by T.C.Doyle

What do Internet users in Africa, Wimbledon enthusiasts in England and census takers in the United States have in common? They all rely on global services systems integration companies to keep their information flowing. Big, hulking and growing, the world's largest systems integration companies, as measured by the 1997 VARBusiness 500 ranking, are as diverse as the projects they take on.

If nothing else, however, global, marquee projects-such as the Web site IBM Global Services built for the Wimbledon tennis championships or the human resources application that Andersen Consulting is helping the U.S. Census Bureau deploy-unite the biggest solutions companies in a way their diverse geographies, best practices, management styles and business interests can't do.

No other companies in the world have demonstrated time and again the capacity to provide for an endless array of demanding information technology projects. And relatively few have the wherewithal to provide gateways to the Internet the way that Science Applications International Corp. (SAIC) does for 20 African nations under a U.S. General Services Administration contract.

Though they may slip on occasion-IBM's vaunted information systems couldn't post scores correctly at last summer's Olympic Games-the growth of the world's largest systems integration companies this year suggests that the big and the bold are getting stronger and more dominant in key markets. They're doing so by staying ahead of new technologies such as Java and the Internet. More than new technologies, the top VARBusiness 500 companies are broadening into new vertical markets and customer demographics.

No longer are the likes of Andersen Consulting passing up opportunities in the small and midsize customer market segments. "All Big Six [accounting companies] I know are moving downstream," says Phil Rugani, senior vice president of alliances worldwide at Oracle.

Top VARBusiness 500 companies, which include IBM, EDS Corp., Digital Equipment Corp., GE Capital IT Solutions, Andersen Consulting, Computer Sciences Corp., Automatic Data Processing Inc., Comdisco Inc., GTE Corp. and SAIC, are showing an unprecedented level of pragmatism and market savvy. They are making shrewd acquisitions to facilitate expansion into new areas, and entering into joint ventures and establishing partnerships that would have been considered heresy just a few years ago. Like their smaller brethren, large IT service systems integration companies are doing so to avoid passing on business simply because they cannot hire enough qualified personnel to satisfy customer demands.

As strong as the largest VARBusiness 500 companies have become, however, there remains plenty of opportunity for newcomers to make their presence felt. Consider that until last November, GE Capital IT Solutions didn't exist in its current incarnation. Nevertheless, the GE business unit based in Stamford, Conn., vaulted past Anixter Inc., Deloitte & Touche Consulting Group, Unisys Corp. and others to climb to the No. 4 slot on this year's VARBusiness 500 ranking.

Here's a look at the growth the largest VARBusiness 500 companies attained this year; the technologies they pursued; the directions they headed in; the partnerships, acquisitions and deals they made; and the up-and-coming players who hope to dethrone them.

VARs On Steroids

The companies at the top of this year's VARBusiness 500 list include independents such as EDS and Computer Science Corp., the professional services arms of such computer hardware giants as IBM Global Services and the consulting divisions of the Big Six accounting and management firms Andersen Consulting and Ernst & Young LLP. Each is vying for a chunk of the $782.6 billion that Dataquest Inc. says customers the world over will spend in 1997 on information technology, in particular, the lucrative 37.6 percent of that total that will be spent on services. In the United States alone, spending on IT services is expected to grow at a compound annual growth rate of 10.9 percent through the year 2000. By then, the domestic IT services market will reach almost $150 billion, more than half of which will be professional services that leading VARBusiness 500 companies aggressively pursue.

Without question, the largest VARBusiness 500 companies are growing rapidly as the market for professional services expands. For example, the top 10 VARBusiness 500 companies (sans GE) grew by $8.9 billion between fiscal 1995 and fiscal 1996, almost $1.5 billion more than software powerhouse Oracle will likely generate in total sales this year.

In fiscal 1996, IBM Global Services alone grew by 25.2 percent to $15.9 billion. If split from IBM's hardware and software businesses, the revenue IBM's services unit generates is sufficient to make IBM Global Services a Fortune 500 services company. No wonder the Somers, N.Y., business unit announced plans in the middle of the year to add 1,500 people to its organization.

Several worldwide business trends are fueling this unprecedented growth. Gartner Group Inc. in Stamford, Conn., says that "rising numbers of mission-critical projects and limited internal resources are forcing companies to increase investments in external services providers." As a result, the consulting firm predicts that more than 80 percent of large enterprises will use consultants and systems integrators as a routine means to increase competitiveness or gain new skills by the year 2000.

