Cambridge Technology Partners, Inc.

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Cambridge Technology Partners, Inc.

8 Cambridge Center
Cambridge, Massachusetts 02142
U.S.A.
Telephone: (617) 374-9800
Fax: (617) 914-8300
Web site: http://www.ctp.com

Public Company
Incorporated: 1991
Employees: 4,200
Sales: $628.1 million (1999)
Stock Exchanges: NASDAQ
Ticker Symbol: CATP
NAIC: 541511 Custom Computer Programming Services; 541512 Computer Systems Design Services; 541611 Administrative Management and General Management Consulting Services; 541613 Marketing Consulting Services

Founded in 1991, Cambridge Technology Partners, Inc. (CTP) is a new economy business that has enjoyed rapid growth for much of its history. It specializes in client/server systems integration and promises customers fixed prices and guaranteed completion dates. With the evolution of electronic commerce in the latter part of the decade, CTP faced a host of start-up consulting firms that were more focused on web solutions and e-commerce. As CTP’s traditional businesses involving enterprise resource planning (ERP) and legacy systems began to slow, the company sought to increase its revenue from e-business projects. At the end of the 1990s the company experienced high employee turnover and brought in new management to negotiate the change to an emphasis on electronic commerce solutions for its clients.

Enjoying Rapid Growth As Systems Integrator: 1991–96

CTP was formed from the consulting business of the Cam-bridge Technology Group in Cambridge, Massachusetts, in mid-1991. Information technology (IT) investor Safeguard Scientifics Inc. and its affiliated venture capital fund Radnor Venture Partners LP invested $5 million in CTP for a majority interest. James Sims was CTP’s first CEO.

In its first year of operation, CTP completed 20 projects averaging $1.2 million each and had another 25 projects underway. Using its own suite of rapid application development tools and methodologies, CTP was able to reduce the amount of time it took for a customer to have a new computer system from two years to six months. CTP’s CEO James Sims told Systems Integration Business, “The purpose of our company is to listen carefully to the client, and to offer open systems, fixed-price contracts and realistic deadlines that put our clients ahead of the competition.” CTP would prepare a report for clients within a week and have a working prototype that cost the client $100,000 ready a few days later. The prototype was used to demonstrate the economic benefits of system implementation for the client. After the client’s new system was installed, CTP would provide training for the client’s employees, teaching them how to maintain the CTP-built system.

CTP’s clients had large sums invested in their mainframe computer systems. In some cases clients would scrap their main-frame systems for an open-systems environment with application servers. In other cases, CTP would provide a three-tier architecture that allowed clients to keep their current system, which would continue to host existing databases and run software too costly to move. The three tiers involved PCs on each user’s desk, the client’s existing system, and Unix servers connecting the two.

At the end of 1992 Jack Messman joined the CTP board. He was president of Union Pacific Resources Co. and former president of Novell Inc. Messman would later succeed Sims as CEO in 1999. In 1993 CTP went public; annual revenue was around $56 million. By 1995 CTP’s revenues had grown to about $100 million. During its first five years revenue grew an average of 76 percent annually. The firm was hiring about 400 new employees a year. The fast-growing company specialized in client/server systems integration. Its fixed-price, fixed-time strategy, which guaranteed clients the cost of a project and the time it would take to complete, gave it a strong competitive advantage. In 1995 it formed a new unit, CTP West, by joining its regional offices in Palo Alto, California, Los Angeles, Dallas, and Seattle. In 1995 CTP acquired Systems Consulting Group, Inc. of Miami, and Axiom Management Consulting, Inc. of San Francisco. Axiom would continue as a wholly owned subsidiary of CTP and contribute about ten percent of CTP’s revenue, or about $14 million, in 1996. Under CTP, Axiom would specialize in business reengineering consulting.

At the beginning of 1996 CTP introduced KnowledgeShare, an Internet application that bundled software, training, and consulting. Priced between $150,000 and $200,000, KnowledgeShare enabled companies to harness their internal knowl-edge and allow employees access through the World Wide Web. The service included software, training seminars, and consulting from CTP. With Internet firewalls and other security measures built in, KnowledgeShare could be used for limited or open internal access or as a public web site.

Between 1995 and 1996 CTP moved from doing custom projects exclusively to earning about half of its revenue from packaged products. Customers were demanding prepackaged client/server applications in areas such as sales force automation, financial management, and manufacturing management. With customers wanting their new client/server systems running in the shortest amount of time possible, it was thought that business process reengineering projects took too long.

In 1996 CTP introduced the Cambridge Information Net-work (CiN), a free Internet service that provided chief information officers (CIOs) and other senior information officers with a forum to discuss business and technology issues. The service gave CTP greater exposure to potential clients. By the end of 1996 more than 100 IT executives had registered at the site. They were from companies such as Federal Express, Microsoft, and Cisco Systems.

