Lucent Sells Enterprise Professional Services Business: INS Reenters the Marketplace
IDCIDCFlash #27635 - Jul 2002
What factors influenced Lucent to sell its enterprise professional services business, and what future challenges and opportunities will both Lucent and INS encounter?
In the late 1990s, network vendors such as Lucent, Cisco, and Nortel were scrambling to increase their business opportunities; in many cases, growth by acquisition was the chosen method of satisfying corporate growth objectives. Today, as network consulting companies - particularly those focused on the service provider market - experience a prolonged slowdown in demand, they often realize that an acquired asset no longer fits with the acquiring firm's strategic direction. This document provides an analysis of the history of the Lucent/INS relationship and Lucent's decision to sell the organization. It also presents an overview of the challenges and opportunities that both Lucent and INS will encounter moving forward.
On July 3, 2002, Lucent Technologies announced it had entered into an agreement to sell the enterprise portion of its professional services unit to International Network Services Inc. (INS) - a recently created, wholly owned subsidiary of West Coast Venture Capital LLC, a private venture capital firm based in Cupertino, California.
As part of the agreement, INS will retain the existing management team of Lucent's Enhanced Services and Sales division (ESS) and establish an independent professional services company focused on the design, integration, and operation of enterprise networks. Lucent, which had already integrated the consultants for its service provider customers into Lucent Worldwide Services, will continue providing networking professional services to its core service provider customers.
David Butze, currently president of Lucent's ESS division, will be named president and chief executive officer of the new company. ESS was formerly part of International Network Services, which Lucent acquired in 1999.
The new INS, headquartered in Santa Clara, California, will continue to provide networking solutions to its enterprise customers, including some of the world's largest financial services, pharmaceutical, aerospace, energy, and transportation companies. The company will provide network consulting and design services to customers in major markets across North America and Europe.
Terms of the agreement were not disclosed. IDC estimates that the value of the transaction is less than $30 million. The transaction is expected to be completed by the end of July.
On August 10, 1999, Lucent Technologies announced that it signed a merger agreement with Sunnyvale, California-based INS, a provider of a wide range of network-focused services. At the time, IDC estimated the merger was valued at approximately $3.7 billion.
The anticipated synergy of integrating INS with Lucent's organization (at the time called NetCare) was designed to help expand NetCare's capabilities by adding network design, consulting, and IP integration services to Lucent's portfolio of services. The combination of the two businesses resulted in a workforce of more than 5,500 service professionals - 2,000 of which came from INS.
Reportedly, the INS integration faced a number of challenges, including:
On November 6, 2001, Lucent announced it intended to pursue the sale of the enterprise professional services segment of its Lucent Worldwide Services (LWS) business (formerly INS). The decision was part of Lucent's strategy to focus its product portfolio and professional services organization on the world's largest service provider customers, as part of its ongoing restructuring process aimed at returning the business to profitability. On July 3, 2002, Lucent announced it had entered into an agreement to sell the enterprise portion of its professional services unit to INS.
INS will continue to service a number of clients (both in the service provider and enterprise space) that it is already supporting. However, moving forward, it is expected that INS will be more focused on the enterprise market. In particular, INS will have three areas of focused expertise:
For INS, moving on independently makes strategic sense for both its employees and its customers, who will benefit from a company solely focused on their enterprise networking needs. INS has a number of strengths that should enable it to capture a strong market position.
First, INS still has a strong brand equity. In addition to the well-recognized name, the slogan "Knowledge Behind the Network" will be transferred to INS under part of the agreement with Lucent.
In addition, as part of the agreement with Lucent, INS will be licensed to continue to use various systems, including knowledge management, training, time and expense billing, sales forecasting, and salesforce automation systems. Using these mature systems should enable the company to continue operating using the same engagement methodologies.
Historically, INS has been known for its strong internal culture. Fortunately, it has been able to retain much of the strong engineering and consulting talent that was the basis of its original success. It is estimated that INS will have approximately 600 engineers and about 150 additional employees.
In addition, prior to its relationship with Lucent, INS was known for integrating multivendor technologies that best supported the needs of its clients. As a separate entity, INS should be able to recapture its reputation as a vendor-neutral services organization that has multivendor expertise based on solutions across all major enterprise networking technologies and products.
For Lucent, this announcement further enforces its strategy of focusing its products and portfolio on the world's largest fifty communication service providers. Lucent has retained a professional services team in place to do large-scale consulting and design work for service provider customers.
Also of benefit to Lucent is the fact that as part of the agreement, it will keep the VitalSuite portfolio of performance management software (which it acquired as part of the INS acquisition in 1999). In 1998, INS acquired the portfolio through an acquisition of VitalSigns Software. Today, the VitalSuite software is used for both enterprise and service provider customers.
IDC believes that this announcement is an excellent opportunity for INS as an organization. Prior to the Lucent acquisition, INS was known as an effective, efficient, multivendor services organization that had provided services to help implement many of the largest networks in the world. As market conditions changed, and many of the previously described factors led Lucent to restructure its business, there was no longer a strategic fit for the enterprise professional services unit within the company. As INS will continue to operate with many of the same methodologies, systems, customers, and engineers - as well as under the familiar INS name and slogan - it should again be able to be a competitor to watch in the network services marketplace.