Naoyuki Akikusa, president and CEO of Fujitsu, could not be more optimistic. Despite the decade-long stagnation of the Japanese systems giant, Akikusa is convinced that the good times are just around the corner.
The technology industry, he says, is in a quiet period of transition to more pervasive computing. "Once these technological innovations are more fully implemented, I believe there will be a surge in IT development," Akikusa told the World Congress on IT in February 2002.
If Fujitsu is to take advantage of this, it will need to re-orientate itself from its historic dependence on hardware sales, particularly of mainframe computers, into a global services and software provider modelled on rival IBM, believes Akikusa. That is the strategic thinking behind the company's April restructuring, which included a re-shuffle of its various overseas businesses, the withdrawal of the DMR Consulting and ICL brand names and the introduction of new software packages into US and European markets.
But how radical is Fujitsu's restructuring? What effect will it have on customers and what will this mean for its competitors and partners in the software and services markets, particularly in Europe?
Services reshuffle
The primary purpose of Akikusa's restructuring is to make a more explicit division between Fujitsu's high-level consultancy and low level technical infrastructure services. This accords with current trends in the services market, according to Gartner Group analyst Cathy Tornbohm.
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Fujitsu Services will be based upon ICL and ICL Invia. This 15,500-strong organisation will focus on infrastructure services in Europe and Africa – geographic areas where ICL has traditionally been strongest. It will also offer services such as help desk support, service management and outsourcing – an area that has been neglected by ICL in recent years, according to Ovum Holway analyst Anthony Miller. "It has let its outsourcing business, it seems, wither on the vine quite a bit. It was quite a serious force in outsourcing in the UK until a few years ago," says Miller.
John Bennett, marketing director at Fujitsu Services refutes this claim. "When we do a breakdown of revenues, Fujitsu Services will be about GBP2.4 billion (€3.87bn) and something like 60% comes from IT management and outsourcing," he says. However, he does admit that ICL's outsourcing business is somewhat UK-centric, which has limited the company's ability to compete for large, global outsourcing contracts. In recent years, admits Bennett, the focus has been on winning lucrative public finance initiative (PFI) deals with the UK government.
This might change with the new structure that Richard Christou, CEO of Fujitsu Services, is planning to implement during the next year. His aim: to cut out unnecessary layers of management; to improve relations with customers; and to re-organise the group to make it easier to provide a wider range of services to each client.
In line with those objectives, Christou has already attempted to 'de-layer' much of the management that used to run ICL's separate divisions. "In the old ICL there were maybe three, four or perhaps five headquarters groups. It had an HQ for this, an HQ for that. From April 2002, we will have only one headquarters," says Bennett. That move, in fact, accounts for much of the 1,500 redundancies at ICL since the turn of the year.
Second, Christou has appointed unit directors to handle the sales and account management of particular groups of customers. These will be based on broad vertical sectors, such as finance and retail or the public sector.
These unit directors will have to produce regular profit and loss accounts for their divisions. That, says Ovum Holway's Miller, should help cut down on the amount of marginal or even loss-making business that ICL used to win in the 1990s – a result of incompetent management, he says.
The second main element of Akikusa's restructuring is Fujitsu Consulting. This new division is primarily grouped around Amdahl's DMR Consulting subsidiary, although it also includes the applications services units of ICL, which consists of about 800 staff engaged in SAP and Oracle applications consulting and implementation, and the Dublin, Ireland-based Fujitsu Solution Centre. Unlike Fujitsu Services, this will be a global organisation – albeit one which is overwhelmingly US-centric.
DMR did not set the world alight under the tutelage of Amdahl and Fujitsu. It grew more slowly than rivals during the consulting boom of the 1990s and annual revenues have stalled at around $1 billion (€1.14bn). It is also highly dependent on the US and Canada, which account for two-thirds of the company's business. ICL's modest consulting business will not make a significant difference to this.
The third and most straightforward element of Fujitsu's restructuring is the integration of the remnants of Amdahl IT Services into Fujitsu Technology Solutions, Fujitsu's US hardware arm. That will unite Fujitsu's Sparc-based Unix and Windows server business with Amdahl's IBM-compatible mainframe unit and associated infrastructure services business. PCs and laptops will remain in the hands of Fujitsu PC Corporation, although the European business has been transferred to Fujitsu-Siemens Computers, Fujitsu's 50-50 European hardware joint venture.
This represents a much-needed consolidation of hardware and ought to mollify Amdahl, Fujitsu and ICL mainframe users. However, key to the success of the services re-organisation will be the degree of co-operation between the two, as well as the strength of the partnerships that Fujitsu Services can forge with other consulting firms. It will take shrewd leadership from Richard Christou to achieve both these objectives.
