TBR                                       T E C H N O L O G Y B U S I N E S S R ES E AR C H , I N C .                     ...
TBREvent OverviewOn June 12 and 13 TBR attended Capgemini: Analyst Day 2012, held in Les Fontaines, Capgemini’s CorporateU...
TBRservice providers. The competition will be tough to overcome, given the fact that the majority of the vendorsserving No...
TBRdifferentiation in its offerings and effectively compete with IT service providers, such as Accenture and IBM, bothof w...
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Tbr ep capgemini_analyst_day_2012


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Technology Business Research is a different kind of research company. Our bottoms-up approach provides a look at the technology industry unlike anything you’ve seen before. We analyze company performance in professional services, networking and mobility, computing and hardware, and software on a quarterly basis, leveraging our data to create industry benchmarks and landscapes that provide a business perspective on leaders and laggards and their business plans. We are experts in the business of technology.

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Tbr ep capgemini_analyst_day_2012

  1. 1. TBR T E C H N O L O G Y B U S I N E S S R ES E AR C H , I N C . TBR EVENT PERSPECTIVECapgemini is taking off its European ITservices vendor hat and competing for global market share Capgemini: Analyst Day 2012 Gouvieux, France, June 12-13, 2012 Authors: Elitsa Bakalova (elitsa.bakalova@tbri.com), Professional Services Practice Analyst Alison Crawford (alison.crawford@tbri.com), Professional Services Practice Senior AnalystTBR PerspectiveCapgemini: Analyst Day 2012, held in Gouvieux, France represented a continuation and extension of the themeslaunched during Capgemini: Analyst Day 2011, held in London under the banner of “Playing in the GlobalChampions League.” The banner represents Capgemini’s initiatives to become a global IT services industry leaderand have a strong market presence in developed and emerging economies. Capgemini is adding value to itsportfolio by investing in four key technology trends: cloud, mobile, big data/analytics and social. The firm isfocusing on industry specialization, digital transformation in management consulting, enriching its offerings withintellectual property (IP) assets and technology from alliance partners to drive business resilience, revenue growthand margin improvement in the long term. While Capgemini remains exposed to uncertainty in Europe during2012, the firm is taking steps in the right direction to diversify its global revenue base and gradually become a trulyglobal IT service provider. By increasing its emphasis on expanding its business in North America and fast-growtheconomies, such as Brazil, India and China, Capgemini will ultimately be able to alleviate the negative effects fromits European centricity and related market uncertainty in the region (Europe accounted for 74% of the firm’s totalrevenue in 2011). At the same time, Capgemini will face increased competition in North America and in fast-growth emerging economies from its peers as they seek to grab growth opportunities. While the firm has laid outthe plan for its revenue growth and margin acceleration, TBR believes the strict execution and adherence to theplan during the next several years will help the firm achieve its ambition of “Playing in the Global ChampionsLeague.” Capgemini is ahead of its European counterparts in terms of globalization and industrialization of itsservice delivery; and has the capacity to compete with multinational IT service providers and Indian vendors forglobal market share.
  2. 2. TBREvent OverviewOn June 12 and 13 TBR attended Capgemini: Analyst Day 2012, held in Les Fontaines, Capgemini’s CorporateUniversity, in Gouvieux, a town less than 1 hour away from Paris. During the event Capgemini presented itsstrategic roadmap, outlined its transformation game plan and detailed key strategies for revenue growth andmargin improvement in 2012. Capgemini conveyed the information through a series of main keynotes followed bybreakout sessions that provided insight into different aspects of Capgemini’s business, often augmented by clientexamples, which generated a complete view of Capgemini in action.Impact and OpportunitiesCapgemini’s plan for transformation during 2012 is to expand its portfolio and footprint, deepening relationshipswith existing clients first, and chasing new logos second. The finer points of this strategy include:  Expand global coverage  Increase the level of industrialization  Enhance infrastructure transformation capabilities  Become a world leader in application development  Add value to the portfolioTo achieve the points outlined above, Capgemini will focus its efforts on becoming a truly global ITservice providerOver the course of two days, Capgemini’s global executive team outlined how the firm’s portfolio will lead to long-term growth. While conscious of the global tension influencing its operations, Capgemini sees the market as onefull of opportunities. Like many of its competitors, Capgemini is committed to expanding its global footprint tosupport its clients and is developing a customer-facing strategy focusing on cloud, mobility, big data/analytics, aconvergence of offerings and web as a platform. While the chosen road may pose challenges, Capgemini has astrategic plan to hire the required resources, develop the right technologies and invest in locations necessary tosuccessfully reach its destination.Capgemini seeks a global business mix shift to decrease its reliance on the