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LogicaCMG finance director, Seamus Keating

LogicaCMG, provider of management and IT consultancy, systems integration and
outsourcing services, was formed through the merger of two similar size
competitors at the end of 2002. With reorganisation costs now largely absorbed,
the combined company is anticipating a positive phase in its history.

Seamus Keating, LogicaCMG’s group FD, believes the expected benefits from the
merger are starting to come through. Admittedly, LogicaCMG’s full-year 2004
results revealed a slight decrease in revenues from continuing operations (down
2.2% to £1,658.4m) and adjusted profit before tax (down 2.8% to £97.2m).
Nevertheless, the group was celebrating a return to organic growth in the
second-half of the year – the real sign, Keating believes, that the Logica-CMG
merger is starting to pay off. “This is one of the important signals to us,” he
says, “that we are starting to move out of the period of recession in IT
services into a period where we can achieve sustained organic growth, and then
probably growth through further acquisitions to carry on building the business.

“Today the combined (LogicaCMG) business is in the top tier of European
players in IT services, and our ambition is to be in the top tier of the
worldwide players in IT services. To achieve that we need to double the size of
the business again from where it is today. That might sound like a tall order,
but we doubled the size of the business by the merger of Logica and CMG. We have
come a long way and are not planning to stop here.”

Further acquisitions are planned and one is already in progress in Portugal
(due to complete this spring). “Our first priorities are in Europe,” Keating
says, “to strengthen countries such as Germany and France, where we have got a
significant presence today but we feel that greater scale would help us.”

Organic growth is also a high priority. In India, for example, LogicaCMG is
aiming to recruit more than 1,000 staff this year and has created a
state-of-the-art campus-style facility in Bangalore. “By the end of this year,
we will have in excess of 2,000 people in our business there,” Keating says. ”
Increasingly, we will deliver services to customers from outside their own
geography, so there won’t be quite the same connection between how many people
we have in an individual country and our ability to grow revenue and support
customers there. We will use the delivery capability we have in India and in
Wales, in Malaysia and in Eastern Europe.”

LogicaCMG’s strategy is to sell customers “blended” services; this means some
work is conducted on the customer’s premises, and some is done nearby, but
outsourced services that don’t need customer proximity will be increasingly
handled in lower cost locations. This globalisation of service delivery is
history repeating itself for Keating, whose past career includes senior
positions with Olivetti. “The globalisation that we saw in PCs, and all other
forms of manufacturing, has been coming to services,” Keating says.

One key factor that Keating sees as driving LogicaCMG’s improving results is
the new leadership development programme that was put in place following the
merger. “We took the opportunity to identify what the skills and attributes were
of the leaders in our company going forward,” Keating says. “That wasn’t just
about people who could manage profit and loss accounts; it was also about this
thing called leadership, which in a people-based business is vitally important.

“It is an essential ingredient in all our most successful businesses to have
people leading them who are role models for the rest of the organisation. And a
vital element of that is the leaders’ ability to sell to our customers. Selling
in our organisation today is not just the job of the sales team; it’s actually
the job of all the senior managers in the company.

“When we are selling to our large customers we are not simply selling a
product or service, we are selling our organisation to them and one they expect
will be around in three years. On the executive committee, each of us takes
responsibility for a number of the key accounts around the group, and it’s our
job to be the chief sales person into that account.”

Keating finds this aspect to his work an added bonus. “You learn so much from
talking to customers,” he says. “It does help your own thought processes in the
business, and the formulation and execution of strategy. The closer you are to
your market, the more relevant your thinking is going to be.”

Keating’s commercial involvement is significant: “I get to sign off every bid
we put to a customer that is a significant amount of money. In my remit, the
commercial organisation reports to me, and also the technical director. Together
we review the major bids going out to customers, ensuring we have understood the
scope correctly, have been able to cost it accurately and believe we have priced
it correctly. That means I get closer to the front end of winning business
rather than simply adding up the score after it’s all done. It makes things more
challenging, but overall more satisfying and fulfiling.”

The importance of leadership and its linkage to the success of the business
is a topic that clearly interests Keating. “Developing people into leaders is
one of the things that brings a lot of satisfaction,” he says. “We have been
thinking about how we report in a bit more detail on our human capital as we
move to the OFR (operating and financial review) for next year. We have started
to think about the things that would be real indicators of progress. OK, so we
have a development programme in place; the difficulty is how to correlate that
with the development of the business.

