Atos Origin: Who Really Wins When the UK Government Forces a Cost Reduction on Key Suppliers?

If Atos Origin's share price increase following their agreement to play cost reduction ball with the UK government is any indication of who wins when the public sector demands cost reductions, it's clear that such moves are treated by the market with as great a sense of irony as procurement pundits and onlookers like Peter Smith -- whose post is linked above -- and who also questions the sourcing dangers of unilateral government demands. After all, if Atos Origin really stood to take a material margin hit thanks to UK public sector cost concession demands, you have to wonder why investors rallied to its side. Moreover, as Peter reports, Atos has not lost any work, but rather gained new contracts in the process! To wit, Atos "will continue to deliver all its existing IT contracts to UK Government, and will look for further business opportunities ... It will also resume a number of projects in IT and outsourced operations that were placed on hold while the negotiations took place."

Now, I'll quit the sarcasm for a minute. After all, if Atos won additional business by agreeing to cost concessions or year-over-year savings numbers, then perhaps the UK government is just following the well-established private sector precept of spend rationalization with Atos as the beneficiary. But I suspect there's more to it than just this and simply redirecting more services spend their way for a slight haircut -- which Atos, as a smart professional services firm, will most certainly find ways of offsetting by creative resource utilization or moving certain service delivery or support capabilities offshore. Perhaps a better result may have been achieved by tasking Atos with real partner-led joint cost take-out initiatives (which I find highly unlikely given the way the UK government undertook the cost reduction requests and the speed with which this negotiation with Atos was completed).

When any organization acts rashly in terms of large-scale cost reduction, especially without thinking through how smart suppliers will find ways to manipulate the situation based on their goals rather than those of shareholders or tax payers, the track record of who loses is more clear than who wins (which Atos shareholders have no doubt latched onto with the same sense of ironic investing aplomb). Moreover, I suspect that consolidating spend with a single supplier at a time of general cost reduction will result in a smaller field of potential suppliers to bid on future engagements.

Jason Busch

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