Dallas camera company finds its niche in Hawai'i

Advertiser Staff and News Services

The company operating Hawai'i's new traffic-enforcement camera system is part of a multibillion-dollar Dallas-based company that has gradually become one of the biggest outsourcing firms in the nation, quietly acquiring more than 45 companies over the past 10 years.

Affiliated Computer Services officials say they do not worry about the complaints their traffic cameras have drawn. Advertiser library photo • Nov. 27, 2001

The company, with a market capitalization of nearly $4 billion, has more than 250 offices worldwide, 21,000 employees and more than a half-dozen divisions, including ACS State and Local Solutions, the private company that has installed and is monitoring traffic cameras in the Islands.

Another company division, ACS Healthcare Solutions Inc., also has a presence in Hawai'i. It received a seven-year $27 million contract last year with The Queen's Medical Center to manage its information technology systems in a move estimated to save the hospital $4.2 million.

In recent years, the Dallas company also has quietly become one of the biggest players in business-process outsourcing. Since it formed a separate unit in 1996, that work has grown to nearly half of the company's $2 billion in annual sales.

ACS has built the business by addressing labor-intensive jobs such as call centers, claims processing and even human resources in much the same way efficiency experts took on manufacturing in the last century. Where work is done by people, it has tried to computerize it. And where it can't computerize, ACS has moved jobs overseas, where labor is cheaper.

ACS Chief Executive Jeffrey A. Rich believes business-process outsourcing may ultimately prove a larger market than computer outsourcing.

For every dollar financial and other service companies spend on computer outsourcing, they spend $10 to $15 on business-processing chores, he says.

Market researcher Dataquest, a unit of Gartner Group Inc., estimates the outsourcing of everything from invoices to human-resources operations could expand at a 23 percent annual rate through 2004.

In contrast, computer consulting should rise at about 12 percent annually.

Today, ACS boasts nearly 11 percent operating profit margins — eclipsing the margins of rivals such as Electronic Data Systems Corp. and Computer Sciences Corp., whose business-processing revenues are in the range of 10 percent to 15 percent of their sales.

Rich, 40, is a former Citibank investment banker who joined ACS and became chief executive in 1999. Since then, Rich has expanded its business-processing unit while reducing the company's role in less lucrative markets.

For instance, he sold the company's professional-services unit just before the dot-com bust sent consulting operations into a tailspin.

In place of fixed costs for customer inquiries, ACS provides American Express Co., United Parcel Service Inc. and other big customers a way to match costs to the volume of credit-card applications or deliveries handled.

"We have customers paying us millions of dollars a year but it's all pennies per transaction," says Rich. "They know as their business grows or shrinks, how much (their) costs will too."

To make a profit, the company combines high-tech networking and software with low-cost labor. Originally, the company recruited home workers and college students in the United States. It developed sophisticated software and management techniques to catch errors. For instance, its software will doublecheck loan applicants' addresses against existing records to prevent simple mailing errors.

It also breaks up the work and disseminates it around the world — much like a suitmaker might have material cut in one country, sewn in a second and finished in a third. Its European outsourcing operation may do initial work on an invoice and then transfer the information electronically to low-wage countries, where other ACS employees will match the invoices to shipment records.

Just like the garment industry, ACS pays workers a "piece rate" — the more transactions employees process, the more per hour they earn. The company still employs about 1,500 home-workers in the United States but has rapidly expanded in low-wage countries. Combined, it employs 4,000 workers at data centers in Mexico, Guatemala and Ghana.

ACS is not the only company that analysts consider well-positioned in business process outsourcing. Electronic Data Systems Corp. of Plano, Texas, practically invented the field. Indeed, ACS and EDS are in competitive combat around the globe these days as governments and businesses rush to outsource non-core functions.

ACS recently beat EDS and others for a $41 million contract to administer the District of Columbia's Medicaid program. Still, EDS is the market leader in Medicaid processing, with 18 states under contract.

But ACS also has ambitions for new markets. The company recently reached an agreement to manage fuel pump services for NCR Corp., which is helping supermarkets automate and integrate sales from gas pumps into their retail sales data.

ACS also last year bought the IMS subsidiary from Lockheed Martin for $825 million and receives $29 for every speeding citation issued with the help of photo radar units operated by IMS in Washington, D.C. IMS pulled in $300 million in sales the first six months of last year. About 20 percent of those sales came from its Transportation Systems and Services Division, which houses the radar camera operations.

Opponents of the technology, which also is being used in Hawai'i, say it is an invasion of privacy and a sign of ever-encroaching "Big Brother." But such concerns don't bother ACS officials, and industry analysts say the issue is unlikely to hurt the company's business.

The contract with the District of Columbia projects that fines generated by red-light cameras will top $161 million by 2004, with $44 million of that going to IMS.

ACS also plans to use the new division to take advantage of opportunities in state and local markets and expand its Government Services Division. Only 10 percent of state and local governments currently use outsourcing firms for their business processes.

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