Boston based IT consulting company Keane Inc is looking to build a $250m European IT services business over the next three to five years. The $1.08bn revenue consultancy currently has European revenue of just $75m but it has still to complete its first year of trading. Keane’s strategy is to build business in the UK in the first instance before stretching across into continental Europe. This is the thinking behind Keanes purchase of Coventry, UK based Parallax Solutions Ltd, a software services consultancy that builds upon the acquisition of UK based Icom Systems Ltd of Birmingham in August 1998.
Parallax has a focus on automotive and finance sectors. It designs and develops web-based customer interfaces which is expected to help round out Keane’s customer relationship management (CRM) offerings. Founded in 1989, and with a client list that includes BMW AG, Rover, Ford Motor Co Ltd, Chase Manhattan, and JP Morgan, Parallax reported revenue of $14.7m last year and increases Keane’s UK headcount by 150.
Y2K has been a significant element in the extraordinary growth of Keane Inc. Some 36.6% or $369.4m of Keane’s FY98 revenue derived from Y2K compliance engagements – this from a low of $20.7m in FY96. A company spokesman said that in FY 99 an estimated 5%-10% of revenue will be dependent upon Y2K work. In the coming years the challenge for Keane will be to build upon the relationships it has established with its Y2K projects as it develops outsourcing and business applications capabilities to compete as its core business.
A key aspect to its diversification from Y2K work is the shift in focus towards CRM. The market in CRM is immature and growing at a phenomenal rate. Analysts at IDC expect to see software revenue in the sector to reach $6.7bn by 2002. Added to this is the market in services surrounding CRM systems that is estimated to be worth three times the software down payment. The bulk of implementations are being carried out at sites whose companies have revenues in excess of $1bn at the moment according to market analyst group AMR, though the mid market has begun to show strong growth. Keane expects to generate $75m in CRM-related consulting and software development revenue in FY99. It feels that this revenue will grow in excess of 35% per annum.
Keane’s other recent acquisition of Icom Systems Ltd gives it a particularly strong presence in the financial services and utilities sectors. It offers services covering the complete software development life cycle and includes business consultancy, application development particularly within the areas of workflow, imaging and e-commerce, and application management. The buy adds 330 to Keane’s European headcount. Clients include Avon Insurance, Royal London Insurance, Guardian Insurance, The Halifax, London Electricity and British Airways.
Currently Keane Inc has 400 consultants on staff in Europe with access to a pool of around 100 contract consultants. Globally, Keane has around 10,000 billable consultants. Utilisation rates are high at around 90% and in the last reported quarter consultant turnover was reported as being between 17% and 19%. Y2K work stands at around 20% of revenue at the moment and as this declines consultants will be redeployed within Keane.
Figures for the quarter ending March 1999 showed revenue up 23.9% on revenue for the first quarter 1998 at $285m. This quarter is the first where Keane has segmented its revenue in terms of its service lines of ‘plan’, ‘build’ and ‘manage’. Keane’s Plan line of business offers services in integrating organizational design and workflow improvements with technology strategy. Services include productivity improvement planning, IT productivity improvement planning, strategic IT planning, and project management consulting. Application development services – its Build segment – focuses on customer relationship management, datawarehousing, custom development and web-based technology. Here Keane stresses its change management competencies, its software package, application and system architecture expertise, enterprise application integration competence and project management know-how. Manage services are offered through Keane’s application outsourcing division.
Company numbers show the Manage division as being the most profitable line with $171.9m, an increase of 13.6% on first quarter 1998. Its build service line reported revenue of $81m while its plan service line reported $26.1m. Gross margins for the quarter was reported as being 35.5%.
