Software

Logica Denies Price War, HP Disagrees

IT services company Lgica says that customers will still favour quality over price, even in a recession. But HP’s UK director says he has seen competitors making “suicidal” offers

The chief executive of European IT services company Logica has claimed that most companies care more about quality than price when it comes to outsourcing services, despite the impact of the downturn on IT budgets.

Speaking this week at a meeting to announce the company’s preliminary results for 2008, Logica boss Andy Green denied that the downturn would force IT outsourcing providers to cut prices in order to win contracts. Rather than going with the cheapest option, customers would look for the best provider for the job, he said.

“I don’t believe any clients – of any stature – buy on price,” he said. “They understand that they need to buy something that is going to work for their business in these big services contracts. It isn’t a price war out there. It is always about the effectiveness of the value delivery I think.”

But Logica’s assertion that the downturn isn’t creating price competition doesn’t tally with reports from other IT providers. Steve Gill, vice-president and managing director of HP UK and Ireland, recently told Computer Weekly that HP had walked away from contracts and would do so again if they “didn’t make sense”.

“Some of our competitors have signed up for suicidal deals where they will lose a fortune as they supply that deal to the customer,” he said.

Anglo-Dutch Logica posted full-year results that beat analyst expectations and saw its share price rise by 10 percent. Sales increased by 5 percent to around £3.59 billion pounds.

But despite claims that its customers weren’t overly concerned with costs in the downturn, Green said that Logica was itself investigating ways to save money during the tough economic times. The company recently held an international meeting purely using video conferencing technology which Green said saved the business around 500,000 Euros.

While IT vendors such as Microsoft, AMD, Motorola, NEC and SAP, all cutting jobs during the downturn, Green was questioned on how Logica could more or less maintain its headcount. He cited the fact that the company has been continuing to hire staff in off-shoring destinations while shedding employees in Europe.

“On head-count, the basic pattern has been a steady reduction in headcount onshore in Europe and a very significant increase in offshore leading to an increase of a 1000 people over the year,” he said. “What is important is that we recruit where we need to recruit and don’t recruit where we don’t.”