economically volatile European market.With EMEA representing 80% of revenue in 2010, Capgemini wants to grow the other geos to reduce the EMEAcontribution to 72% of revenue in 2012. At the same time, with 10,000 seats in India serving Continental Europe,Capgemini has the opportunity to attract European clients, which are becoming more open to offshoring, andeffectively compete with Indian vendors and MNCs, which are driving competitive pressures in its home turf. NorthAmerica and fast-growth economies, namely Brazil, India and China, represent key focus geographies for its 2012diversification plan, with North America to increase share to 20% of revenue in 2012 from 18% in 2010, and fast-growth economies to account for 8% in 2012 from 2% in 2010. Capgemini is benefitting from the CPM Braxisacquisition in Brazil in 2010, which extended the firm’s access to local clients and allowed it to win deals such asthe 10-year IT services deal with CAIXA Economica Federal, the fourth largest bank in Brazil.North America, Capgemini’s largest geogrpahy outside of EMEA is a key avenue for growthCapgemini is betting on North America as a key region for growth outside of Europe. North America, comprised ofthe U.S. and Canada, generated €1.8 billion in revenue or 18.6% of total revenue in 2011, up 8.4% year-to-year (asreported and in euro terms), with headcount of 9,505 at the end of 2011, or 7.9% of Capgemini’s total headcount.While North America is attractive for Capgemini and has the capacity to grow in the near term, the firm has toovercome competitive pressures from a multitude of vendors looking to capture growth in the region. Keycompetitors Capgemini faces in North America include multinational IT service providers, Indian vendors,hardware and software vendors that are building their own service practices, the Big Four firms, and local niche www.tbri.com
  3. 3. TBRservice providers. The competition will be tough to overcome, given the fact that the majority of the vendorsserving North America have a long history and multitude of client references in the region. Capgemini realizes ithas to adapt and execute faster to successfully compete for deals in the region, which according to the companyhave decreased in terms of size to small/midsized deals. To do so, the firm is increasing its emphasis on clientcentricity and deepening and broadening its relationships with clients in the region as well as building its brandawareness with a campaign that was launched in June. Capgemini also emphasizes leveraging alliance partners toenrich its portfolio to provide offerings in key technology trends, such as cloud, mobility and big data. The firm isstreamlining its go-to-market approach in North America by focusing on four areas: prime services, applicationmanagement services, technology services and emerging technologies. To augment its growth opportunities,Capgemini is emphasizing vertical specialization, IP solutions and five top-line initiatives: business informationmanagement, mobility, testing, business process management and smart energy services.Capgemini is transforming its portfolio to address technology trends and support its growthTo capture growth in the long term, Capgemini identified the technology trends in the market, through its ownresearch and communication with its top global customers. The firm is using those trends to shape its globalportfolio. Cloud, mobile, big data/analytics and social are the four technology drivers that Capgemini uses totransform and develop its offerings and enhance value for its customers. For example, Capgemini leverages cloudas a universal design principle for its new offerings investments, adding cloud-related offerings across key servicegroups, including consulting, application services, infrastructure services and BPO. While the market is abuzz withmobility as a core strategy for most IT service providers, Fernando Alvarez, Mobile Solutions director, is taking adifferent path toward success. Capgemini acquired his company to leverage his expertise and technology to createplatforms enabling mobile solutions rather than focus on the development of applications. This focus onfacilitating enterprise mobility allows Capgemini to integrate with other solutions and offerings to provide an end-to-end solution to its clients.Alliance partners are of significant importance for solution and capability development. As Jean-Claude Viollier,corporate VP, head of Global Channels & Partners, outlined in his presentation, Capgemini will continue toemphasize specific and targeted offerings initiatives with key strategic partners, such as EMC, SAP, HP, IBM,Microsoft and Oracle, as well as a multitude of other partners that help it address the key technology trends.Capgemini featured the depth of its relationship with SAP, and expertise in HANA implementations, as adifferentiator. Frank Wammes, division manager SAP Solutions, showcased the success of the first live EuropeanHANA implementation at Provimi, a global leader in animal nutrition, which rolled out HANA to 19 countries in 24months. As SAP invests in its offerings, Capgemini will continue to develop capabilities to leverage advances in SAPofferings.Capgemini remains cautiously optimistic about its prospects in technology-enabled management consulting,particularly in digital transformation and the impact of technology and digitization on clients’ business models.Capgemini emphasizes helping clients align their businesses with the four technology trends. The firm integratesmanagement consulting with its broader offerings portfolio to provide design, build and run capabilities that allowit to interface with