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Finsiel Shapes Up for a Healthier Future
19 May 2003
Claudio Da Rold

Document Type:  Research Note
Note Number:  M-20-0167
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Finsiel, once Italy's largest IT services provider, is at last restructuring itself. The smaller business promises to be stronger, but it must develop credibility and business know-how beyond the government sector.

What You Need to Know

The switch between Telecom Italia/Finsiel and IBM for first place is a big change for the Italian market. EDS provided the first indication of major and irreversible market shifts in 1997, by winning the Ministry of Education deal. The government IT market is open to competition and captive positions alone do not pay anymore. The long-awaited business restructuring of Finsiel is finally taking place and the outcome is a smaller, more focused and potentially healthier player in Italy. Nevertheless, the main challenge for Finsiel will be to increase its credibility and vertical business understanding outside the government market, while leveraging business partnerships — starting with Telecom Italia.


For decades, Finsiel has been by far the largest Italian service provider, thanks to the once captive central government market.

In 1995, Finsiel was three to six times bigger than its largest professional services competitors in Italy, such as IBM, Electronic Data Systems and Accenture. By YE02, Finsiel had lost first place in this market.

As a general trend, European providers that have enjoyed captive or protected markets are increasingly challenged by very strong competition from other providers, and we expect this pressure to increase. Overall service market dynamics demonstrate the importance of scale, margins, strategy for a changing marketplace and management capability in executing (see "Europe's IT Services Market Splits Leaders From Followers"). Therefore, the actions being taken by Finsiel and its owner Telecom Italia (TI) are important for the Italian marketplace.

Finsiel's loss of first place in Italy was not unexpected. Previously published research on Finsiel reported the high dependence of this large provider on owner strategy (see "The Italian Giant: Finsiel") and forecast the future of Finsiel as being dependent on TI sourcing decisions. Since 1999, two major changes have occurred in TI top management and ownership. There have been takeovers by Mr Colaninno, a principal investor, in 1999, and by Mr Tronchetti Provera of Pirelli in 2001.

Despite these major changes, the Gartner forecast has been valid through 2000 with the insourcing of infrastructure and applications into Netsiel — a Finsiel unit — and through 2001 with the creation of a new entity, IT Telecom. This comprises Finsiel, other internal providers and TI internal IT operations.

During 2002, the new management began a long overdue and complex restructuring process. Initially, the Finsiel Group formed with more than 30 companies. The management in place at the time was used to working in a captive market and the Finsiel strategy needed to relate to the new TI strategy.

TI has organized a set of shared services, of which one is Information Technology Group (ITG) — a Research Note on TI sourcing and IT strategy will be published shortly. One of the effects of this move is the clear separation of TI's internal IT spending from open market activities performed by the Information Technology Market (ITM). ITM — an internal brand that has not been forced into the marketplace — is mostly composed of the Finsiel Group and other smaller entities such as Webegg (Web-based solutions with revenue of 25.8 million euros in FY02), TeleAp (call-center services revenue was 38.4 million euros in FY02) and SwFactory (revenue was 13.4 million euros in FY02). Netsiel has been removed from Finsiel and merged with ITG.

The new Finsiel industrial plan has been agreed with its unions and includes 60 million euros in investments between 2002 and 2004. This is aimed at reducing costs in the order of 85 million euros. The number of employees decreased from 6,637 in FY01 to 4,493 in FY02 — this is almost half the number employed in FY99. A new line management has been put in place (more than 120 managers have now left the company) and 1,200 days of internal training have been carried out. During 2002, Finsiel made some other important changes:

Another bold step has been the renegotiation of a 10-year outsourcing joint venture with the Italian State railway, Ferrovie dello Stato (FS), that will end in 2006. The deal has improved the previously quite negative relationship between Finsiel and FS but Finsiel has paid for this with a significant margin reduction on the deal.

The reported FY02 result of 912 million euros is 25 percent less than the Finsiel Group's 2001 turnover. This is taking into account six months of the Sogei contribution — otherwise revenue would be 673 million euros, a decrease of 44 percent. Operating margins are 38 percent lower than in 2001.

In the course of 2002, Finsiel has demonstrated a better attitude toward the market by winning projects in new sectors of central and local government, and in local public transport. Many of these deals are relatively small, clearly demonstrating the large provider's challenge associated with the devolution trend (see "Government Sourcing in Europe: So Many Challenges").

In terms of large deals, there is a lawsuit between Electronic Data Systems (EDS) and Finsiel on the healthcare ministry deal won by EDS. Finsiel (in partnership with IBM, Engineering and Metropolis) won back the Ministry of Education deal that it lost to EDS in 1997. The intense legal activity surrounding these tenders, with an increasing use of lawsuits to avoid losing ground, is a strong indication of the extremely competitive market.


Finsiel is focused on delivering profitability and, in selected verticals, building real leadership in a competitive market — instead of focusing just on dimension or growth. Finsiel's mission is to provide "people-based" services, while infrastructure-based IT services are defined as opportunistic. End-to-end services can be provided when required, by leveraging TI capabilities or, in some cases, on internal client-dedicated capabilities.

Finsiel is willing to target systemic needs, such as local government and land planning, health systems, and transport systems, for which highly complex, extended capabilities are required and political influence can play a significant role in reducing competition.


According to this strategy, Finsiel's structure, with 14 legal entities still in existence (it was once based on separate entities for each client) has been transformed into a more reasonable one:


Half of Finsiel's revenue comes from central government with another 13 percent coming from local government. Transport provides 17 percent of revenue (96 percent of this is from a single big client, FS). Finance provides 14 percent (this is supplied by the Banksiel unit; revenue has decreased by 11 percent since 2001). Industry and services account for 6 percent.


The absence of strategic partnerships has been a long-lasting weakness of Finsiel. This has been partially addressed by the selection of preferred or exclusive vendors for example, SAP in industry, local government and transport; Oracle in healthcare and central government; and Microsoft in government and industry. Some partnerships result from extensions of TI sourcing decisions, such as Hewlett-Packard for desktop services or Accenture for HR services. The evolution of these relationships into more strategic partnerships will be a measure of the management success in years to come.


A significant cost reduction plan is still in action, together with revitalization in investments and management. Dismissal of non-core or inefficient areas is still possible and there have been long discussions with different providers interested in acquiring part of Finsiel. Partnerships, in Italy and abroad, will be evaluated as far as strategic plans can evolve.

More than 1,900 different solutions and experiences have been pared down to a more reasonable 100. As restructuring takes place and these new offerings are accepted or rejected by the market, Finsiel will become a more focused and market-driven provider.



Throughout 2002 and early 2003, the Pirelli team has carried out the long-awaited restructuring of the Finsiel Group. These actions were more than five years after the beginning of significant and irreversible shifts on the Italian market. Finsiel now has a baseline figure of roughly 680 million euros for 2003. This revenue is almost the same level as competitors like Accenture and EDS but quite far from IBM, the new Italian giant.

Key Issue
What are the trends and directions in sourcing?