Sogeti, a subsidiary of Capgemini, increases its focus on testing
28/09/2007
We recently talked with Hans van Waayenburg, the head of Sogeti in Europe regarding its services offering around application testing.

OVUM. Dominique Raviart

Comment:

Sogeti claims 20 years of expertise in the domain of testing and is the force that has driven the creation of TMap, a well-recognised book grouping best testing practice and TPI, a method for test process improvement. The unit has a workforce of 2,000 dedicated testers (excluding the testing activities of Capgemini's systems integration arm) on revenues expected above €200m in 2007 (up from €131m in 2006). Demand for testing services is growing rapidly in key geographies such as the UK, Germany, France and the Netherlands, taking the form of managed testing services where the testing organisation takes more responsibility for the quality of the product, away from a pure staffing approach. The size of deals is growing too and Sogeti is seeing the emergence of deals with TCV in the €10-20m range, sometimes going as high as €50m.

Offshoring has become central to the notion of testing and Sogeti is now relocating up to 40-50% of its contracts to India. Sogeti currently has 200 staff in India, aiming for 400 by year end and 800 in 2008. We think this is roughly in line with what a key competitor in this space, LogicaCMG, claims. By comparison, earlier this year, EDS acquired an India-based firm, presented as testing player with 700 staff worldwide.

Industry watchers will point out that Sogeti, a business considered as providing staff augmentation services i.e. body-shopping is quietly moving away from a staffing approach to offering more specialised offerings i.e. application testing and R&D services. Sogeti's Dutch operation seems to have transitioned earlier in the process than other subsidiaries. Meanwhile, we have recently seen Sogeti's largest operation (France) aiming to move away from commodity to higher margins sometimes at the price of revenue growth. Sogeti France achieved a 5% revenue growth in H1 2007, while Sogeti overall grew by a more satisfying 13%. We don't think that body shopping is in danger of dying. However, like other IT services, it is evolving and moving into further specialisation.

Meanwhile, we continue to speculate about when Capgemini's systems integration and staff augmentation business units should merge. At the moment, both units seem to be doing well independently in terms of growth and margins but, we estimate the overlap between the two business units is at least 20% to 30%.