CTG, Inc.

800 Delaware Avenue
Buffalo, New York 14209
U.S.A.
(716) 882-8000
Fax: (716) 887-7246

Public Company
Incorporated: 1966 as Marks-Baer, Inc.
Employees: 4,132
Sales: $295 million
Stock Exchanges: New York Amsterdam
SICs: 7372 Prepackaged Software; 8742 Management
Consulting Services

Computer Task Group Inc. (CTG, Inc.) is one of the largest providers of professional services related to computer information technology. The company contracts with many of the largest companies in the United States and Canada to develop computer software, and offers consulting services for managing and maintaining computer systems. CTG is one of a handful of top competitors in this area in the North American market, and has established a presence in the European market as well.

CTG began in 1966 in Buffalo, New York, when two employees of IBM decided to start their own company, offering a relatively new service. Randy Marks had been an account representative for IBM, and he was responsible for marketing in the new company, which was then called Marks-Baer Inc. (MBI). His partner, G. David Baer, had held technical and management positions at IBM, and he initially provided the technical consulting services MBI offered. The two men each invested $4,000 to found the company, and together they borrowed $16,000 as starting capital. When MBI started up, it was unusual for companies to employ outside consultants for help with their data processing needs, but computers were rapidly becoming more powerful, and software more complex. Randy Marks and David Baer correctly predicted that professional computer consulting services would become more necessary and common. Their company provided programmers, designers, and managers to clients who lacked the expertise to set up their own computing systems.

MBI’s initial market was the medical industry, since both founders had experience in that area. But the medical market alone could not sustain the company, and MBI quickly branched into other areas. The company lost nearly $14,000 in its first year. MBI struggled to open markets for itself in Buffalo and around New York State, but sales gradually increased. By 1968, sales volume was $471,000, and the company opened a branch in New York City. Staff had grown to 20, and Marks-Baer Inc. changed its name to Computer Task Group Inc. (CTG). CTG went public in 1969, and by then the company’s fortunes seemed clearly on the upswing. The initial public offering was oversubscribed in spite of the fact that the stock market had reached a ten year low and investor interest was supposed to be down. But the young firm was already listed in the top 70 software companies in the country, and it was the largest in New York State outside of New York City. Sales had grown significantly, to $704,000, and the company soon opened new branch offices in Syracuse and Toronto, and established a central data center in Cheektowaga, New York.

CTG had a list of impressive clients, including IBM, Union Carbide, Chemical Bank, Hooker Chemical, Rockefeller University, and Atlas Steel. And in 1970, the company increased its revenue significantly by adding two major accounts, the City of Buffalo Police Department and the New York State Job Bank. The Job Bank account was CTG’s biggest; it accounted for half the company’s 1970 revenue. The Job Bank matched jobs and job-seekers by computer, and it acquired the honor of becoming one of the biggest Xerox installations in the world, second only to the Pentagon. With these two large accounts, CTG sales surpassed $1 million for the first time, though profits were still low.

Despite increasing sales, the company closed its New York City, Syracuse, and Toronto branch offices because they had become a heavy cash drain. Nevertheless, CTG continued to grow. In 1971, the company gained two more major contracts with the city of Buffalo, one to automate data on criminal case flow for the Buffalo City Court, and the other to work with the city’s Rodent Control Program. The company also explored a new market, tabulating Buffalo area election results for the news media, in alliance with a local firm that had previously relied on tabulating by adding machine. CTG also pioneered a software program called Basic Update Generator, or BUG, that automatically designed, coded, and generated COBOL computer programs up to 95 percent faster than normal COBOL. With these advances, the company was able to reestablish its Syracuse branch, and open a new branch in Rochester, New York.

CTG continued to find clients in the New York State area in the early 1970s. The company developed several software packages for use in different industries, including a number of medical systems, a grade reporting system for secondary schools, and a narcotics control system. The company began to diversify as well. In 1972, CTG acquired Paperwork Data-Comm Services Inc., a computer services company based in Syracuse. This company was easily integrated into CTG, as it was in the same line of business. In the same year, CTG bought an office supply company, United Office Products. Renamed CTG-United, in 1974 it became CTG’s Furniture Division. This business was not successful because it was outside CTG’s area of expertise, and in 1975 it was completely divested.