At the end of 1996 CTP acquired California-based Ramos & Associates, Inc., a strategic information solutions consultancy specializing in enterprise resource planning (ERP), for $39 million in stock. Ramos was considered the leading implementor of PeopleSoft ERP systems, and the acquisition launched CTP into the fast-growing ERP market. CTP had grown to 27 global offices and had about 1,800 employees. Another 1996 acquisition involved NatSoft S.A. of Geneva, Switzerland.

Rise of Electronic Commerce: 1997–2000

By mid-1997 CTP had completed nearly 100 electronic commerce projects since its first one was finished in 1994. Some 70 percent of these projects involved “interactive space.” In mid-1997 CTP introduced a new integrated electronic commerce service called Consumer Oriented Rapid Application Development (Co-RAD). Combining technical and creative issues for its clients, the new service included four phases: an electronic commerce strategy workshop, product design, a product definition workshop, and product development. For each stage, CTP guaranteed a time of three months and a fixed price. In addition to Internet projects, the service included developing wireless solutions and kiosks for electronic commerce.

Toward the end of 1997 CTP formed a venture capital company to invest in developers of enterprise software applications that would be of interest to CTP’s current customers. The Cambridge Technology Capital Fund began with $24 million in equity, of which CTP contributed $10 million and outside investors the rest. At the end of 1997 CTP had 41 offices and more than 2,600 employees worldwide. Sales were $406.7 million, and net income was $37.7 million.

In early 1998 CTP opened the Worldwide Center for ERP Excellence in San Ramon, California. Its director would be Tim Ramos, formerly of Ramos & Associates, which CTP acquired in 1996. The Enterprise Resource Solutions business unit would offer clients the same fixed-price, rapid implementation service characteristic of all CTP projects. Target companies would have sales in the $50 million to $500 million range. The company planned a special initiative for manufacturers to serve the needs of industrial companies that wanted software implementation at a fixed price. Later in the year the Enterprise Resource Solutions business unit, headed by Ramos, was merged with CTP’s North American Rapid Application Deployment business unit into a new North American business unit to be headed by Ramos.

During 1998 CTP established its Enterprise Security Services unit to focus on computer security issues. It put Yobie Benjamin, a well-known hacker who was once a political prisoner in the Philippines under military dictator Ferdinand Marcos, in charge. It was estimated that U.S. companies lost $300 billion per year in costs associated with hacker attacks and network security violations.

In August 1998 CTP acquired Excell Data Corp., a systems integrator based in Bellevue, Washington. While most of CTP’s business had involved Unix systems, Excell was highly regarded for its expertise with Windows NT. In 1997 Excell was named Microsoft PacWest Solution Provider Partner of the Year. The acquisition of Excell would enable CTP to provide more custom applications for Windows NT, an area that was expected to grow dramatically over the next few years. Following the acquisition, which added about 500 employees in Bellevue, Portland, and Denver, CTP had about 4,200 employees in 50 offices.

Later in the year Microsoft Corporation announced that it had chosen CTP to develop enterprise business applications based on the Windows NT operating system and other Micro-soft technology. Under the agreement Microsoft and CTP would jointly market and sell the frameworks and integration services, which would then be executed by CTP under its fixed-time, fixed-price contracts. CTP planned to hire 1,000 Microsoft certified systems engineers over the next three years. The company also planned to standardize its 4,300-plus internal desk-tops on Microsoft enterprise products.

Company Perspectives

Cambridge Technology Partners provides management consulting and systems integration services to transform its clients into e-businesses. Working in collaboration with Global 1000, high-velocity middle market companies, and .com start-ups, Cambridge combines a deep understanding of New Economy issues with integrated, end-to-end services and a proven track record of shared risk and rapid, guaranteed delivery.

After reporting disappointing revenues for the quarter ending September 30, 1998, CTP blamed the results on a shift among clients toward Y2K projects. CTP did not provide services for Y2K remediation. Still, CTP enjoyed a 50 percent increase in revenue for the first half of 1998 and a 31 percent increase in the third quarter, somewhat below an expected 40 percent gain. Spending on Y2K projects for the rest of 1998 and 1999 was expected to negatively affect CTP’s revenue. The company’s stock dropped from a high of $58 early in 1998 to around $21 toward the end of the year. CTP issued an advisory that its annual revenue growth would decline from around 40 percent to 20–25 percent.

For 1998 more than 60 percent of CTP’s projects were Internet-related. The company’s CoRAD initiative had proven popular with customers who wanted to build an online business in three or four months. For fiscal 1998, revenue rose 40 percent to $612 million, up from $438.3 million. Net income increased nearly 50 percent to $57.7 million, up from $38.5 million in 1997. Those figures excluded costs associated with the Excell acquisition in 1998 and the acquisition of Peter Chadwick Holdings Ltd. in 1997. At the end of 1998 a group of former employees and shareholders of Excell Data Corp. filed a lawsuit against CTP in connection with CTP’s acquisition of Excell. The suit was subsequently dismissed in March 2000.