Software assault
Perhaps the most intriguing element of Fujitsu's restructuring, however, is its planned assault on the software markets of North America and Europe. While Japan has an unjustified reputation for being poor at making and marketing software products, Fujitsu can boast a strong line-up of packages covering system management, storage management, applications servers, software tools and many other key software sectors. Only now is it starting to unleash some of these outside Japan.
Yet it is not taking a uniform, top-down approach to this. Rather, it is setting up a series of subsidiaries with a brief to target specific software sectors. First, just two years ago, the company set-up Fujitsu Softek, a Sunnyvale, California-based subsidiary that was given the brief to develop, market and sell a new range of storage management software.
To start with, it was injected with three core Fujitsu mainframe software packages: the TDMF mainframe storage management software; DR Manager, a mainframe backup and application recovery tool; and EnView, a service monitoring application. These software packages had been sold by Fujitsu outside Japan for many years and offer Fujitsu Softek a predictable and profitable revenue stream while it gets up to speed with the new products.
Then, Fujitsu Softek CEO Steven Murphy embarked on a major product development campaign to flesh out the company's product line and extend it into new areas for more mainstream machines, such as Microsoft Windows servers and Unix operating systems – all focused on the booming area of storage management. It has done this via a combination of in-house development, by taking software components from Fujitsu in Japan and by re-packaging and re-selling other vendor's software technology, such as DataCore's storage area networking code to create the Softek Storage Virtualization product. It has also acquired technology from Legato.
However, most of Fujitsu Softek's new products have only been released in the last six months and it is therefore too early to predict how successful Fujitsu's storage software drive will be.
In the year to the end of March 2002, CEO Murphy says that the company will generate revenues of between $50 million (€56.8m) and $60 million (€68.2m), although most of this is derived from the legacy mainframe products. As a result of a decline in this area, Murphy expects revenues to rise only modestly during the current financial year, before sales "spike" the year after.
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Fujitsu has taken a different tack in Europe. In February 2002 it launched its SystemWalker systems management suite into the European market, but most of the software has simply been shipped from Japan, where SystemWalker boasts around 50% of the local market for systems management suites – well ahead of rivals IBM Tivoli and Computer Associates' Unicenter TND.
Two major elements of Fujitsu's SystemWalker strategy could have a profound impact on the European market if successful. First, the company has created a stripped-down European only version – called the desktop edition – intended to help win sales in the poorly served mid-market.
Second, its pricing is radically lower. High price is one of the main barriers that has prevented IBM, for example, from succeeding in its bid to sell Tivoli systems management software into the small and medium sized enterprise (SME) business sector. But the cost of buying and implementing SystemWalker to manage a 500 PC environment, for example, will be between £25,000 (€41,000) and £30,000 (€49,200), compared to a typical price of £200,000 or more with IBM Tivoli, claims Rob Horsfield, business development manager for Fujitsu Software in Europe.
Many software vendors will no doubt be looking nervously over their shoulders at the potential impact of such a cost-cutting strategy.
Comprehensive effort
Overall, Fujitsu's strategy represents the most comprehensive effort yet by a major Japanese or South East Asian systems vendor to penetrate US and European markets. Yet it is fraught with potential pitfalls. For example, the restructuring will make Fujitsu Services highly dependent on winning new business either from Fujitsu Consulting or from other major consultancies, such as PricewaterhouseCoopers or KPMG.
"Once Fujitsu Consulting or another organisation has worked out what solution the customer requires, then Fujitsu Services – the old ICL – will put itself forward as the one to design the infrastructure," says Ovum Holway's Miller.
Furthermore, issues remain about how Fujitsu Consulting and Fujitsu Services will work together. "They don't seem to have ironed out some of the issues, such as how a piece of work will be passed from the consulting to the services group," says Tornbohm.
Fujitsu is not the first company to try to broach this issue. The same issues have been handled with mixed success by EDS, when it acquired AT Kearney, and by Cap Gemini, when it acquired the consulting arm of accountants Ernst & Young.
For Fujitsu, this is, perhaps, a more serious matter because Fujitsu Services will be focused largely on Europe, while Fujitsu Consulting is overwhelmingly focused on the North American market. Without a strengthening of Fujitsu Consulting in Europe, Fujitsu Services will have to rely on other consulting organisations to help generate new business or it will risk marginalisation.
Bennett concedes that during the next year Fujitsu will need to do both fine and "coarse" tuning to the new structure, concentrating in particular on how the three Fujitsu subsidiaries can work more closely and effectively together, as well as with Fujitsu in Japan.
Ultimately, execution during the course of the next two years will be key, but of all Japan's major computer vendors, only Fujitsu currently looks capable of making a success of its globalisation strategy.
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