Dataquest in San Jose and Forrester Research Inc. in Cambridge, Mass., cite other trends as major growth stimulants. Forrester says multinational corporations are forming global information technology departments and are looking for companies that can provide consistent terms, levels of service and technology know-how on a worldwide basis. Similarly, Stephen Clancy, principal analyst with Dataquest's IT services group, says, "over the past five years, customers increasingly are seeking a single provider that can deliver services to cover multiple products and platforms." That, of course, bodes well for the largest and most capable of suppliers, analysts agree.

As healthy as the market is, some integrators are nonetheless experiencing growing pains. Plano, Texas-based EDS, for example, told Wall Street analysts in May to plan for weaker second-quarter financial results than what many analysts had predicted for the company. EDS, officials say, would undertake an unprecedented "enterprisewide business initiative" to make itself leaner and more competitive. Ultimately, the move could save EDS up to $700 million in operating expenses, but it will cost EDS between $100 million and $250 million to get into that shape, the company said.

Andersen Consulting, too, has endured some recent growing pains, though its financial impact pales in comparison. This spring, Andersen Worldwide, the parent to Andersen Consulting, almost appointed Andersen Consulting managing partner George Shaheen to the position of chief executive of Andersen Worldwide. Shaheen would have been the first Andersen Consulting executive named to the position. In late June, the appointment seemed imminent, but at the 11th hour, the company said Shaheen failed to get the needed two-thirds of the votes from Andersen's 2,700 partners. Afterward, the company said it would defer the election of a new chief executive until a later date. Shaheen, of course, can console himself knowing that under his leadership, the consulting business unit generated a whopping $1.3 billion more in revenue in fiscal 1996 than it did in fiscal 1995.

Tech Trends

No single phenomenon has accounted for more of that growth than the advent of the Internet. Though they may have been slow to embrace Web site building and content development, the largest systems integration companies have hustled to get ahead of technology trends, not to mention ahead of their competitors. IBM Global Services, for example, unveiled a series of services that offer Web hosting solutions to various customer sets. Those offerings, IBM says, "make it easy for customers to upgrade and grow their Web sites, scaling from a small server to a multiserver environment." Since then, IBM has substantially broadened its Internet services portfolio.

EDS has also targeted the Web as a market for key growth. The company now has a business unit, known as c20 Interactive Architects, which it relies on to help customers design and develop Web sites. In its first four months of operation, the unit attracted $400 million worth of business, according to EDS.

Others are also expanding their Net portfolios. Some are looking to pioneer new areas of online communications the way shoestring start-ups did at the onset of Internet interest. In February, Computer Sciences Corp., for example, joined with Healtheon Corp. to provide health care administration services via the Net. Healtheon, the newest venture of Netscape Communications Corp. co-founder Jim Clark, named CSC as its first "Certified Implementation Partner." As the company's first flagship partner, CSC has been set to the task of rolling out services throughout the United States, providing management consulting, project management and systems integration, according to CSC.

Ernst & Young, meanwhile, is also looking to take a leading-edge position in a hot new technology, in this case, Java. "Java will play a significant role in our practices, helping customers on several fronts," says Colette Coad, an Ernst & Young consulting partner based in Sacramento. Java will provide Ernst & Young with a framework for rolling out consistent management solutions across disparate hardware platforms simultaneously. Should the market demand thin clients and network computers, Java could also be a lucrative source of revenue. That would come from massive PC replacement projects.

While IBM's various software business units plan on adopting Java, so too, has IBM Global Services. It has begun offering a Java training course right over the Web.

Short of the Internet, the biggest potential moneymaker for top VARBusiness 500 companies could be selling solutions that help enterprise customers overcome their Year 2000 computing problems. According to Gartner Group, only 12 to 15 vendors will be able to provide complete Year 2000 services on a multinational level by 1998. The rest will either have to outsource to more capable providers or make do with limits, the researcher concludes. Gartner also predicts that top service providers will be able to charge premium rates of up to 100 percent to enterprise customers that fail to address the problem head-on this year. Among those Gartner thinks are well-positioned to benefit from Year 2000 projects are Andersen Consulting, Ernst & Young and IBM.

