Only two years after failing to break even, Origin the Eindhoven, Netherlands-based IT services arm of Dutch electronics giant Philips seems to have made a remarkable recovery, recording sales of $1.76bn during 1998 an increase of 25% over the previous year. Perhaps more importantly, the company turned a profit of around $63bn. Not great, but significant after its years in the doldrums.
The turnaround has been engineered by a former Price Waterhouse partner and now CEO, Robert Pickering, who joined Origin in February 1998. Since then the company has undergone a significant restructuring around three main service lines: enterprise solutions (concerned mainly with ERP solutions), managed services (outsourcing and business continuity) and professional services (IT consultancy). Enterprise solutions are Origin’s biggest earner with around 36 % of revenues while managed and professional services make up about 33% each.
Origin has also started to focus more clearly on its key vertical sectors of pharmaceuticals/life sciences and high technology, which generate about 20%-25% and 20%, respectively of revenues. Energy and consumer packaged goods are also important to Origin (around 5% each). The company is, however, keen to exploit the sizable IT budgets of the financial services and retail markets. Origin likes to stress though that its focus is more towards global customers than specific industries. Origin is putting a lot of resources into attracting customers with revenue between $150m and $600m.
Increased sales will mean less of a dependency on the Philips parent group with this revenue stream declining from 36% in 1998 to 29% in 1999. Geographically, Origin’s sales are split mainly between Europe (around 65%), the US (12%), Asia/Pacific (5%), and South America (5%).
Pickering feels that, with the strategy in place, Origin’s most sensible course of action is to aggressively expand on this, retaining its industry and services focus while allowing some careful expansion. The main thrust of Origin’s services growth is in ERP extensions such as customer relationship management and supply chain planning. Origin already has some 3,000 plus SAP consultants and between 900 and 1,000 Baan consultants making it the biggest third-party ERP integrator in Europe. Despite Baan’s recent financial difficulties and subsequent lay-offs Origin is keen to reaffirm its ongoing support for its Dutch compatriot. Although Origin’s growth in Baan services has slowed its profitability has actually increased, a phenomenon that Pickering attributes to Origin’s expertise in Baan customizations.
Origin also supports JD Edwards, PeopleSoft and Oracle ERP software, although these make up only a small part of its revenue stream. This experience could prove useful in Origin’s future plans, however. The company wants to be at the forefront of web-delivered ERP services where a customized front-end hides an underlying system built from a combination of features pulled from the most appropriate ERP packages available. Pickering is aware that there are technical problems inherent in such an approach but feels confident that they will be solved in the next two to three years.
Origin has already performed what it claims to be the largest ever SAP implementation, by setting up a 25,000 user license system for Saudi Aramco. It is confidently expecting that this contract will be extended to include the full lifecycle services. Origin is also set to announce two or three global outsourcing deals in the consumer electronics and energy sectors, he told us.
Origin will concentrate its geographic expansion in the UK, the US, Germany and Asia. Although it has grown mainly organically to date, acquisitions now look increasingly likely. Pickering says he will be surprised if Origin hasn’t made any acquisitions in 12 months time. However, the company is being careful not to acquire simply for the sake of it. It says it will only look at companies that boosts its current strengths in some way. With this in mind, Origin’s first targets are likely to be outside the US. Pickering has seen the difficulties European services firms like Logica, Cap Gemini and Sema Group have had in the US. He is biding his time. You can’t gain market share easily by buying a small company in the US. In the UK you can. Small ERP integrators in Europe and Asia/Pacific should take note.
Assisting this aggressive growth policy is the likelihood of an initial public offering for Origin within the next two to three years, finally breaking the company’s dependence on its parent Philips. Pickering is acutely aware that for this strategy to work Origin will need to work hard to raise its profile. Increased marketing effort is the most likely outlet although the company will also continue to improve its already substantial referrals list which currently accounts for around 40% of business. The company has also now ended its search for external investors following its aborted talks with Price Waterhouse in early 1998. A respectable pace of organic growth and a return to profitability having given it renewed confidence to carry on by itself.
Origin presently has a staff turnover rate of around 15%, although it claims an actual attrition of around 10% taking into account forced losses. This is some way below the industry average of around 20%. However, the company claims that the greater part of this loss is to start-ups rather than established services companies. The company added 734 new heads during 1998.
Pickering accepts that Origin faces an uphill struggle to break the stranglehold of the ‘Big Five’ services vendors. But he remains confident. In fact, Pickering claims Origin does not come up against the likes of EDS and CSC on a regular basis, considering only IBM Global Services to be a genuine competitor in Origin’s space. Pickering also believes Origin’s low profile combined with its relatively large size will be a boon. Origin has size that you don’t see. We’re not disadvantaged by us not owning a global network, for instance. We have partners that supply this infrastructure. Our size makes Origin behave more like a smaller, leaner company. It feels like a startup. There’s no reason we can’t double our size in three years.