“Some of the quite solid statistics we might look to use are things like
revenue per head or, more importantly, profit per head. For us, those are real
indicators of moving the business further up the value chain, particularly in
some of the smaller and weaker countries.

“Investment in the right people and their development and retention is going
to give you better answers in revenue per head and profit per head. We were
pleased that through 2004, even though it was quite a challenging year, we
actually did improve on both of those metrics in our business as a whole.”

If preparing the first mandatory OFR is a future task, one of the other major
challenges this year is the adoption of international financial reporting
standards. LogicaCMG ran a morning’s ‘teach in’ for analysts in December 2004,
setting out the most likely areas of impact, subsequently updating the position
this March when announcing the company’s 2004 results. Keating supports the
introduction of IFRS, even though he would prefer a different treatment of share
options. “We have always believed that share options are a cost to existing
shareholders, not to the company. My sense is that most of the analysts will
look through that charge (for share-based payments), as they have done with
goodwill amortisation.”

One wonders whether Keating is able to apply some charm to help keep analysts
on side. The thought triggers great amusement. “I’m not sure a lot of people
around here would call it charm,” he says. “They might call it bluntness, or

Charm and bluntness were perhaps both called for back in 2002, when the
proposed merger between Logica and CMG was announced. “There was a lot of
scepticism among the market analysts that we would succeed in bringing together
two organisations of roughly the same size, and where there was a perception of
some significant cultural differences,” admits Keating, who came from the Logica
half. One example of this cultural divide was the existence of the CMG company
tie, which reportedly caused some Logica employees concern. For the record,
there is now a LogicaCMG company tie, but employees (and directors) don’t
necessarily feel the need to wear it.

However, Keating believes the strategy behind the merger was sound. He
outlines the four key reasons for it. “First, our customer base was telling us
they wanted to do business with a smaller number of larger organisations that
had greater scale and capability,” he says. “The second reason was that the IT
services industry has gone through a tough time over the past three or four
years, and it presented us with an opportunity to reduce the cost base of the
combined company significantly. We needed only one corporate head office and in
each of our major countries we were able to bring the two businesses together
under one management team. The third was that it gave us the opportunity to
cross-sell the products of one company into the customer base of the other. And,
finally, both companies had businesses in the wireless products space. We
believed that putting those two businesses together was going to give us a
stronger business to be able to compete against the likes of Eriksson and Nokia.

Actually delivering anticipated merger benefits, of course, is a challenging
task. Keating believes the post-merger integration programme helped to deliver
improvements quickly. Its first key plank focused on the people in the business.
Decisions on who would be in charge, and who would lose their jobs, were made
quickly. Second, the aims of the cost-saving programme were also cascaded
through the organisation. “It wasn’t just a wish list at the top of the company
that we would like to do something. It was a plan built from the bottom up,
country by country.”

Cross-selling opportunities were also identified rapidly, and a major
programme of systems integration was also launched. “We have a system which
defines how we do things around here,” Keating says, “how we plan to make a bid
to a customer, how we deliver a project or service, how we manage recruitment
and our internal reporting. So, wherever we go in the company, we are looking at
things in a common way and the terminology we use means the same thing. That was
an important part of getting one company, one culture and one set of systems.”

The final plank of the integration was called ‘business as usual’; in
essence, taking pains to reassure customers that they would still receive the
same service they always had, merger or no merger. “We tried to get everybody
round the company understanding that these were the critical success factors in
the merger,” Keating says. “By having a small number of things, people got to
remember them and think about them in how we run the business.”

There is no doubting the pleasure that Keating gets from the part he plays in
running the business. He believes his CIMA training, which he began with the
Irish civil service and completed at Olivetti, got his career off to a good
start. “If you are ambitious enough you can use that training to do a much
broader role than a narrow finance role. That’s what I have been able to do
here; to take in things like the commercial part of the organisation and be a
member of the management team running the business rather than somebody who is
telling them what the answers are when the game is nearly over.”


Name: Seamus Keating
Age: 41
Qualifications: CIMA

Dec 2002: Group FD, LogicaCMG
1999-2002: Director of group finance, Logica
1997-1999: FD, Olivetti’s global IT services business (based in Italy)
1995-1997: UK finance director, Olivetti
1989-1995: Finance function roles, Olivetti, London
1981-1989: Executive officer, Irish Department of Social Welfare, Dublin

Biggest challenge: This year, for FDs and management teams,
it’s around the introduction of IFRS. It’s going to take time for the markets to
understand the impact.

Biggest hassle: I don’t like London traffic.

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