While fellow American IT service providers aggressively pick up smaller European companies in the race for global presence, Buffalo, New York-based Computer Task Group (CTG) seems content to grow by word of mouth. CTG’s revenues reached a company record during fiscal 1998, increasing 15% to $468m over 1997. Much of this growth was attributable to CTG’s European operations that grew 57% during 1998, boosting the more leisurely 9% increase in its home market. However, despite its rapid growth, CTG’s European operation remains relatively small accounting for only $73m, or 16% of revenue, during 1998, despite a compound annual growth rate of 30.1% over the past three years.
In common with many US-based IT services providers, CTG is placing great stake on its European presence which has been in existence since 1990. CTG now has over 1,000 consultants in Europe, having recruited 257 new professionals during 1998, bringing its overall total to more than 6,000. The company believes its main strengths in the European market lie with its expertise in the financial services market – where it designed, built and implemented a PC-LAN environment for Dutch bank ABN AMRO – and the supply of helpdesk services.
CTG contends that its European presence will help it expand into the wider global market, both by attracting companies with an international infrastructure, and as a springboard to other geographical markets. But while the company has some 55 offices in total across North America and Europe, its European presence is currently limited to just four countries, the UK and the three Benelux countries, Belgium, the Netherlands and Luxembourg. CTG has no presence as such in other important European markets such as France, Germany and the expanding Scandinavian market. Given that CTG aims its services primarily at Fortune 1000 companies with multinational interests, this is something is needs to fix. More seriously, it seems likely to compromise the company’s competitiveness in an IT services market increasingly driven by the need for global delivery and local support.
Extending its European interests through acquisition would seem to be the obvious solution. However, unlike many of its competitors, CTG only rarely makes acquisitions and these tend to be in the company’s US heartland. Most recent was the February 1999, $89m cash and shares acquisition of Elumen Solutions, a privately-held US-based consulting firm specializing in the health care sector. The Elumen acquisition should almost double CTG’s healthcare sector revenue with revenues of $36m in 1998 adding to the $44m from CTG itself. It does nothing to help the company’s position in Europe, however.
Another potential worry for CTG is its dependence on its largest customer, IBM, which alone accounted for some 32% of 1998 revenue. The company seems relatively unconcerned. The January 1999 renewal of its most significant contract with IBM (accounting for 59% of IBM-derived revenue) allied to the range of services supplied to IBM has given the company confidence that this revenue stream is safe, at least for now. It does need to decrease this dependency, however.
CTG does appear to be quite proactive in making other strategic changes. Several years ago the company decided to concentrate on what it calls its ‘key client’ strategy. This initially led to a reduction in CTG’s customers from 1,200 in 1995 to around 430 by the end of 1997. The next stage began in mid-1998 when CTG began refocusing its outsourcing operations toward application maintenance and other managed services including networks and help desks.
These services, which now make up over 40% of the company’s business, typically cover contracts of two to five years, with values ranging from $1m to $20m. Key customers include British Petroleum (BP), for which CTG was already undertaking outsourcing work and Bayer for whom CTG maintains over 30 applications. 1999 is seeing an expansion of these managed services covering vogue technologies including enterprise resource planning, e-business and supply chain management. One of CTG’s most significant e-business projects to date has been a 53,000-user intranet infrastructure British Petroleum America.
CTG also has significant revenue streams in business consulting (including business process re-engineering) and application development and integration. Much of the latter is currently made up of Y2K compliance work, which accounted for around 15% of CTG’s 1998 revenues. Growth of its managed services business means that the company is relatively unconcerned at the downturn in such work. CTG is currently expanding its application development and integration services to include growth areas such as ERP implementation and knowledge management, much of which is delivered on a fixed-price basis. Order backlog for fixed-price and managed-support contracts was approximately $42m at December 31, 1998.
CTG’s vertical sector interests are in health care, pharmaceuticals, oil and gas, retail and financial services. As well as ABN AMRO, Bayer and BP, European customers include Bradford & Bingley Building Society, One 2 One, Pearl Assurance, Cable & Wireless Communications and Sainsbury’s.
