An IT strike force

Stephen Kalish, the new president of Computer Sciences Corp.'s Federal Sector Civil Group and a self-described "nerd," doesn't like to brag.

He avoids volunteering information about himself — for instance, a computer he designed for NASA's Apollo program is displayed in the National Air and Space Museum — and he doesn't gloat about CSC contract wins, such as the Internal Revenue Service's modernization effort, an Education Department contract to run eight data centers and the Federal Aviation Administration's Free Flight Phase 1 program.

But lately he's been speaking up a little more.

CSC, one of the leading information technology outsourcing and integration companies that deal with the government, shouldn't miss out on any business that could result from the new administration's commitment to outsourcing, Kalish said. So the company is pitching its software and services to federal agencies before they decide what they want to buy.

"We grow through our hard work," Ka-lish said. "We don't really believe in advertising. There are some people, even some customers, who've said our stature is so large, they'd like us to clarify our strategy."

CSC is using the strategy that helped it win the lead in the 15-year, $10 billion IRS Prime system-modernization program as a model for holding on to longtime customers and building confidence at agencies where there are new opportunities, he said.

To help implement the strategy, CSC created the Strategic IT Consulting group, which will help agencies plan future systems and draw resources from CSC's commercial and federal offerings — a sort of IT strike force.

"We want to form the Marine Corps and storm the beachheads," Kalish said. "Responsiveness is such a critical part of our culture."

CSC seems to have avoided many pitfalls that could result from a deal like the IRS modernization effort, particularly as government employees worry that outsourcing initiatives might cost them their jobs, said Albert Nekimken, vice president of research at Input, an IT market research company.

But rather than the IRS handing over all of the work to CSC, "everything the IRS does has someone from CSC looking over its shoulder," Nekimken said. "It is more consulting than outsourcing."

It's a low-profile approach, he said.

"When you're in strategic IT consulting rather than straight outsourcing, that's less of a threat to the employees," Nekimken said. "CSC's strategy is not to be flashy but to be aggressive behind the scenes and let the word spread."

If the word spreads, it could help the company rebound from its current outsourcing slump, he said. CSC announced March 16 that its fiscal fourth-quarter earnings will fall below analysts' estimates and that it plans to cut 700 to 900 jobs.

CSC's commercial sector was ad-versely affected by the worldwide reduction in the demand for consulting and systems integration, said Van Honeycutt, CSC's chairman, president and chief executive officer.

CSC is developing a restructuring plan in response, but the company's federal business may be spared, with opportunities during the next two years potentially worth $27 billion, Honeycutt said.

"Our federal business continues to perform superbly and will achieve about 14 percent growth this year, with an excellent operating margin," he said.

Although the news caught analysts by surprise, the commercial market for CSC's outsourcing and IT services is only temporarily on hold, said William Loomis, an analyst at Legg Mason Wood Walker Inc.

Government work is about 25 percent of CSC's business, and Loomis doesn't expect that to change. However, the government IT market is a good place for companies such as CSC to ride out the private-sector storm, he said.

"You've seen all the outsourcers try to boost up their federal government business," Loomis said. "The margins have improved in the federal space post the Clinger-Cohen Act, [which laid the ground rules for IT management]. Marketing to government is more decentralized and more like the commercial market. It's also more expensive [to sell to the government], but it's more profitable." Despite the loss of the multibillion-dollar Navy Marine Corps Intranet contract to Electronic Data Systems Corp. last year, CSC is pursuing other opportunities, such as the National Security Agency's Groundbreaker, for which it is bidding against teams led by AT&T and OAO Corp.

CSC's Federal Sector tries to keep its strategy in line with agencies' buying habits. Agencies such as the IRS, the FAA, the Education Department and the U.S. Agency for International Development are seeking business partners with systems integration, consulting and IT outsourcing capabilities to help them meet guidelines in the Government Performance and Results Act, the Government Paperwork Elimination Act and the Clinger-Cohen Act, Kalish said.

Under President Bush's watch, agencies will be further encouraged to get out of businesses that don't match their mission.

"We're so close to our customers' missions," Kalish said, "we basically reinvent ourselves every five years."


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