ACS makes government its business

Affiliated Computer Services Inc., thanks to a healthy financial performance in a tenuous market, gets a lot of attention from federal-market watchers.

But ACS isn't really a federal business.

"We don't want to be in a government-unique solutions business," said Bob Woods, president of business applications solutions at ACS Government Solutions Group. "We are a very successful commercial company that wants to bring those practices to the government space."

ACS acquired Computer Data Systems Inc. in 1997 and gained a federal foothold that now spans most federal agencies and accounts for about 35 percent of its business. The more recent acquisition of Intelli-source last year — and winning a contract under the Outsourcing Desktop Initiative for NASA — enhanced such outsourcing capabilities.

ACS has acquired 35 companies in its 13-year history and expects revenues in fiscal 2001 of $2.1 billion. Woods attributed the company's success to the fact that it takes a commercial approach to working with the government.

For ACS, any business venture — even with government — has to make money, Woods said.

"We don't take a loss now in the hope of future success," he said, a refernce to many now defunct start-ups. As a result, companies that were considered "Old Economy" are emerging as solid businesses built one customer at a time, he said.

With its outsourcing experience, ACS is well positioned for near-term growth opportunities in the federal marketplace, said John Allen, co-president of Quarterdeck Investment Partners Inc.

Woods said the fastest growing area is business process outsourcing, the term for turning over technology-intensive tasks such as payroll or loan servicing.

"The belief that only the government can pay people or build a data center is a waste of valuable resources."

ACS has developed three lines of business: systems integration, technology outsourcing and business process outsourcing. Technology outsourcing includes seat management and operating call centers and data centers.

In the future, ACS will look for acquisitions to enhance its business process outsourcing capabilities, Woods said. It will also look for work in the state and local information technology market, which is starting to issue multiyear, billion-dollar contracts.

As business process outsourcing takes off, few companies like ACS will be called IT companies, Woods said. Instead, they will focus on vertical niches, such as grants management, payroll or other business functions they specialize in.

"They'll take on the look and feel of their functional capability rather than technology," he said. "It's good for the customer, but it will be an identity crisis for us."