Capita reports pre-tax LOSS of £515m for 2017 Britain's fave outsourcing badass Capita today reported a £513.7m pre-tax loss for 2017 and tapped investors for £701m in a rights issue that it will use to fund restructuring and toward paying down debts. The London Stock Exchange-listed organ revealed that sales for the calendar year fell 4.3 per cent to £4.2bn, and it made …
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No bidding for unsustainable contracts ?
Many, possibly most ITO and BPO contracts are financially unsustainable at face value. The whole point is that the customers invariably choose on the basis of lowest cost, without understanding the business model and profit drivers for the vendor. As a result, vendor margins are backloaded to the later stages of the contract, and are usually created mostly by out-of-scope requests and the inevitable change in customer requirements. Obviously sometimes the vendor gets unlucky and the customer keeps everything within scope, and avoids unforseen out of contract change, and that becomes a non-performing contract, but those are the minority.
The new CEO is by background a petroleum geologist. So he's used to commercial risk judgements, but taken scientifically in a data rich environment. I wonder how well versed he is in the black art of outsource contracting, where the main value levers are under-bidding, persuading the customer of the huge value to be created by the outsource, and then fleecing the customer by charging an arm and a leg for anything outside of scope? If the man expects Crapita to contract on the basis of a clear profit priced into the contract, then we can be sure that business will shrink rapidly. Capita's business shrinking would be no bad thing, but it favour better outcomes for customers - they'll still outsource to the lowest cost bidder, and then act all surprised when it goes expensively wrong.
The problems of crap outsourcing are a dismal failure by the management and procurement functions of the customer - the bottom feeders of ITO and BPO can hardly be blamed since they're delivering what the market is asking for, of headline cost savings.regardless of longer term downsides. Just like McDonald's decision to throw out a working help desk arrangement to an offshore alternative, or KFC's decision to give fast food logistics to a division of the German Post Office.
No bidding for unsustainable contracts ? At least somebody seems to have found a cluebat under the sofa ...
Yeah, my first thought was that bidding for contracts you know to be unsustainable is crazy. You might find yourself in a contract that you thought was going to be sustainable but turns out not to be, but bidding for one you know is going to be unsustainable is seriously insane.
Then I thought some more, and it does actually make sense (for small values of sense). If you have deep enough pockets (like Microsoft and Oracle) then going after unsustainable contracts can be a good long term strategy. Win enough of them and some of your competitors go under because they don't get any contracts at all, or get contracts by underbidding your underpriced bid. Once you have a monopoly on the market the sky is the limit.
Of course, it doesn't always work out that way, but some companies think it's worth a try.
Then I thought some more, and it does actually make sense (for small values of sense)
You probably also didn't consider the alternative explanation. Sales are tasked with getting new work, and have a reward structure based on this. While they are probably aware that contracts that they take on are unsustainable they still get a bonus for it, and so consider it their sworn duty to collect their bonus by getting as much new work as possible, regardless of it's profitibility. Or how much money the company actually loses by winning the contract.
When this happens then the sales management are also on the bonuses, so aren't inclined to point out to senior management that they should be changing the reward structure, and so you end up with an entrenched bureaucracy. Fixing this situation by somebody at the top standing up against that entire bureaucracy is quite rare, since there would be a chorous of "all my staff will quit and the company will be ruined if you do this". Of course, if you let them carry on then the company will be ruined and nobody will have a job...
My divisional boss used to have a saying along the lines of "Revenue is vanity - margin is sanity". He had the honesty to stand up at a meeting of all the divisional staff - and reported that a much hyped joint venture with a smaller company had resulted in "bugger all".
He was a breath of fresh air. He understood that most senior management were playing at theatricals without admitting it to themselves - but he knew when to drop the charade. His troops were very loyal to him - especially after he appointed himself pizza/kebab courier as the only useful thing he could to help a project technical team in the small hours.
And he said Capita would no longer bid for unsustainable contracts.
Why would you bid on those contracts anyway?
He said the firm's focus will be on developing its own proprietary software.
Proprietary software that will lock people and make it next to impossible to leave, well that's one way of generating income.
Proprietary software that will lock people and make it next to impossible to leave, well that's one way of generating income.
I would have thought that he's referring to the 35 CRM systems. Developing a proprietary systems is actually a very sensible way to go, although not without considerable risks. And one of those risks is demonstrating to customers that you don't trust third party IT vendors or solutions services.....
