Interview The UK government is unlikely to make any drastic changes to its IT acquisition strategy no matter who scrambles into Number 10 next May, the European boss of public sector IT giant Fujitsu predicts.
Yet the Japanese-owned firm is still striving to ramp up its private sector business as part of its worldwide restructure put in place earlier this year.
Presumably Duncan Tait, the former UK boss who took over the EMEAI role in April as part of the restructure, likes a challenge.
Speaking to us at the vendor’s customer event in Munich late last month, he put some flesh on the bones of the plan, pointing to European mega-companies and the defence sector as major targets for the firm.
First, however, we shared a wistful moment. Some people end up in the tech business because they love business. Some end up in the tech business because they love tech. For Tait there never seems to have been too much of a distinction.
“I got fascinated by business when I was a kid growing up in a newsagent shop. I put in place this system for my mum and dad. ‘Digitalised’ we would call it now. In those days we ‘computerised’ our newsagent's shop.”
“The first one was a complete mess actually. Then we put in Apricots. The first one had CPM, the second was MS-DOS. Beautiful doing all that stuff.” Tait argues that it introduced him to the work ethic early – although it gave him a lifelong aversion to early starts.
Fast forward 30 odd years and Tait is still having to grapple with early starts. This time the business challenge is being part of the top tier of execs charged with putting in place a once-and-for-all restructure of the sprawling Japanese giant, that has previously seemed confused about whether it’s a hardware or services company, a private sector of public sector specialist, or even whether it’s actually Japanese or German. Or even British, if you still hanker after the ICL element of its heritage.
Last time we spoke to Tait he was heading up the UK business. At the time 55 per cent of its revenue came from public sector, down from 70 per cent a few years earlier. He said the split was now about 50/50 in the UK and across EMEA. However, approaching the industry average of about 30/70 in favour of private business means much harder work.
We’re guessing the turnaround plan doesn’t include jettisoning paying contracts to rebalance the public/private balance.
So, where will he find those private customers and how will be reel them in? And, frankly, why should they bother?
For Tait, the key target is the top 100 companies HQ’d in Europe.
“They spend $160bn per annum. And that’s their external IT expenditure – of course, because I like to do a little bit of outsourcing now and again, I might say the market size is even bigger.
“Can we work with 100 all at once? No, but we’ve zeroed in on a small number of clients where we believe their ICT expenditure is significant and that we have the right to play.”
That raises the question of why they would want to play with Fujitsu now when they didn’t before. That’s the issue April’s restructure addresses, argues Tait. “There’s a small group of us now who make this company work for our global clients.”
“Now to make our company work for a global client I only need to speak to at max four people. I might need to ring (Chikafumi) Urakowa-san who runs Japan as a region. I’m probably going to have to talk to Bob (Pryor) in North America, and (Tatsuya) Tanaka-san who runs Asia.”
Just how far down the agenda has the restructure kicked the smaller firms and channel partners that Fujitsu has been nurturing over the last few years?
Exiting the public sector? Not us, sunshine
“Here’s the small print: we are not exiting public sector. We are not exiting our smaller clients. We’re optimising our cost base so that we can free up the funds to work with these top 100 clients.”
So, public sector. No matter what Fujitsu says about boosting its private sector business, it’s still public sector that accounts for the bulk of its business. This despite hostility from the public sector paymasters in recent years, leading to rumours – denied by Tait – that Fujitsu had been whacked on a Cabinet Office blacklist.
“The first thing would be, and you can see this in the economic data thats come out over the last few weeks, we are not in the clear with the health of all the economies in EMEA. There is no doubt about that and I think it’ll be continued pressure on public sector expenditure. So we have to face up to that.”
The “digitalisation agenda” which Fujitsu is pushing is particularly important for public sector, Tait argues to help governments drive down expenditure and better serve clients.
“Now, if you look at two of the biggest economies in Europe, Germany and the UK, clearly we have some very important public sector clients in both areas and we are determined to keep on serving those.”
Do government want to be served by Fujitsu?
