Profile - Coster plans P-E revival

P-E International is one of the most long-established names in consultancy – it was founded in 1934 – but since the recession it has had a chequered history.

Turnaround plans were followed by a change of ownership, when the firm, together with its prestigious Egham site was acquired by IT group Cray Electronics in September 1993.

Cray’s main action was to hive off P-E’s IT activities and combine them with its systems division, a move which took P-E’s revenues down from u70m to u33m last year.

Last August, the firm acquired yet another owner when it was sold to acquisition-hungry Lorien, a rapidly expanding IT services and human resources group. At the end of last year the shape of P-E’s future evolution became clearer when another venerable name in consultancy, Malcolm Coster, became chief executive of Lorien, with particular responsibility for integrating and expanding P-E.

At the time Coster was senior vice-president of Unisys, and the move to Lorien is the latest step in a career which has taken him across vast tracts of the consultancy, IT and professional services worlds, including a lengthy stint as head of management consultancy at Coopers & Lybrand.

Coster’s interest in P-E was originally as a prospective buyer. He, together with venture capital company 3i, had put in a cash bid of u10.5m.

But the offer was trumped by Lorien’s rights-issue based offer of u11m.

Cray’s urgent need to announce the deal as it released some less than encouraging sales figures sealed the issue before Coster and his allies could get into a bidding war with an improved offer of u12.5m.

“Cray decided that making the announcement with its results was more important that getting the u1.5m extra,” says Coster.

As soon as the deal was announced P-E’s chairman Sir Brian Brown invited Coster to meet Lorien’s chairman Michael Heeley to discuss his reasons for wanting to buy the firm.

“Until then I didn’t know who the other party was, and Lorien of course was on the Alternative Investment Market and I didn’t think of them,” says Coster, who had been searching for potential rivals among the FTSE 100.

“It was one of those meetings where there is instant chemistry, instant exchange of news and where every single idea you’ve got is exactly the same. By the end of the meeting we had more or less decided that we wanted to own the lot ourselves,” Coster says.

“But P-E was in the process of being bought with the rights issue which is a very complex situation. So what I decided to do was come on board and run it anyway with Michael, because we still can realise a lot of benefit to both our shareholders and ourselves,” adds Coster.

Central to Coster’s plans to revitalise P-E is the reconstruction of its lost IT arm, which he sees as central to the success of a modern consultancy.

“If you imagine a pyramid with management consultancy at the top and contracting at the bottom, my job is to build that middle IT layer. The whole strategy is about providing contract services on a larger scale,” says Coster. “The concept is that we use P-E resources and leverage downwards, so that one person becomes 20 people and 20 people become 200. In this way we become a one-stop shop for our clients, but we can only do that if I build this middle layer.”

Coster has already begun to create the IT consultancy arm, developing specialisms in communications, Millennium-compliance and business systems.

The communications division has recruited a team from Logica, focusing on building Internet and intranet access and Web sites, and helping firms to apply the latest information technology to their communications infrastructure.

“Establishing Web sites will be one of our main businesses,” says Coster.

“The Internet is a problem for firms at the moment and we will focus on trying to help them apply this technology and make money out of it.”

The new Millennium-compliance division will be resourced from Lorien’s contract services arm, which prides itself on getting freelancers into large consultancy projects. It is made up of Lorien’s Manchester, Leeds and London offices and the two acquisitions, Arena and Frost Berkeley, made in November 1996. These latest additions have not yet been fully integrated, but they form an important part of Coster’s plan.

The aim is to expand this arm of the business by increasing the numbers of consultants on the contracting-out database. He estimates that there are around 65,000 freelancers on the market and wants to have around 45,000 people on his database ready to take on work brought in by the IT division.

This service will help clients avoid the costs of hiring and firing IT staff, enabling them to take on between 200 and 300 skilled people in one go. The client can then concentrate on developing new business projects and beating the competition, rather than getting its main resources bogged down in Millennium-compliance projects or preparing for European Monetary Union.

“We are looking at the pure IT contracting business and using the largest numbers of people with the broadest range of skills. More and more firms are outsourcing themselves and they want people and not employees. “And that is what this business does,” says Coster. “People call it body shopping, rather disparagingly, but it’s a good business and we do make money out of it.”

