There aren't many IT industry figures that calmly drop into the conversation that they have been dining with French president Nikolas Sarkozy, but Francois Enaud, CEO of French outsourcing giant Steria can make the claim. "I had a private lunch with Sarkozy to talk about how we run Steria," he says. "We are regularly in discussion with the French government about all sorts of matters.
"The governance model that we have at Steria is unusual and of interest to many, particularly now at a period when we are all having to reconsider new forms of governance and new forms of capitalism. Our governance structure has seen our employees hold a significant portion of capital in their hands, balancing the power between the internal shareholders and the external ones. Many companies in France are looking to this as an example, and the top levels of government are taking an interest in all such examples.
"It can be difficult for very large organisations to change their governance rules. It is not so easy to do when you have achieved a certain size and you are a listed company. But even if you are very large, it is not too late to change your governance rules. If you want to go further and implement the Steria model, it is certainly better to consider it earlier rather than later, and preferably before being listed. But fair and balanced rules are implementable for and by everybody."
The Sarkozy administration is bringing in a number of changes to the traditional French way of doing things, and Enaud is at the forefront of some of these, most notably in his role as director of the new Agency for Active Inclusion (ANSA). This was created by Martin Hirsch for the purposes of social experimentation and implementing the Active Solidarity Income (RSA).
"It is about coming up with a new way of providing and ensuring a minimum level of income for every citizen of France," explains Enaud. "What was happening was that in France people could benefit from a minimum, but when you become employed you lost any minimum wage benefit. In some cases, it was more advantageous for some people to stay unemployed rather than accept certain jobs, especially part-time jobs. The government has realised that this situation was stupid. The goal after all is to reduce overall unemployment.
"The main driver for any government should be about integrating people into society, and when people are unemployed they are more disconnected from real life. With the existing system, we have been effectively encouraging people to stay unemployed. So we are now socially experimenting. There will be a more complex way of taking into account the revenue from a job and looking at what the total income is. That total can come partly from the government and partly from employers. The idea is to pilot this first then if it works, look at making it a law."
This backdrop of political transformation is reinforced by external forces of change. "This financial crisis is definitely transformational," says Enaud. "Customers are trying to accelerate their own transformations and increase their productivity. Secondly, it is about considering new innovations and investments to develop clear differentiators and success factors. The companies which will succeed in this crisis are the ones that will manage in parallel the transformation they need to make without cutting out their innovation completely."
But the nature of the type of business being done has changed. "If you go in to a client and say you are there to talk about a 10-year strategy, then it will be difficult," says Enaud. "We certainly can prepare that with you, but I am not sure that you will get very much interest. That is why the pure strategy consultants are suffering. We can help clients not to forget that long-term strategy, but to manage it and keep the same agenda for the mid-term. You have to be more rigorous than ever."
UK examples of poor outsourcing
That, of course, is where outsourcing comes in. Enaud detects a growing interest in the model on the continent, particularly in the public sector. "There are high level ministries to promote business and outsourcing," he says. "The UK also has plenty of bad examples of poor outsourcing practice, particularly in the public sector.
Enaud sees these as a good opportunity for others to learn. "Many times I use examples of UK practice and look at what the problems have been. The UK has many lessons to give to other governments about outsourcing," he says. "The UK has been very forward about using IT as a driver of total transformation. There are big lessons to be learned from the experience of private-public partnerships and how to share risk. The UK government is far more open about favouring outsourcing and considering what the private sector can bring to benefit the public.
"In the UK it has been quite natural for companies to accept the idea of offshoring, but not so much in continental Europe. The maturity of the IT services market is different in the UK. There is a lot more outsourcing to third parties and companies are much more open to considering a mix of resources. But with the downturn, it' is likely that continental Europe will go as fast as, or even faster than, the UK did.
"There have been some cultural issues as well. For language reasons, it has been much more natural for UK clients rather than French or German ones to offshore to India. Offshoring is not just about India, of course. Morocco has been an alternative to India for French-speaking companies. Everyone has to be considering outsourcing as an option just now."
The Satyam effect
Surely the recent scandal surrounding Satyam will have a negative impact on both India and the cause of offshoring? "You must not make any connection between the very specific case which is Satyam, which is absolutely a scandal, and the overall market," says Enaud. "That is just not fair for other companies. Now it is true that it might be more of an advantage for us. We have 30% of our overall headcount in India, so we can be a pure-play Indian company in some cases, but without any downside."
But given the propensity for French workers to close down the national ports at the drop of a hat, surely the perceived threat to jobs from outsourcing will remain a major inhibitor on the continent?
"What is the real goal of outsourcing? It is to reduce costs of course, but it is also to improve the quality of the service that you are offering. When you think of it that way, then you realise that outsourcing and offshoring is not necessarily linked to job cutting. Yes, it is certainly about transforming jobs and focusing on what the proper mission for staff ought to be. Trade unions can be resistant of course, but they are not so afraid of job cutting itself as that is part of the overall economy. Outsourcing is about the overall adjustment of companies productive costs. Outsourcing is a strategy for internal transformation."
Enaud argues that as outsourcing is a human-facing activity, outsourcing suppliers need to focus on their own cultural and people-centric aspects. "There is a very distinct Steria culture," he says. "You have to pay attention to the cultural aspects when you are running a business or considering an acquisition. If you do not pay attention to the cultural aspects, you are quite likely to fail when it comes to execution of strategy. Any time we have considered an acquisition, we have considered it strategically to achieve a new dimension that was not achievable as well or as quickly organically.
"We do a lot of due diligence to assess the culture and the cultural roots of a company. When it came to Xansa [taken over by Steria last year], we found we come from the same roots. We both have a people-first culture with a common point of focus on the internal shareholders. We both give our employees a key part of the governance of the company. You have to know the foundation culture of the company. The biggest problem that can result from a company acquisition is that you dilute your culture and that becomes detrimental to your identity. If you lose your identity, you lose everything."
"We have a single brand. It is Steria everywhere. It is important to increase brand awareness so we have a single brand across all geographies. We immediately made the adjustment after the Xansa takeover, both organisationally and at management level. The management community is European from top down through middle management. We have a genuine international reach."
Certainly the Steria-Xansa merger seems to have proceeded more smoothly than, for example, the HP-EDS merger. "I wouldn't want to give advice to HP and EDS, but my guess is that they will suffer a lot," says Enaud. "That's not because the deal doesn't make sense, but because they have completely underestimated the cultural gap between the two firms. HP has a product culture, EDS has a service culture - they are two completely different worlds. In the end, HP will win and the EDS business will be partly destroyed."