The coalition UK government that came to power in 2010 has given the likes of Fujitsu a kicking over the costs of IT services in general, and more specifically the role of small businesses, a process which Tait describes as “destructive.”
“From a UK perspective I think that the Cabinet Office’s initial very public berating of the top suppliers has now subsided a little bit. I think they know they need the big companies like us in their supply chain because we can bring global scale and our balance sheet to some of the very major programs they need to complete.”
“The way to think about it is, when I’m a government department, when is the best time for me to use a small medium enterprise directly? For some of the heavy lifting work I should engage with one of the big companies who are committed to using SMEs in their supply chain.”
“And don’t forget from an SME perspective [the reality of] getting to work with government on an 18 month procurement when you’ve got 50 people in the company with all those Ts and Cs and the damage to your balance sheet and the risk you have to take. I think they’d rather tuck themselves under a responsible major prime [contractor].”
Looking beyond the SME issue, what is Downing St’s attitude to the mega contracts that give backbenchers so many sticks to bear the administration?
“Now what’s going to change in the runup to the election? Not very much. Clearly just before the election we’ll have a period of purdah where no real major decisions are going to get made.”
“But my view is regardless of which administration comes in of whatever form whether it’s a single party of a coalition, the pressure on the suppliers to government will not change. We have to deliver great value to government, we have to take part in this digitalisation agenda and we’ve got to deliver great service at the same time.”
Defence is a multi-national outsourcing market
That Fujitsu is attempting to reduce its reliance on public sector business while retaining its dominant role in this sector is not, perhaps, surprising. What is surprising is that defence and national security is going to be an increasing part of its public sector pitch.
The firm bought Globeranger an RFID logistics specialist back in May. Again, Tait argues that the reorganisation puts it in a better place to grab this sort of business – which might seem counterintuitive. A network of fiefdoms might seem to better mirror closely-held national defence pots of cash.
“Bizarrely this is a global market - you might think public sector isn’t, it’s country by country - [but] defence and national security is a global market full stop and a global market for Fujitsu.”
Globeranger is central to this strategy. “We made the acquisition of Globeranger while defence budgets are under pressure from a cost perspective But at the same time security concerns are heightened. How do you reduce the cost of logistics and parts to the department of defence in the US, in the UK, in Japan and Australia, for example? So I think Globeranger’s very important.”
“I probably can’t give you the break out of our defence business,” he continues, “but we have a major defence business and national security business in Australia in Japan, in Europe principally out of the UK but our Netherlands business also. And we’ve made some investments in our North American business.”
If this sounds like a lot of overlap with the Five Eyes alliance in particular, and capitalist democracies in general, well, that would hardly be be a surprise.
“From my perspective, who better to choose for defence collaboration between the UK and Japan than Fujitsu? We’re a very major player in UK defence. We’re a very major player in defence in Japan and therefore it kind of makes sense to me.” Which is not a surprise.
Asked who Fujitsu’s major rivals are in defence, Tait replies: “I’m not sure we have one.”
“Genuinely.” Perhaps this only goes to show how little this writer knows about the defence contracting sector.
At the same time, says Tait, the firm has to be “very very focused” about where it grows in central government: “Oracle shared services – we are knockout at that – so do I want more of that business, yes.
“But do we want to get wholesale into growing in central government? No.”
Why? just because of the balance thing or because the public sector can be a pain?
“I think the balance thing is very important. So how we use our valuable pre-sales expenditure, we have to make sure that we’ve addressed the balance in our business because actually it seems illogical, doesn’t it, for our business ... We’ve got to continue to grow in public and grow private a little bit faster I think.”
Given Futjisu’s growth in the last results showed consolidate revenues – down 2.4 per cent to 1.1tr yen ($10.3bn) with net profits of 7.2bn yen – top line growth is clearly on the agenda.
Which means Tait has a good few more early mornings before he can think job done.
Still, if it all goes wrong the newsagents is still in the family. Presumably those Apricots are getting a bit past it now. ®