InformationWeek

January 12, 1998

Services Growth

Success drives international expansion of Shell Group's three-year-old IT unit

hell Services Co., established three years ago as a profit-and-loss unit of the $120 billion Royal Dutch Shell Group, is expanding this month beyond the United States to take on IT and administrative operations of Shell worldwide.

The global initiative doubles the revenue of Shell Services, now known as Shell Services International, to nearly $750 million, with about 96% of that generated by selling services to other Shell units. Besides expanding internationally, Shell Services is readying products for commercial sale, including a Lotus Notes tool for suppliers to use in managing customer inventories.

Mark Bouzek, VP of the systems-integration business within the new global unit, says Shell Services has sold systems-integration services primarily to U.S. Shell units in need of the services operation's expertise with year 2000, d ata warehousing, and decision-support systems projects. Bouzek hopes to increase external business from 8% to 10% of systems-integration revenue; systems-integration staff is growing from 450 to 700 with the expansion.

Growth Engine
Shell Services also has 1,400 employees offering infrastructure technology services; more than half of the $400 million in revenue generated in the United States comes from the two IT operations, Bouzek says. Shell Services also offers human resources, accounting, and other business services. Shell Services "may be a growth engine for the company," says Bouzek; he says the unit's revenue growth for 1997 could reach 25%.

Spinning off IT organizations into wholly owned subsidiaries can help align IT with the business, reduce costs, and in some cases produce profits, says Dean Davison, a senior research analyst with Meta Group Inc., a Stamford, Conn., IT consulting firm. The danger, he warns, is in thinking that a spin-off can muster resources in finance, marketing, an d personnel necessary to compete with major systems integrators and outsourcers. To win outside business, Shell Services created a marketing department by hiring and retraining staff, Bouzek says.

Not all spin-offs are pursuing profits, however. There's no money for a marketing department at ITCo, according to Gen. Donald Walker, president of the IT subsidiary created this month by USAA, a major financial services institution in San Antonio. While ITCo is a profit-and-loss organization, Walker says, there are no plans to seek external business, and the unit's goal is to break even. The main reasons for the spin-off are to improve awareness of the costs and benefits of IT and stimulate innovative thinking, says Walker, who is also USAA's CIO.

One of the oldest IT spin-offs, Chevron Information Technology Corp., established 10 years ago to provide computer and telecommunications needs for Chevron Corp., has never considered itself anything but a cost center, says David Mitchell, general manager of custom pr oducts and services at CITC, in San Ramon, Calif. Still, CITC has sold some applications externally, he notes, including a natural-gas sales and marketing system and a customer service application for pipeline operators.

To gather the resources to compete for internal and external business, Shell Services is hiring IT staff and partnering with other IT services vendors, particularly Ernst & Young. One major project, for example, is a $100 million implementation of SAP R/3 for Shell, done in a partnership with Ernst & Young, which has also entered a partnership with Shell in Europe to provide accounting services.

Bouzek admits that while many companies have spun off IT operations to sell their products and services commercially, "not many succeed." But being a commercial vendor can help attract IT talent, he says, especially in today's tight labor market.

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