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Author: Dominique Raviart
In the last three years, HP Managed Services has won two mid-sized contracts with Airbus and Renault (both of them above euro150m in TCV). Those two deals have helped HP join the league of providers that service French MNCs as part of large contracts. Clearly this is an achievement, considering the reduced number of mid-sized and large outsourcing contracts locally. This does not mean that the company does not have challenges to face. It is still hampered by its image as a desktop services specialist, and, more importantly, competition from both local and international players is impacting margins. As a result, HP Managed Services is increasing its usage of offshore delivery and aiming to get into more complex "transformational" outsourcing contracts.
The French infrastructure outsourcing and managed services market remains challenging. French clients are transitioning from on-site operating work towards remotely monitored and hosted infrastructure management. The process is slow - but accelerating - and mid-sized to large full outsourcing contracts are uncommon. As shown in Figure 1 HP has been able to secure two significant deals, of which the most visible has been the Renault contract.
Figure 1 Recent large outsourcing contracts won by HP in France
Date |
Client |
TCV/duration |
Scope |
March 2005 |
Renault |
$150m/
five years |
PCs, workstations, printers and video equipment. Proposed transfer of 160 employees |
June 2004 |
Airbus |
euro150m/
five years |
2,300 servers (excluding mainframes) mostly in France, UK and Germany |
May 2003 |
Alcatel |
$45m/
five years (e) |
Output device outsourcing. Pan-European contract |
(e): Ovum estimates Source: Ovum
Moving towards more complex work
With so much competition in infrastructure management, HP Managed Services is moving towards more complex or "transformational" work - and more rewarding margins. This implies servicing more than the desktop and increasing its share of complex server and output device management, where the barriers to entry are greater and greater expertise is required. This is certainly the case in the Renault contract, where Renault is taking care of workstations, printers and video equipment.
Ultimately, where HP feels the most comfortable is with high volume outsourcing contracts that imply a significant change in the IT infrastructure of the client. Notably, unlike a number of international players, HP is not ruling out on-site presence as long as it has enough room for improving the management of the client's hardware. Meanwhile, it does not hurt that HP, along with Xerox, is a dominant player in output device outsourcing and managed services. Such offerings are a clear differentiator to other infrastructure management players. Meanwhile, the level of contracts in infrastructure that are truly "transformational" outsourcing remains the same in both France and in Europe. Ovum estimates that nine clients out of ten are mostly interested in cost savings, rather than in investing in their IT infrastructure. Let's face it: the bulk of outsourcing activity in France will remain non-transformational and therefore leaning towards a commodity market. Offshore delivery is certainly where international firms like HP - and competitors such as IBM - differentiate from their European peers, which, like Indian players, are much more application-centric. So is everything under control at HP Managed Services in France? Certainly, HP is well positioned for the infrastructure-led outsourcing market. Unfortunately, the local conditions are such that application management, an area where HP is not significantly present, is the fastest-growing segment within outsourcing. And in application management, as well as in BPO, HP will rely on international contracts to fuel its activity in France. Figure 2 shows our estimates of HP's recent activity in France. Figure 2 HP in France - all Ovum estimates (euro million)
Activity |
2004 |
2005 |
Growth |
Consulting & Systems Integration |
60 |
59 |
-2% |
Managed Services |
177 |
180 |
+2% |
Technology Services (1) |
372 |
376 |
+1% |
Total HP Services |
609 |
615 |
+1% | (1): support and data back up and business recovery services Source: Ovum
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