Coster expects this area of the business to expand rapidly as P-E taps into the backlog of Millennium projects which the larger consultancies cannot resource.

The strategy involves recruiting a “Dad’s Army” of programmers, making up the skills shortage from programmers already in retirement.

“There are hundreds of languages out there: we don’t care if you’re 88 years old,” he says, adding that P-E will have a “Chinese culture” – respect for the elderly, who may well have been laid off because they were told they were “too old”.

Coster expects the IT arm will grow by 20 per cent over the next year – at the same rate as the IT industry. This will also involve acquisitions which Coster intends to make in the opening months of this year.

His intention is to focus on IT methodologies and systems applications, particularly rapid application development.

“I’m looking at five acquisitions to fill the “middle layer”: four in IT consultancy and one in contract resourcing – and I hope to complete them in the first half of this year,” he says, aiming for an IT/straight consultancy which compares to the Big Six. “The size of the IT division has to be the same size as the rest of the consultancy put together, which is means a revenue of u35m, so I’ve got to buy one firm at u35m or two at u18m, then I’ve got my pyramid in balance,” he says.

There is also a wider strategy of taking Lorien from AIM to the “official list” of the Stock Exchange.

He says: “Lorien’s time is up on AIM. It is a transitory stage, there’s not huge liquidity on AIM and it’s time to get a selection of shareholders.

And now because of the acquisition of Arena, Frost Berkeley and P-E, Lorien is big enough to go up onto the stock market.”

It might be wondered what Coster’s own motivation is: after founding and then selling IT consultancy James Martin Associates, he attempted a marine retirement, but was quickly lured back into the rat race to become a partner at Coopers & Lybrand, building up the IT consultancy practice before rising to become head of management consultancy. As part of the international management team he was one of a small number of names in contention to head the entire international practice. Instead he was lured to Unisys, at time when the firm was trying to make a strategic shift from hardware manufacturer to services and consultancy provider.

So why does he want to go through it all again?

“Part of the fun is building something and the smaller you are the more you’ve got to grow,” says Coster. “If I deliver this strategy they will make huge amounts of money and I will get a lot of equity – but I have to beat everyone else by 20 per cent a year compound. So part of the strategy is to trim costs and improve P-E’s profitability by improving utilisation of consultants.”

In addition to recreating the IT “middle layer” Coster aims to move P-E’s manufacturing and distribution practice into new areas. The restructured practice, which includes part of Lorien’s engineering arm, P-E’s engineering practice, and the factory modelling and logistics divisions, will now try to break into the supply chain market.

Internationally, plans are underway to move P-E’s Hong Kong office to a strategic position in Singapore. Although Lorien closed P-E’s office in Australia at the beginning of January, it has just opened a new office in India, partly to support its relationship with Ford.

Coster believes P-E has missed out in the past because it did not evolve fast enough to keep up with the ever-changing trends in consultancy.

“You need to understand the competition and the top 10 issues in an industry and then you can proceed to show your BPR skills in that industry,” he says. “The big step I’m going to take is to sweep everything into vertical market sectors.”

Up to now, P-E has largely focused on the manufacturing and public-sector markets, two highly price-conscious areas.

“P-E’s prices are very competitive,” he says. “I will be taking it much more strongly into financial markets, telecommunications and pharmaceuticals.”

After his experience at Coopers & Lybrand during the merger with Deloitte, Haskins and Sells, Coster feels confident that he can carry out a similar exercise with Lorien and P-E.

“The two cultures are very different: Lorien will fire, then aim afterwards, while P-E takes a long time aiming before it fires. Somewhere in the middle is aim and fire,” says Coster.

The final touch will be finding a mutually acceptable name for the two firms: “Lorien & P-E International, or P-E International – A Lorien plc company” are the current options. But for the moment the consultancy will continue trading under the name P-E International and the firm as a whole will go to the market under the Lorien name.

Coster will be happy as long as the P-E brand name survives. He feels that people see the P-E name as something solid; the firm that always delivers, and the combination with Lorien’s background will create something special.

“There aren’t many firms that can help with redundancies, build a bottling plant, and design a communications infrastructure,” he says. “And in five years time we think we will be a household name.”