Year of High Employee Turnover, Executive Changes: 1999

At the beginning of 1999 CTP had 53 offices and more than 4,400 employees worldwide. The firm restructured its services and organization, switching from a geographical focus to one that targeted specific industry segments. As a softening in the enterprise resource planning (ERP) market became more pronounced in the first quarter of 1999, CTP’s business was affected. Its stock dropped to around $11 a share, down from its 52-week high of more than $58. CTP announced that it expected its sales and profits would not meet analysts’ expectations.

In mid-1999 CTP hired Bruce Culbert as vice-president of interactive solutions. He was previously involved in the start-up of IBM Interactive Media and led an 1,100-person consulting practice at IBM Global Services. Shortly thereafter CEO James Sims announced he would be retiring from CTP, effective July 30. Succeeding Sims was Jack Messman, a one-time president and CEO of Novell Inc. and former chairman and CEO of Pacific Resources Group Inc. Messman was also a director of Safeguard Scientifics and had been a member of CTP’s board since 1992.

Before the year was over, other key executives began to leave CTP. Senior vice-president Malcolm Frank left to head a new business-to-business e-commerce consulting firm called Nerve Wire. He took five key employees with him, including CTP’s web division head, its chief technology officer, and the director of digital strategy. In January 2000 Bruce Culbert, the head of CTP’s e-business unit, left the firm because he did not want to relocate from Atlanta to Massachusetts. Also leaving the firm was CFO Arthur Toscanini.

Executive turnover and other factors such as employee bonus payments of nearly $17 million negatively affected CTP’s financial performance for 1999. Projects affected by year 2000 problems and fewer PeopleSoft implementations also reduced revenue and income. For the year overall revenue grew just 2.6 percent to $628 million, and net income was $2 million. Revenue associated with e-business projects rose 27 percent to $243 million.

CTP was facing new competition from a rash of start-up consulting firms that were focused entirely on the Internet and providing e-commerce solutions. In the Boston and Cambridge area alone they included Nerve Wire Inc., Zefer Corp., Viant Corp., and Breakaway Solutions Inc. In the fourth quarter of 1999 e-commerce revenue accounted for 39 percent of CTP’s revenue, up from 31 percent for the same quarter of 1998. Enterprise resource planning and other enterprise application integration businesses were slowing.

In an effort to increase shareholder value, CTP began selling off some of its niche businesses. It divested its Cambridge Information Network to EarthWeb Inc. for $8 million. The company also announced it would invest in dot-corn start-ups under a program called Newco for “New Economy Companies.” The ventures would be funded through the Cambridge Technology Capital Fund and partnerships with other venture capital firms. The announcement served to boost CTP’s stock 33 percent in one day.

Meanwhile, CTP brought a lawsuit against its former CEO, James Sims, who had started a new consulting firm called Gen3 Partners after leaving CTP. The lawsuit charged that Sims had begun creating Gen3 while being paid as a consultant to CTP after his departure. He was also charged with luring dozens of CTP employees to his new firm. CTP’s former CFO, Arthur Toscanini, who had followed Sims to Gen3, was also named in the suit. Sims and Toscanini responded by filing a countersuit against CTP in May 2000. Another suit brought by CTP against Semtor Inc., a Florida-based consulting firm founded by another former CTP executive, was settled in August 2000 when the company agreed not to hire any more employees from CTP.

Key Dates

1991:: Cambridge Technology Partners (CTP) is formed from the consulting business of the Cambridge Technology Group in Cambridge, Massachusetts.
1993:: CTP goes public.
1995:: Revenues reach $100 million.
1996:: CTP introduces the Cambridge Information Net-work.
1997:: CTP establishes the Cambridge Technology Capital Fund.
1998:: CTP acquires Excell Data Corp.

For the quarter ending March 31, 2000, CTP reported a loss of $4.3 million, following a loss of $17.3 million in the fourth quarter of 1999. The loss in 2000 was attributed to CTP’s failure to move quickly into web consulting and e-business projects. One analyst estimated that CTP was suffering from a 48 percent employee turnover rate, the highest in the information technology sector, involving some 1,000 employees. Although CTP would aggressively pursue e-business projects in 2000, its de-pressed stock price made it a possible takeover target, according to some analysts.

Principal Subsidiaries

Cambridge Technology Capital Fund LP; Cambridge Educational Services; Excell Data Corporation; Cambridge Management Consulting (U.K.); Cambridge Enterprise Resource.

Principal Competitors

American Management Systems; Andersen Consulting; AnswerThink; Aztec Technology Partners Inc.; Breakaway Solutions Inc.; Cap Gemini America; Electronic Data Systems Corporation; International Business Machines Corporation; Keane, Inc.; marchFIRST; McKinsey & Co.; Sapient Corporation; Viant Corporation; Zefer Corporation.