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Covansys restructures global operationsnews
Venkatachari Jagannathan
22 March 2001

Covansys Inc., the US-based software company, has bagged the global auto giant Ford Motor Company's mandate to take care of its global e-com solutions based out of India. The $100 million-plus per annum contract work will be executed by its wholly-owned Indian subsidiary, Covansys (India) Ltd., or through a joint venture with Ford Motor.

When contacted for details, officials of Covansys, including the company's president and chief executive officer (CEO) Mr. Michael W. Bealmear and the managing director and president of Covansys India Mr. V.V. Sundaram, remained tight lipped.

All that they are willing to say is that Covansys was "talking" with a global automobile company in the area of e-com.

Interestingly, Covansys has a five-year $60-million contract with Henry Ford Health System, a leading healthcare provider in the US, for application development, maintenance and assistance in managing and administering software projects.

Some time ago, the Ford Motor company had announced that it would set up a software development centre in India in joint venture with a domestic software company and
had acquired around 1 lakh sq.ft. of area at Tidel Park, a software development centre in Chennai.

Meanwhile, after a bit of internal churning, everything is new at Covansys. Right from the company's name (formerly it was Complete Business Solutions Inc.) to the management and the business strategy, Covansys is presenting a fresh look.

Explaining the rationale for the name change, Mr. Bealmear says, "The name Covansys is a symbol of our promise to deliver results from the inside out, and the world-class facilities of Covansys (India) Ltd. will play a critical role in helping us keep that promise."

Smarting under $40 million write off – $24 million towards investments, goodwill and receivables, $14 million towards business restructuring – Covansys is now in the process of realigning its business strategy. The write off was necessitated due to the company's exposure in several dotcom companies – as an investor as well as a web site developer.

"Many of them went off our radar suddenly," is all that Mr. Bealmear has to say about the company's fiasco.

The net result was Covansys declared a net loss of $1.77 million for fiscal 2000 on a reduced turnover of $420 million. The company posted a turnover of $462 million during 1999.

The turnover reduction is due to Covansys' selling off its education business in the US and shutting down of its Australian subsidiary. Added to that was the drying up of Y2K contracts.

"The company is in the process of a transformation," remarks Mr. Bealmear. The transformation he talks about is the revised business focus of Covansys being planned by re-engineering its activities. According to him, if it succeeds, the company will become a $2 billion-turnover company in five years' time, a quantum jump from its current levels.

He plans to reach the target through a series of mergers and acquisitions in the UK, France and Germany. The acquisitions in Europe will enable the company to spread out its operations and also minimise its geographical risk.

Currently, the company's operations are pretty much North America-centric with that region accounting for 80 per cent of Covansys' turnover. "Asia and Europe contribute the balance," he adds.

Clayton, Dubilier & Rice, an investment outfit, which has put in $ 200 million in Covansys for 30 per cent stake in the company, equally shares his faith. Covansys is moving up in the software value chain. The company earns 50-55 per cent of its turnover from contracts in main frame, 30 per cent from client server technology and the balance from emerging areas like e-com/web-to-enterprise Integration.

The company provides the web-to-enterprise integration services to automotive, retail, distribution and supply chain industries amongst others.

According to Mr. Bealmear, Covansys commands healthy billing rates – $35/hour (offshore) and $ 125/hour (on shore). Speaking about his new business plan Mr. Bealmear says, "The old model of having branch offices in different places and delivering locally is fine for small companies but not for the one targeting a turnover of $ 2 billion." The aim is to make Covansys one of the top five offshore software companies in the world.

Apart from European expansion, where the company has around 200 employees, Mr. Bealmear has big plans for the company's wholly owned Indian subsidiary. "The Indian subsidiary will be the fulcrum of our plans," adds he.

Adds Mr. Raj B. Vattikuti, the founder of Covansys, "The Indian company is clocking 40 per cent growth and last year it posted a turnover of Rs.140 crore."

Covansys' strategy is to build capacity in India and leverage it overseas. "We will have nearly 3,000 software professionals in India by the end of this year," projects Mr. Bealmear.

Currently a SEI-CMM-level 5 company, Covansys (India) has 1,800 employees. One of the major contracts that is being executed by it is for Amerisure Mutual Insurance Company valued at $ 60 million spread over four years.


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Covansys restructures global operations