When third-party service provider firms decide to spin out a division of their company, it forces the provider’s customers to also make decisions about how best to move forward. That is the situation customers of French multinational IT firm Atos now face since it announced on June 14 that it is separating into two companies. Here is a guide to the implications and the considerations customers need to include in their decision-making.
Reason for the separation
At the beginning of this year, Atos undertook a journey to transform its group of companies. As it announced earlier this month, the separation into two companies with distinctly different markets is the next step in that transformation plan.
One of the two new companies, Evidian, combines the digital, big data, and cybersecurity (BDS) business lines. The other new company, which will retain the name Atos, spins out the Atos Tech Foundations business line, which includes modernizing mission-critical systems, legacy, and IT infrastructure management services. The firm is considering whether it will also spin off BDS and combine it with its services that help customers move to the cloud.
The separation is designed to allow the separated companies to invest in what they do best for customers as well as enhance the chances for growth and long-term success of both.
However, when there is a spin out, and a company breaks into smaller pieces, each piece needs to stand on its own and will go through a cost-cutting process. Furthermore, unbundling can be painful, and disruption is inevitable. Some of that will affect customers.
Three options for customers
As an existing Atos customer, your company’s unique circumstances will frame the decision-making around these three options:
· Choose one of the separated companies and double down on gaining commitments for the level of service and investments in capabilities that you need
· Unbundle some of your existing services and switch them to a different service provider while doubling down on the services you choose to remain with, Evidian or Atos. Or unbundle all the services and split them among new providers in a best-in-class, multi-vendor approach
Your unique circumstances also include how much risk your company is willing to take regarding the outcome of your decision.
Before assessing your potential risks, you need to conduct a thorough assessment of the services Atos has been delivering to your company. Break the services down into towers and make sure you understand which towers are worth the effort of shifting to a different service provider and which are better left with Evidian or Atos.
Let’s look at some of the scenarios you will need to weigh in deciding to stay or go.
Viability risk. How viable is each company going forward after the separation? Will they be adequately capitalized? Will Evidian or Atos be less financially stable and therefore bode higher risk for your company? Will their inevitable efforts to pare back overhead affect your company negatively? How can your company protect itself from possible cutbacks?
What is their ability to raise capital now and in the future to continue to invest in digital capabilities (Evidian) or invest in evolving legacy IT (Atos)?
Will your company be a casualty of the separation and get poorer customer service? How can you engage with the provider to ensure your company won’t be an accidental casualty of the broader concerns that will dominate the management team? Will you get better pricing after the separation?
Reducing your risk exposure. You could decide to reduce your company’s risk threshold by reducing the amount of spend with the separated company. Which company is a less risky alternative?
You could stay the course, double down, and reduce your risk exposure by making sure you get the management team’s attention. They will be very interested in preserving their customer base and will make some aggressive commitments in order to do so. They will be open to that, and now is the time to secure their commitments to make investments for the capabilities your company will need. But you do need to protect your company against the inevitable cost-cutting that will come through.
Should you take the opportunity to get those commitments and double down on services with them, or do you think it is better to reduce your risk exposure and remove part or all of the work Atos has been doing for your company?
The answer to which strategy to employ depends on your current experience with Atos and how difficult it would be to switch to a different service provider.
Also, consider whether leaving your most critical work with Evidian or Atos will cause more risk exposure. This is where the assessment I mentioned earlier about decomposing your services into towers comes into play, as you will understand which parts are most critical and which can be easily moved.
Switching to a different provider scenario
How difficult would it be to switch to a different service provider? Besides switching costs, you will face a set of issues as you go through the disruption of shifting delivery of services and training the new provider and building a new relationship.
An effective strategy for decoupling some of your services and reducing your risk exposure is to move the work into a cloud environment where your company will be less dependent on one vendor. This is especially the case if the work involves your IT infrastructure.
Switching costs. If you descope some of your company’s work and switch to a different vendor or service provider, there will be costs associated with that decision. The switching costs could be substantial. If you find the right strategic partner to take over, the juice could be worth the squeeze.
You need to determine whether your company is better off waiting to see what happens after the separation or better off preemptively moving away. Either way, there are risks.
If your company is frustrated with the current environment and relationship with Atos, or if you believe Evidian or Atos is not viable for investments into capabilities your company needs going forward, that would be a significant consideration of staying the course or moving away.
Finding a new service provider scenario
Among the three options for existing Atos customers after the separation, if you decide your company’s path forward is to leave and move your work to a different partner, here is what you need to keep in mind.
Digital services. There is a much broader set of companies offering digital services now. Make sure the one you select is not only qualified but also will make the appropriate commitments to a long-term relationship with your company for the kind of relationship you want.
Legacy infrastructure services. If you move your legacy work to a different service provider, make sure the company is not only highly capable in legacy technology but also wants to do that kind of work. Select a partner that will love your legacy stack and continue to invest in it. I described this kind of partner in a prior blog as one that will take a “harvester” approach to managing and evolving your legacy stack to bring them up to the standards necessary for your company’s evolving business needs.
Thinking through all nuances of the scenarios I described above will help your company wisely plan its path forward.