EDS Services 2000 group alone expects to add 400 positions in the next several months as a result of new business in Year 2000 systems conversions and project management. An additional 1,000 people are expected to be added next year. Already, the company has engineers converting code at EDS's headquarters in Plano and at company facilities in Austin, Texas, and Denver. Additional centers are planned for Camp Hill, Pa., Dublin, Ireland and Asia. In all, EDS says there is a "$1 billion-plus business pipeline" for Year 2000 solutions.

While not as time-sensitive as the Year 2000 issue, enterprise applications deployment has become another hot area for top VARBusiness 500 companies. Price Waterhouse, for example, has become one of the largest SAP product implementers in the United States, boasting, by its own reckoning, a 50 percent market share among Fortune 200 companies that have deployed SAP's products. The Price Waterhouse Global SAP Practice includes 2,000 trained SAP consultants and 11 Global SAP Design Centers. Of late, the company has expanded into SAP R/3 training through a partnership with Gartner Group Learning, the training arm of Gartner Group. The two companies have joined to produce a bevy of SAP R/3 3.0 training tools. As a result of their collaboration, the two companies expect to release 80 training titles during the next year.

Collaborations And Acquisitions

Partnerships, of course, are nothing new. But the degree and diversity of recent collaborations are. For example, Digital stunned market watchers when it announced that it would outsource its Multivendor Customer Services Administration to competitor EDS. The eight-year agreement calls for EDS to take over Digital's administration of invoicing, accounts receivable, customer order processing, product fulfillment, pricing and sales quoting processes, and pre- and post-order administration. The deal is only one of several pacts that would have seemed all but impossible just a few years ago.

IBM Global Services, for example, has created a series of packaged services that its Business Partners can resell to their customers. The IBM ServicePacs have become popular among certain IBM Business partners, despite the fact that IBM Global Services competes head-to-head with some of the very VARs that like reseller ServicePacs.

EDS, meanwhile, has also outsourced certain services to competitors. The company, for example, has subcontracted with IKON Office Solutions Inc. to meet the PC integration needs of certain customers, even though IKON, a $500 million services company with aspirations of becoming a $2 billion services powerhouse within a year, hopes to run into EDS more often on grand-scale projects. According to Darl McBride, vice president of technical services at IKON, such outsourcing partnerships could account for as much as 30 percent of his company's services business in the near term. "When big providers win large deals, they tend to need help back-filling. It's true 'coopetition,' and we are only too happy to have some of that business," he says.

Partnerships of a deeper nature are also helping companies such as IKON grow. To expand into new technical or vertical fields, top systems integration companies are relying on acquisitions to help them meet their goals. With a desire to crack next year's VARBusiness 500 Top 10, IKON, for one, is planning to renew an ambitious buying binge that has already led to the purchase of 30 different services companies. Old-timers, including CSC, are also getting into the act. In the past year, the El Segundo, Calif., company has acquired Pinnacle Group, a South East PeopleSoft VAR, and Kalchas Ltd., a 70-person London-based management consultancy with clients in Europe and the United States.

Consolidation of its parent has not slowed progress at MCI Systemhouse Corp. (formerly SHL Systemhouse). It makes its debut on the Billion Dollar Club roster this year after having been acquired first by MCI, which was, in turn, acquired last year by British Telecom. The systems integration business has obviously figured as an asset in both acquisitions.

Born To Be Big

Looking ahead to next year, the market could shift as much as it did this year and last. Consider that upstarts including GE Capital IT Services are consolidating their powerbases. GE, for example, only announced the formation of the new business unit last November. It brought together several companies that had been operating under GE's Technology Management Services (TMS) business unit, which is owned by GE Capital. GE Capital IT Services combined the operations and assets acquired from AmeriData Technologies, a leading desktop and network systems provider in North America and Europe; Ferntree Computer Corp., a desktop systems integrator in Australia; CompuNet Computer AG, a provider of distributed computing and communications technologies in Germany; and TMS-Canada, a systems integration business that operates north of the U.S. border.

The new company became a $5.5 billion player with more than 9,000 employees almost overnight. This year and next, GE hopes to create a common identity and common management structure that will allow it to operate seamlessly around the globe.