The company decided to stick closer to its core business in future ventures. In 1975 it attempted to capitalize on the growing mini-computer market by becoming the local dealer for BASIC/FOUR, a California manufacturer of small business computers. CTG opened BASIC/FOUR dealerships in Buffalo, Syracuse, and Pittsburgh, and became expert in the programming and installation of BASIC/FOUR equipment at small and medium-sized area companies. CTG also expanded its systems and programming operations to Chicago and Baltimore.

By 1976, the company’s clients were primarily large national corporations and financial institutions. One major client was Bethlehem Steel, which put CTG in charge of automating its steel processing operations. Bethlehem set CTG to work at several different sites, including Baltimore, Maryland, and Gary, Indiana. CTG’s management realized that to fully serve companies like Bethlehem, CTG too would have to have national reach.

Though expansion plans were laid, CTG’s period of growth did not really begin until 1980, when it acquired Cleveland-based Neoterics Inc. Neoterics was a professional services firm with almost 180 employees and branches in Cleveland, Columbus, Pittsburgh, Toledo, Raleigh, and Charlotte. The company focused on large IBM mainframe operations, and had been founded, like CTG, by former IBM employees. The acquisition had immediate benefits for CTG. The company gained a strong base in industrial automation, it increased its presence in the Southeast through Neoterics’ Raleigh and Charlotte branches, and it added nearly $10 million to its 1980 revenues.

The ambitious acquisition of Neoterics marked the beginning of a period of rapid expansion for CTG. The company had sales of $37 million in 1981, had opened its own Institute for Technical and Management Training to train new employees, and had continued to penetrate new markets such as the transportation industry and community mental health centers. Despite its expansion, the company’s internal growth was deterred because its branch offices were located in states with less than half the computers in the country. The company decided it had to grow through acquisitions in order to open up the top 20 markets. It was reaching only ten percent of the Fortune 500 companies, at a time when the computer services industry was still expanding. To expand, CTG first targeted specific geographic areas, then sent out an acquisitions team to survey companies that might be good additions. Between 1980 and 1985, CTG made 15 acquisitions, giving it a network of outposts in 45 different cities.

CTG moved into large urban markets all across the United States, acquiring firms such as Data Structures Inc. in New York City, Holvick Corp. in Detroit, United Software Consultants Inc. in Chicago, and Amtec Systems Corp. in Los Angeles. In 1985 CTG bought three computer service firms in the West, Data Force Inc. of Seattle, Central Computer Systems Inc. of San Francisco, and Documentation Resources of Phoenix. CTG quickly integrated these new companies into its corporate structure. Although management of the acquired company was usually left intact, CTG took care of small details such as printing new business cards for its new employees.

CTG’s revenues leaped upwards as a result of its expansion program. During the fourth quarter of 1983, revenues increased 62 percent over the same period a year earlier, and in 1984 the company comfortably predicted revenue growth of 50 percent. CTG’s clients in this period included such major companies as Campbell Soup, U.S. Steel, Xerox, Citicorp, and Westinghouse.

CTG made its first overseas acquisition in July of 1986 when it bought Shubrooks International Ltd., a software consulting firm based in Chertsey, England. Several more international acquisitions followed. By 1986, CTG boasted 75 of the Fortune 100 companies on its client list, and its stock moved from over-the-counter to the prestigious New York Stock Exchange. CTG was working for Ford Motor Company, UNISYS, Baxter Healthcare and USX, and it was named as one of Wall Street’s top 500 growth companies. By 1988, CTG had spent $37 million to acquire 19 companies. Sales stood at $220 million, and the company had behind it 20 consecutive quarters of profitable revenue growth.

Approximately five percent of CTG’s revenue came from projects run by IBM. When IBM spent $21 million to acquire a 15 percent stake in CTG in June of 1989, CTG management was jubilant. CTG CEO David Campbell referred to the investment as “the most significant event in the history of CTG,” because the arrangement had several benefits for the smaller company. IBM was given the right of first refusal on acquiring CTG if anyone else was to make an offer for the company, and in an era of hostile take-overs and increasing consolidation among computer companies, this was something of an assurance to CTG. The previous year, a Dutch holding company had purchased close to nine percent of CTG, and the company quickly enacted a shareholders’ rights plan in the event of an unwelcome takeover. Clearly CTG was more comfortable with IBM, a company with which it had a long relationship, in case it should lose its independence. The arrangement would also serve to give CTG earlier access to IBM’s technology. And CTG hoped to double the amount of business it got from IBM. Several months after IBM announced its purchase of CTG stock, IBM gave CTG a ten-year contract to run a new data processing plant for Bank South of Atlanta, and CTG negotiated to develop software for Kodak, another major IBM client.