clients on multiple levels and capture long-term opportunities.A new focus for Capgemini, and an important one in TBR’s view, is the development of the firm’s IP asset portfolio.At the beginning of 2012 Capgemini launched its IP acceleration program and identified more than 300 valuable IPassets, which the firm grouped into: Products (software, SaaS, service platforms), Accelerators (semi-finishedsolutions) and Tools (tools, methodologies, sales assets, prototypes, proof of concepts). TBR believes the Toolsgroup is something an IT service provider like Capgemini must have, especially if it strongly emphasizesindustrialized service delivery and profit improvement in the long term. The Products and Accelerators groupshave the potential to drive net new revenue of up to €1.0 billion in 2015 from approximately €450 million, or lessthan 5% of total revenue in 2012. TBR believes the investments in IP acceleration will help Capgemini drive www.tbri.com
  4. 4. TBRdifferentiation in its offerings and effectively compete with IT service providers, such as Accenture and IBM, bothof which place emphasis on IP assets in offerings and delivery.Margin improvement is a top priority for Capgemini; however the 10% operating margin goal is a long-term aspirationPaul Hermelin, CEO of Capgemini, identified “escaping the European players margin squeeze” as a core emphasisfor Capgemini and its margin acceleration initiative. The firm is stuck in challenging market conditions, especially inthe U.K. public sector and the Netherlands, and pricing pressures that drive low single-digit revenue growth,limiting its ability to make a change in its bottom line. The goal for the firm is to reach 10% operating margin(before other operating expenses), up from 7.4% in 2011; however the horizon of the goal was not stated by thefirm, showing its prudence when it comes to setting up targets in an uncertain market. Capgemini is increasing itsemphasis on service delivery industrialization and cost cutting, two levers that have been carried over from 2011but are now augmented with new features. Capgemini is leveraging multiclient factories for applicationsmanagement, initially launched in the Netherlands, France, Spain and India, and shared service deploymentinstead of client-dedicated resources at delivery centers. The firm is also increasing leverage of tools for servicedelivery and staffing to achieve a target of 150 basis points margin improvement through industrialization and costcutting. Capgemini added two levers, portfolio management and on/offshore pyramid management, with eachlever targeted to provide 150 to 200 basis points improvement in profitability in the next several years. Offshoreexpansion remains a key ambition for the firm, and the goal is to have more than 50% of total headcount locatednearshore/offshore in 2015, up from 37% in 2011. Capgemini sees lingering pricing pressures during the next twoto three years as the key factor that offsets its margin improvement. The negative effect on operating margin frompotential pricing pressures can be as much as 200 basis points.ConclusionCapgemini has a plan and objectives for profitable growth. It remains to be seen how well the firm executes on itsplan over the next several years and how it reacts to external factors, such as economic uncertainty in Europe,competitors’ growth initiatives and lingering pricing pressures (prices did not rebound after the 2008 crisis). Thefirm expects strategic bets like its five top-line initiatives, digital transformation, service orchestration and IP-basedsolutions to represent 47% of total revenue in 2015, up from 36% in 2012, and drive 150 to 200 basis pointsoperating margin improvement. TBR believes Capgemini made significant progress in its global expansion,especially in delivery capabilities, which may help the firm increase its revenue in less penetrated geographies. Thedifferentiation and value in its portfolio will help Capgemini accelerate its long-term growth and surpass thelimited organic revenue growth expectation for 2012. While Capgemini’s operating margin will be pressured in2012, the firm’s continued emphasis on refining its delivery model and higher-margin offerings will drive long-termprofitability improvement.Technology Business Research, Inc. is a leading independent technology market research and consulting firmspecializing in the business and financial analyses of hardware, software, networking equipment, wireless, portaland professional services vendors. Serving a global clientele, TBR provides timely and accurate market research andbusiness intelligence in a format that is uniquely tailored to clients’ needs. TBR analysts are available to furtheraddress client-specific issues or information needs on an inquiry or proprietary consulting basis.TBR has been empowering corporate decision makers since 1996. For more information please visit www.tbri.com.©2012 Technology Business Research Inc. This report is based on information made available to the public by the vendor and other publicsources. No representation is made that this information is accurate or complete. Technology Business Research will not be held liable orresponsible for any decisions that are made based on this information. The information contained in this report and all other TBR products is notand should not be construed to be investment advice. TBR does not make any recommendations or provide any advice regarding the value,purchase, sale or retention of securities. This report is copyright-protected and supplied for the sole use of the recipient. Contact TechnologyBusiness Research, Inc. for permission to reproduce. www.tbri.com