The Mess at ACS: What It Means for Outsourcing Customers

Upheavals at Affiliated Computer Services, including the ouster of top executives and two failed buyout attempts, have created uncertainty about the company's plans. For customers, it's a reminder that outsourcing relationships take constant monitoring.

By Stephanie Overby
Wed, November 28, 2007

CIO — Affiliated Computer Systems has had a rough couple of years, to put it kindly.

After a second failed attempt to take the company private, boardroom upheaval that ended with the exodus of five of its directors and an SEC investigation into backdating of stock options that led to the dismissal of its CEO and CFO, the public image for IT services provider Affiliated Computer Systems (ACS) has taken a hit.

What has occurred over the last two years at the Dallas-based outsourcing provider is rare, not only in the IT services field. “It’s rare in any industry,” says Eugene Kublanov, CEO of San Ramon, Calif.-based outsourcing advisory neoIT. “You hardly ever see boardroom issues spill out this publicly into the market. With ACS, it’s been particularly ugly because of the merry-go-round of rumors and actions that have surrounded the company for some time.”

While ACS is issuing statements of reassurance to its clients, and experts say the turmoil has not noticeably affected the quality of the services the company provides, the recent events leave open questions about the company’s future and what it means for ACS customers. “An actual change in control is much easier to deal with than chaos surrounding a potential change in control,” explains Randall Parks, cochair of the global technology and outsourcing practice at law firm Hunton and Williams. “I'm not sure anyone could anticipate what has happened at ACS.”

ACS Seeks to Reassure Customers

ACS says it prides itself on delivering exemplary service to clients. “It is no accident that ACS leads the industry with a contract renewal rate of nearly 95 percent,” says spokesman Kevin Lightfoot, noting recent contract wins with the State of Alaska and the District of Columbia's Medicaid program. “ACS's fundamentals remain strong. The review of the company's strategic alternatives did not affect our strong focus on our clients or our business operations,” Lightfoot adds.

Indeed, Lynn Blodgett, who took over as CEO last November, has said he didn’t want any of the behind-the-scenes boardroom and buyout issues to be a distraction within the outsourcing marketplace.

But it has been a bit of a sideshow, largely because of persistent uncertainty. “Every resolution that they have come to has taken so long and there’s still not a lot of clarity,” says Gartner research director Dane Anderson. “That would make me wonder, as a client, whether I’d want to sign a long term deal with ACS.”

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