Another group of solution providers to keep an eye on is the services units of global software giants-who, for this year at least, remain just over the line that separates independent integration companies from their captive cousins held tightly inside their parent's control. Oracle, for example, will likely generate more than half of its estimated fiscal 1998 revenue from services for the first time in company history. Service revenue is growing at a 40 percent annual rate, meaning maintenance, consulting and applications services sales will approach $4 billion next year, according to analysts. By way of comparison, that would put Oracle's services unit just behind CSC at No. 7 on this year's VARBusiness 500 ranking. Likewise, Netscape has a large and growing services business. Today, it accounts for a quarter of Netscape revenue, though the figure includes basic software sales off the company's home page. Where that business unit is headed is anybody's guess. But as GE proved this year, there's always room at the top.

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SAIC Wins African GSA Contract

The deal: SAIC (VARBusiness 500 rank: 10) wins contract from the General Services Administration to provide gateways to telecom providers in 20 African countries, for dissemination of Internet services.

The contract: $4.4 million over five years.

The benefit: Through the use and exchange of electronic information and technology, African nations can improve their economic development.

Key vendors: SAIC in the lead, with Lyman Brothers, Metters Industries and Morocco Trade & Development Services of Rabat.

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Sidebar-

The Billion Dollar Club

Company: IBM Global Services

Rank: 1

'96 VAR Revenue($ Billions): 15,900

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Company: EDS Corp.

Rank: 2

'96 VAR Revenue($ Billions): 14,441

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Company: Digital Equipment Corp.

Rank: 3

'96 VAR Revenue($ Billions): 6,200

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Company: GE Capital IT Solutions

Rank: 4

'96 VAR Revenue($ Billions): 5,500

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Company: Andersen Consulting

Rank: 5

'96 VAR Revenue($ Billions): 5,300

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Company: Computer Sciences Corp.

Rank: 6

'96 VAR Revenue($ Billions): 4,242

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Company: Automatic Data Processing

Rank: 7

'96 VAR Revenue($ Billions): 3,566

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Company: Comdisco Inc.

Rank: 8

'96 VAR Revenue($ Billions): 2,400

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Company: GTE Corp. (Gov't. Systems Div.)

Rank: 9

'96 VAR Revenue($ Billions): 2,260

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Company: Science Applications International Corp.

Rank: 10

'96 VAR Revenue($ Billions): 2,200

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Company: Entex Information Systems

Rank: 11

'96 VAR Revenue($ Billions): 2,148

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Company: Ernst & Young LLP

Rank: 12

'96 VAR Revenue($ Billions): 2,100

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Company: Compucom Systems Inc.

Rank: 13

'96 VAR Revenue($ Billions): 2,000

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Company: Unisys Information Systems Group

Rank: 14

'96 VAR Revenue($ Billions): 2,000

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Company: HP Prof. Services Org.

Rank: 15

'96 VAR Revenue($ Billions): 1,900

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Company: Vanstar Corp.

Rank: 16

'96 VAR Revenue($ Billions): 1,800

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Company: TRW Systems Integration Group

Rank: 17

'96 VAR Revenue($ Billions): 1,700

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Company: Anixter Inc.

Rank: 18

'96 VAR Revenue($ Billions): 1,675

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Company: The Sabre Group

Rank: 19

'96 VAR Revenue($ Billions): 1,600

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Company: Price Waterhouse LLP

Rank: 20

'96 VAR Revenue($ Billions): 1,441

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Company: MCI Systemhouse Corp.

Rank: 21

'96 VAR Revenue($ Billions): 1,400

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Company: Integris

Rank: 22

'96 VAR Revenue($ Billions): 1,300

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Company: Inacom Corp.

Rank: 23

'96 VAR Revenue($ Billions): 1,127

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Company: Booz Allen & Hamilton Inc.

Rank: 24

'96 VAR Revenue($ Billions): 1,100

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Company: Wang Laboratories Inc.

Rank: 25

'96 VAR Revenue($ Billions): 1,050

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Company: BDM International Inc.

Rank: 26

'96 VAR Revenue($ Billions): 1,002

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Sidebar-

Andersen Helps U.S. Census Bureau

The Deal: Andersen Consulting (VARBusiness 500: rank 5) wins job to implement PeopleSoft HRMS human resource software for the U.S. Census Bureau, to help with the hiring and administration of 500,000 temporary employees for Census 2000.

The Benefit: To help the Census Bureau conduct a more accurate, less costly census. Expected savings are anticipated to reach $1 billion.

Key Vendors: Andersen Consulting and PeopleSoft.