ICL's health. Going head-to-head with IBM on credibility was like fighting an etiquette competition against the Queen. Credibility was IBM's middle name.
Frank put his right-hand man, Jones, in charge of a new team responsible for building relationships with the increasingly powerful IT group at British Gas. Jones, then 40, had taken over as account manager for the southern England part of the British Gas account in 1986.
ICL's Slough office, housing the GMC (government and major companies) division, was a modern, bright, glass-walled office block. Frank commandeered one of the glass-walled meeting rooms that overlooked the central plant-filled atrium as a 'war-room'.
The competition was structured to test the two companies' responsiveness. They had four days to reply to the first set of questions from British Gas. a week to answer further questions, and two weeks to respond to the most complex inquiries. McKinsey argued that a company that could mobilise to deliver a price quote or a fill technical specification quickly was more likely to be efficient at delivering the actual goods and services.
Typically, a questionnaire arrived on the fax machine without warning and with an answer requested within seven days. ICL's team for British Gas grew steadily to 25 people. The tiny Slough war-room got more and more crowded. Gordon Shortreed, area sales manager for ICL's British Gas accounts in the North of England, was drafted in for one meeting and stayed for six weeks. Working 18 days, he never saw the inside of his Slough hotel room before midnight. 'At Christmas that year, I got a Christmas card from the night-shift staff at the hotel,' he recalled later.
At British Gas, meanwhile, the tender competition split the company's IT department into two bitterly opposed factions. The department employed 3,400 people. About 1,200 of them worked in the five British Gas regions that used IBM mainframe systems and nearly all the rest in ICL-using regions. It was obvious that the new centralised IT strategy would cut manpower levels dramatically. If ICL won the tender, the years of skills and experience acquired by IBM-region employees would become virtually useless, and vice versa. 'The ICL regions fought like hell for ICL to get it,' said Allan, the IT director.
Jones hit on the idea later christened the 'hymn sheets'. He believed ICL's greatest advocates were in the IT department at British Gas, and every Monday morning he composed a series of half a dozen brief, punchy points to help them sell the ICL alternative.
During a meeting in May at the Inn On The Park hotel in London's Mayfair, Allan bluntly asked ICL how it could respond to the competitive message from IBM, which was always the same: you may like the current generation of equipment from our competition. Fine. But you don't know that you'll like the next generation. You can't even be sure they'll have a next generation. ICL's past financial crises made the latter point a wounding one.
Bonfield's reply was telling. 'John, I think you should understand that when you do business with us, it's not just ICL you're talking to. We're in a long-term partnership with Fujitsu, the second-largest IT company in the world.
'When we say that we will provide you with a system that works, that is state-of-the-art in terms of performance, cost, security, and every other parameter, it's not just us saying that. It's Fujitsu saying that. And when we say we will take you forward into the open world, and into our next generation and the generation after that, it's not just us saying that but Fujitsu as well.'
'What guarantee can you give me of that?'
'We can give you written guarantees. Our legal people will assure you that Fujitsu stands behind us.'
Allan was intrigued. Fujitsu was nearly double the size of British Gas. Dear little British ICL suddenly looked very different as a part of the Fujitsu group.
Bonfield was warming to his theme. 'The real guarantee of our partnership is the best guarantee there can be in business: mutual self-interest. Fujitsu support us because we are their largest customer for chips. We buy from them because they make some of the best processor chips in the world. They want us as a partner because they believe the world is going towards open systems and we are one of the world's leaders in open systems.'
The deadline for submission of the final tender document, which contained details of the entire bid, was Friday, 31 May 1991. Empty pizza cartons, Chinese food tins and Styrofoam burger boxes piled up every night in the last two weeks of May, as the team worked on writing, rewriting and re-rewriting every section of their document.
The only time Bonfield had available for a final meeting to approve the bid document was 7am on a day he was in Bournemouth for a meeting. The night before, Frank and Jones attended a concert with several British Gas executives at Hagley Hall outside Droitwich, Hereford and Worcester. There was no question of cancelling any British Gas entertaining two weeks before submitting the big bid. The two dinner-jacketed salesmen dined, attended the concert, smiled, applauded, said goodnight - and leapt into their cars at midnight to make it to Bournemouth in time for their meeting with Bonfield. Along the way, Jones veered into a motorway service station for a pre-arranged rendezvous with a staffer from Slough, who passed through the car window the latest version of the inch-thick bid document. They found Bonfield's hotel as the sun rose over the seaside town.
By Friday 31 May, the bid document was finally complete, a hefty 200-page volume entitled British Gas: IT Strategy Review above a computer-processed image of the globe on the shiny black cover. Jones said he would deliver it personally. When he arrived at High Holborn, he was asked to wait in reception a few minutes. The IT assessment team was in a meeting. When he was ushered upstairs, the first thing he noticed was that the whiteboard had been scrubbed blank. British Gas was scrupulous about its confidentiality.
THE second thing he no ticed was a shiny white document on the table with the blue IBM logo on it. His heart sank. 'Blast, I wanted to be first in,' he said. A member of the British Gas IT team told him not to worry: 'IBM phoned up this morning and said 'do you realise it's a bank holiday weekend, we'll send it down by courier'. You've taken the trouble to deliver it personally, and we appreciate that.'
Early in June, news came back from British Gas that the size and significance of the IT tender was such that their decision had to be ratified by the main board, which did not meet in August. The decision, therefore, would not be known until 26 September, the day after the board's September meeting. Few members of the account team were able truly to enjoy that summer.
On the morning of 26 September, Frank, Jones, two colleagues and the ICL press relations officer Sara Cole sat around the small table in Frank's cramped, boxlike office in ICL's Birmingham base. Outside, a dozen members of the account team sat, stood or idled about within sight of Frank's secretary, Irene.
Down at Slough, the rest of the team milled about, in and around Jones's empty office, waiting for the phone call from Birmingham. Allan had warned Frank he would ring at precisely 10.45am with news of the decision.
At 10.40, conversation dried up. Anticipation overcame their ability to make small talk. In awful silence, they watched the clock hands reach 10.45. A minute passed. Silence. Frank looked at his hands. They were sweating.
Just before 11am the phone rang. 'Peter, I'm delighted to tell you, you've won,' said Allan. Through the phone, Allan heard the room erupt into cheers.
Later, Allan explained why ICL won the IT bid. 'If you look at where they were and where they are, ICL are a transformed business. They have got Fujitsu, they have got a good product, they have diversified well and timely into the solutions market. Some of the other big players are just starting to talk about that.'
The day after the bid, John Gardner, ICL's UK managing director, sent a letter to Fujitsu chairman Takuma Yamamoto. It read in part: 'To knock IBM out of six sites simultaneously is the type of sales success one can only dream about . . . Never again will IBM be able to cast doubts on ICL's credibility.'
This is an abridged extract from 'The British Rennaissance, How to Survive and Thrive Despite any Recession', published by William Heinemann Ltd on 15
November, pounds 17.50.
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