After the stock purchase by IBM, CTG felt financially secure, and relatively sure of its future independence. CTG had penetrated into 80 percent of the top U.S. computer markets, fulfilling the goal it had set itself a decade earlier when the company began its expansion program. Prodded by a dropping net income, CTG reorganized and consolidated its U.S. operations, and formulated a plan for growth into the next decade. CTG consolidated some branches and streamlined its administration in the fourth quarter of 1989, ultimately reducing its workforce by 300. CTG also sold its Amtec subsidiary, as well as the Ottawa branch of its Canadian subsidiary. The company had to charge $13.6 million against earnings in order to effect these changes, but the result was lowered operating costs. The positive effect of the reorganization was felt almost immediately. Net earnings in 1990 reached $7.2 million on sales of $244 million, whereas the company had lost $7.8 million on similar sales the year before.

CTG continued to make strategic investments and acquisitions in 1990 to bring the company into new markets and to keep up with cutting edge technology. To increase its presence in Europe, CTG bought Rendeck International, a computer services firm headquartered in Amsterdam. That company had revenues of $24 million in 1989, and it served Western Europe through branches in Belgium, the Netherlands, and Denmark, as well as the United Kingdom. Following this purchase, CTG listed itself on the Amsterdam Stock Exchange. CTG also made agreements with the European companies Volmac Software and SAP to market SAP software in the United States.

CTG broadened it expertise when it bought the Massachusetts firm Connolly Data Systems, which had expertise in the growing field of “client/server” computer systems. CTG had worked primarily with the mainframe computer systems promulgated by IBM, so the acquisition of Connolly broadened CTG’s technological base. Similarly, CTG bought a stake in a company that manufactured imaging technology, Image Business Systems Corp., to have a toe hold in that increasingly important market area.

CTG enjoyed its most profitable six months ever in 1990, as profits tripled in the second quarter. Revenues rose by 16.9 percent in 1991, but the cost of its recent acquisitions as well as increases in tax provisions led earnings to drop drastically, and the company embarked on another restructuring project. CTG had 65 branch offices worldwide by 1991. The company decided to divide itself less along geographic lines and set itself up instead as an umbrella of eight “practices” representing different technologies. These new divisions included a Communications Systems practice, for networking and telecommunications technology; the Migration Services practice, to help clients move applications and databases to new operating systems; a Database Consulting practice; an Image Systems practice; Information Engineering; Information Media; Project Management; and Industrial Systems Integration.

The new set-up changed the focus of the company somewhat. Instead of bidding to do a one-time project for a company, CTG aimed to take over full responsibility for its clients’ computing needs through long-term contracts. The new approach slowed sales, but management expected to reap higher profits as soon as longer-term contracts began to pay off. Revenues rose only six percent in 1992, to $302.7 million. The next year, revenues dropped to $295 million, and earnings were below expectation.

CTG decided to restructure again in 1993, dividing its business into two interrelated business areas, Professional Software Services and Information Technology Consulting. Professional Software Services comprised short-term contracts for professional staffing, the core business upon which CTG was founded. This area accounted for more than 70 percent of CTG’s profit in 1993. Through Information Technology Consulting, the company offered complete solutions for a client’s computing needs. North American operations were pared down from over 60 branches to six regional centers for Professional Software Services and a single center for Information Technology Consulting. The new arrangement streamlined the company considerably, and management believed it would help CTG compete.

Further streamlining occurred in 1994. The company divested itself of two subsidiaries so that it could focus on its two new main business areas. In June CTG sold Profimatics, Inc., a petroleum industry engineering and software subsidiary it had acquired as part of a larger deal in 1987, to Honeywell Inc. In July of 1994, Sage Technologies bought CTG’s Network Systems Integration Group. In December of 1994, CTG repurchased IBM’s minority interest in the group in a program designed to enchance shareholder value.

CTG aimed to achieve greater local market share in 1994, and to return to its earlier high levels of profitability. The company still saw growth potential in the North American market, and the slightly smaller European market offered continuing opportunities as well. While the beginning of the 1990s did not prove as stellar as the 1980s for CTG, the company showed itself to be willing to make changes, again and again if necessary, in order to keep abreast of changing market conditions.