July 30, 1998
Tech Hotshot Outguns Rivals By Offering Fixed Prices
By JON G. AUERBACH Staff Reporter of THE WALL STREET JOURNAL
CAMBRIDGE, Mass. -- This past winter, a handful of employees of Cambridge Technology Partners Inc. rented vehicles from Ryder TRS at various sites around the country and quickly proceeded to wreak a bit of havoc-canceling reservations, faking breakdowns and telephoning the company's emergency roadside service with spurious calls for assistance.
The prank-like tactics had a serious purpose: Cambridge was bidding for a contract to make Ryder's internal computer system work more efficiently. The field experience helped Cambridge accurately forecast how long the project would take (11 months) and exactly what it would entail (18 custom-built software modules for everything from computerized fleet management to order-taking). More to the point, it got the contract, valued at more than $10 million.
"They wanted to learn the business," says Joe Szmadzinski, a business consultant in Southfield, Mich., who at the time was chief information officer at Ryder, a unit of Budget Group Inc. "And that's the way you do it."
Certainly, that's the way James K. Sims does it at Cambridge. The 51-year-old chief executive officer has been instrumental in making the company one of the hottest players in the $100 billion world-wide market for consulting, installing and maintaining hardware and software. Cambridge's revenue this year is expected to total about $620 million, up 53% from last year, and net income is expected to be $58.5 million, an increase of almost 80%.
Effective Strategy
The company's unconventional strategy: simply telling the customer when the job will be finished and how much it will cost.
Cambridge is widely credited with being one of the first computer-service companies to offer a guaranteed completion date and price, known as fixed-time/fixed-price. If the job ends up costing more than the estimate, Cambridge "eats all the cost of that," Mr. Sims says. Going undercover helps Cambridge know the scope of the project, and the CEO says the company meets its deadline and budget more than 91% of the time.
Mr. Sims, who works in offices a few blocks from the Massachusetts Institute of Technology, is one of a tiny number of executives in the services industry without a college degree. Raised in working-class Detroit by a single mother, he started supporting himself at age nine by waking up at 4:30 a.m. to hawk the Detroit Free Press to commuters before school began. Unable to afford college, he enlisted in the Navy, where he learned electronics and served three tours of duty on an aircraft carrier off the coast of Vietnam.
He joinedPerkin-Elmer Corp. in sales and eventually rose to head the company's Concurrent Computer Corp. unit (later spun off as a separate company). He resigned in 1990, in the wake of big losses, but was quickly snapped up by the much-smaller Cambridge, then in the throes of restructuring.
Mr. Sims says his hard-knocks background taught him to approach business in a nontraditional way. The company eschews most advertising. To spread its name, Cambridge organizes seminars and dinners around the world for executives to discuss big issues in technology.
Last month, Cambridge held a seminar in Los Angeles aimed at improving the relationships between technology managers and their business colleagues; the technologists were asked to bring along a business manager that they were having trouble connecting with.
Crucial Deadlines
Mark D'Annolfo, a securities analyst at Adams, Harkness & Hill in Boston, says the fixed-time/fixed-price approach, which Cambridge began in 1992, shook up the entire computer-services industry and continues to give Cambridge a leg-up against competitors. The deadlines are important because nearly half of all information-technology projects run over budget or past deadline, according to a study by Standish Group, Hyannis, Mass.
"Telling the customer that the project is going to cost this much and take this long ... is very attractive to clients," says Marianne Hedin, an analyst with International Data Corp., Framingham, Mass.
Allegheny Energy Inc. thought so. The utility, based in Hagerstown, Md., awarded Cambridge a $3.6 million contract last fall to install software to run its customer-call center, where many customers were being stuck on hold. Allegheny says it was influenced by the fact that Cambridge completed its project estimate more quickly than other bidders and was the only one offering a contract with a fixed price and completion date.
Companies say fixed contracts are easier to manage because they limit the temptation to add on a long wish list while work is in progress. Signing up for an open-ended services contract often means getting "caught in a spiral of never-ending changing requirements," says Rita DiMartino, a senior vice president at Fleet Capital Leasing, the Providence, R.I., equipment-leasing unit of Fleet Financial Group Inc.
Fleet Capital chose Cambridge last year for a $2.5 million software upgrade partly because Cambridge provided weekly project updates that allowed the leasing company to catch and correct problems early on, which avoided costly contract add-ons, says Ms. DiMartino. Cambridge, she says, "clearly defined the scope up front."
Making Jobs Bite-Size
Cambridge also advocates breaking big projects into bite-size jobs. Its contracts typically last six months or less and cost about $3 million. By contrast, large computer-service providers like the Big Five accounting firms, International Business Machines Corp. and Electronic Data Systems Corp. are often hired on open-ended contracts that can cost $10 million or more and can take several years to complete.
Since 1992, when Cambridge started offering fixed-time/fixed-price contracts, the company's revenue has grown about 17-fold, to $406.7 million last year; net income was $32.9 million. As Cambridge's successes continue, the company isn't without big challenges. For one thing, rival services are emulating the fixed-time/fixed price tactic. And a shortage of software developers and other technical workers is putting pressure on service providers to retain and attract qualified employees.xxx Mr. Sims says the company has raised the salaries of its technical workersand consultants by about 10% in the past year because of the laborshortage. Entry-level specialists are making as much as $90,000 a year, hesays, which is putting pressure on the company's operating margins. |
