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IT services company confident of its chances in the downturn

A report published by the UK’s National Audit Office earlier this year implicated Northern Rock’s IT systems in the near-collapse of the savings bank in 2007, which resulted in its nationalisation.

One tactic to rescue the company once it started to topple could have been to sell off the various branches to competitors. However, shortcomings with Northern Rock’s IT systems meant that transferring savings accounts to new ownership would have periodically frozen those accounts, preventing depositors from obtaining their savings.

“The option of winding down the business was considered, but inadequate IT systems at Northern Rock meant that depositors would have had to wait for their money, risking another major run and potential hardship for those reliant on access to their funds,” the report concluded.

It would not be unreasonable to assume, therefore, any company responsible for IT at Northern Rock might be rather shame-faced about the association. But nothing could be further from the truth for French IT services provider Steria.

“When Northern Rock started to get into trouble, we were wondering what the impact would be for us,” says CEO François Enaud. “But we had no decline [in business] as a result; in fact the opposite was true. As part of its agreement with the government, Northern Rock committed to undertake some projects to improve their efficiency, so we actually saw more business.”

Enaud sees the fact that Northern Rock has already returned to the lending business (albeit thanks to a £26 billion loan from the government) as an endorsement of that efficiency drive.

“Now, Northern Rock is a great story for us,” says Enaud. Indeed, the fact that Northern Rock is now a publicly owned bank makes it a fitting customer for Steria, a company that straddles dual identities. It is an onshore and offshore provider; it serves public and private sector companies; and has two boards of directors, one representing external investors, the other representing employees, which collectively own
about 16% of the company.

Steria’s involvement with offshore service provision began in 2007 when it acquired UK BPO and application services provider Xansa, half of whose employees were based in India. But the company’s adoption of the global delivery model has not been without a hitch.  

In October 2008, when Steria decided to move 31 jobs from a delivery centre in Manchester to India, trade union Unite called for industrial action. The credit crunch, it seemed, had inflamed antipathy towards offshoring.

These issues could be especially tricky for Steria, which espouses employee ownership and autonomy. However, Enaud argues that rather than a hindrance to its bid to become a global organisation, the company’s approach to ownership and governance is in fact a boon.

“We definitely feel that, in this environment, our unusual model of ownership is definitely the right one,” he explains. “The employee board understands that offshoring is something we have to do to remain competitive. And if we aren’t competitive, then we are certainly going against the interests of our employees.”

But that increases the pressure to grow market share. “As you grow, you will create jobs,” says Enaud. “Even if you create more jobs offshore than you do more onshore, the employees don’t mind and the unions don’t mind.”

Enaud expects the Steria workforce to grow by 15% in the next two years, during which time, the proportion of its employees based located in India will grow from 30% to 40%.

These are bold claims to make in the midst of a global downturn, but then Steria is a company brimming with confidence. The company grew yearly revenues by 24% to C1.8 million in 2008, while bumping its operating margin up by 30% in the same time. That is not just down to adding Xansa to its books, Enaud insists; the company attracted 40 non-UK customers with Xansa’s offshore BPO and application services during the year.

Nevertheless, Enaud acknowledges that the coming year will be more difficult. And although its private sector business has been fast growing in recent years, Steria’s public sector practice, which accounts for around 60% of its revenue, will probably be its saving grace in 2009.

“I expect that public sector [revenue] will grow faster this year,” Enaud says. “Or at least, it will decline less.”