“Why would you bid on those contracts anyway?“
Salesmen will bid on anything that earns them a commission. Once the deal has been struck, delivering it becomes someone else’s problem. If salesmen earned commission on profit rather than sales order value then you would see a completely different outcome.
Salesmen don't get to choose to bid on stuff - the business decides whether it'll bid on what the salesman brings to the table. That'll involve product, pricing, marketing, legal, finance, management, service delivery, support, and sometimes the bloke who cleans the fountain in reception.
Nobody bids on anything without huge numbers of people agreeing it can be delivered and supported.
Once the deal is struck, delivery is down to the Service Delivery guys, who will have previously agreed they can do it.
"Once the deal is struck, delivery is down to the Service Delivery guys, who will have previously agreed they can do it."
Yeah...only if governance procedures are being followed correctly, or exist in the first place. The assumption that Service Delivery know what Sales are selling is not always true, sadly.
Sales go after what they can get commission on. There is still a widespread unwillingness to be honest about the true cost of IT projects so bids are often under costed (I think this is true on most IT projects, not just ones which are outsourced).
Also, the clients are not always be totally honest about their internal setup e.g. they will say someone who understands system X will be available 3 days a week to support but actually they are committed to 3 other projects already. Even big players like Capita aren't always savvy enough to lock that down contractually.
When the poor souls who actually have to deliver it get stuck in and find out the client is a basket case or the bid was full of ridiculously optimistic costs/assumptions the sales staff are long gone by then of course... Former Systems Integrator and managed service provider developer here, definitely not bitter.
We once had a business model where we invested in integrating and testing a standardised hardware/software solution to fit a generalised market niche.
The first customer came - and the salesman ordered a different hardware model because he could get a "good deal" on it. Which then took us several weeks even to get the LAN cards to work - wiping out any profit.
..have been under investing in their own IT. And these are the same people you outsource to, to manage your IT. Managers, read that*
*They will, then still choose Crapita anyway. A NHS Trust I know went to them for IT support a few years back. They've regretted it ever since. I have no sympathy. We warned them it was a mistake.
Phone call three weeks ago from a recruitment consultant I know
"Hello Salestard. Capita are recruiting salespeople, would you be interested"
"Not a chance"
"They're paying well"
"Still not a chance"
[sighs] "This is getting silly. You're the twentieth person this morning who's dismissed them out of hand"
The humane thing for Capita would be to take it round the back of the shed with the shotgun and put it out of its misery.
"Still not a chance"
You couldn't capitalise on their desperation by demanding a huge base salary, guaranteed minimum bonus, and nine months notice?
Obviously "salesman working for Crapita" would be a big stain on your CV, but you could always claim to have been unemployed, or in prison. Or just describe it as a sabbatical.
Big stain on my soul, never mind the CV.
That's when you *know* a place is bad - even the sales types are seeing it as a stain on their souls[1]..
[1] I thought that you all had to give up your souls as part of the induction into being a sales person? Much like an IT person has to give up their sanity to join a helldesk..
"when they collapse, there'll be no job losses in the UK,"
If only.
My Local Authority has put just about everything in to outsourcing with Crapita as the handling agent.
Many of these people used to work for the LA before being nudged out.
Many are also on better money and that also presents problems.
As with Carillion, if Crapita goes the top end doesn't get affected but that bastard butterfly takes over.
- can't deliver working software to buyers
- horribly expensive
- can't manage their own IT
- can't even make money themselves (can be dangerous to customers if they go bankrupt)
- universally loathed which means you can't argue anymore that your purchase was using a reputable vendor
What's the rationale behind retaining the services of these clowns? Schmoozier salesmen?
same goes for others too nowadays, -cough- IBM- cough
Anyone who knowingly works for a financially unsound employer will only have themselves to blame for not leaving the boat earlier. If they have any skill at all then it is being wasted in CAPITA and they should move elsewhere as soon as possible, to become productive members of the society again. If the only motive for such move is the bankruptcy of the employer then, well, who is to blame? Commendards or stick-in-the-mud workers?
The work that Capita does will still need to be done, so the vast majority of those 70,000 will end up doing the same jobs but for the actual organisation that needs the work done.
The only people who will lose their jobs will be the sales drones and the ones who actually run Capita.
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