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Outsourcing giant Capita has issued a profit warning and announced a restructuring plan that includes selling off non-core business divisions.
Capita is a diverse outsourcing group, with IT services as one of its competencies. The news comes at a time when large-scale outsourcing in the private and public sectors is being widely questioned, following the collapse of Carillion.
Customers have no say in how service providers run their businesses, so risks taken by them become risks to customers.
Following the warning, which saw Capita’s share price plunge by 40%, CEO Jonathan Lewis said the company had become complex in terms of its offering.
“We are now too widely spread across multiple markets and services, making it more challenging to maintain a competitive advantage in every business and to deliver world class services to our clients every time,” he said.
Lewis said various divisions, including IT services, faced financial challenges, with “headwinds particularly expected to impact upon the financial performance of the private sector partnerships, in both insurance services and customer management, public services partnerships and IT services divisions”.
Capita cited delayed decision-making by customers as one of the reasons, as well as costs related to complying with the General Data Protection Regulation (GDPR).
Capita provides a diverse set of IT services to public and private sector customers. For example, it provides ICT services to 1,100 schools in Northern Ireland through a managed IT service to 350,000 users, including a cloud-based network for access to educational resources and collaboration. Another recent contract saw HSBC implement Capita’s Omiga mortgage software to create a single platform for brokers in an attempt to increase business via this channel.
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One source speculated that it might be difficult to sell off the IT services division.
“My understanding has always been that the IT services business was more central, internal and embedded, not a freestanding business. How often has Capita sold IT services on their own? Or claimed to be an IT services business? IT-enabled, yes. So not sure that Capita is in a position to sell its IT services division,” he said.
The source added that operations such as the car parking business would be easier to sell.
Peter Schumacher, CEO at outsourcing advisory The Value Leadership Group, said: “Capita’s problems reflect, in part, the enormous competitive pressure the company faces from offshore services firms such as TCS [Tata Consultancy Services].”
He added that offshore companies, which are financially powerful and always looking to increase their customer base in the UK public sector, might be potential buyers of parts of Capita’s business. “A break-up with divestiture of some of its more promising business to offshore-based competitors is a possibility.”
With the collapse of Carillion, which provided blue collar outsourcing services, fresh in people’s minds, the outsourcing industry could face a drop in confidence. Had Carillion been an IT services provider, IT decision-makers might have been putting in place emergency plans. The Capita warning, however, brings home some of the considerations for IT decision-makers.
Steven Hall, president for Europe at IT outsourcing advisory ISG, said the Carillion collapse was a strong reminder to businesses outsourcing in any sector to understand that outsourcing does not mean offloading. “It might encourage organisations to ensure the right controls are put in place when outsourcing,” he added.