Highlight Report

Atos needs a new strategic playbook more than it needs a new CEO

November 3, 2021

The Bottom Line: Atos needs a new strategic playbook more than it needs a new CEO

The news that Atos CEO Elie Girard is stepping down with immediate effect is probably not surprising given the decline in its share price, recent accounting scandals that spooked investors, and the lackluster financial performance in a booming demand environment.

On top of that, Atos is looking to dispose of much of its infrastructure business, exactly a year after IBM did precisely that. What is surprising is that Atos is left with a power vacuum until January 2022 and no clear immediate plan on how to turn its fortunes around. Yet, this is not just about Atos’s misfortunes. Part of Atos’s problems is systemic to the IT Services market—and Atos’s management is acutely aware of this.

It has been staring at the proverbial Innovators Dilemma for years, where outstanding companies can do everything “right” and still lose their market leadership—or even fail—as new, unexpected competitors rise and take over the market The last attempt to get out of this dilemma was the failed attempt to acquire DXC. This was not a solution to escape the dilemma, but more a futile attempt to change the lens through which they could star as the Dilemma. Enough reasons to take stock where this leaves Atos and the IT Services market at large.

Atos will remain rooted in the French establishment – yet it should be aiming at wholesale cultural change

Let’s peel back the onion by starting with the details of the announcement. Girard will be replaced by Rodolphe Belmer who is leaving his position as Eutelsat CEO. Yet, he will only officially take the reins in January, leaving Atos with a power vacuum. This vacuum is being buffered by two interim CEOs Pierre Bernabe, the likable Head of Big Data and Security, and Adrian Gregory, Global Head of Financial Services & Insurance. What this suggests is the Atos will remain a stalwart of the French and to a large degree European establishment. However, looking at both the structural issues of the IT services market and Atos’s financial performance, what is needed is both a wholesale strategic and cultural change. Atos needs recognition for transformation capabilities whilst getting operating closer to the leading providers. Yet, its image is that of an unexciting safe pair of engineering hands.

Back in July Atos had announced it was looking for strategic partners for its Unified Communication Business and for commoditized infrastructure assets such as data centers, legacy compute & storage, networks, and maintenance. A strong consolidation of those infrastructure assets is in Germany. To call a spade a spade, this is a marked difference to IBM spinning off its infrastructure business. A sale to partners will remain slow and even if successful without clear levers on how to create synergies. IBM took the bold step to draw a line under the margin sucking infrastructure business. Atos is dithering and if partners can be found will depend on them. While the communication by IBM around the spin-off called Kyndryl is underwhelming, the strategic direction was taken decisively. Atos move comes across as cautious. Yes, Atos must negotiate with German work councils as many of the assets are in Germany. But we haven’t had much clarity about what this move will actually mean for the company.

Talking about IBM provides food for thought as to the cultural change Atos desperately needs. IBM made a bold move for RedHat to drive strategic and cultural change. Suffice it to say even that cultural change didn’t prevent the spin-off of the commoditized infrastructure business. What Atos needs is more wholesale cultural change akin to Microsoft, which under Satya Nadella went from a toxic brand to innovation powerhouse and magnet for talent.

Atos changes are too slow and too marginal

Of course, Atos is trying to change. But those changes are either taking too much time or are too marginal. The most important strategic initiative is Spring, which is meant to finally give Atos an industry-led go-to-market. But with Spring Atos is just catching up with its leading peers; it is not getting ahead of them. Cloud will be the first practice for this new organizational setup. With its OneCloud initiative that it combines a set of 10 expansive offerings in a one-stop–shop proposition, Atos is ahead of many peers, but at the same time it is being held back by the transition from a horizontal to a vertical go-to-market. It has some differentiation around the IP developed for the European GAIA-X cloud initiative which aims to develop common requirements for a European data infrastructure. Furthermore, decarbonization offerings guarantee year-on-year carbon footprint reduction of cloud infrastructure, data, and applications. OneCloud should be seen as much as an internal change age. But this is not enough to be top of mind of buyers looking for transformational engagements. The deal with the UK pension provider NEST was the last large deal and thus far Atos has not be able to replicate that success.

Atos trails its peers on operating margin

The most concerning part is Atos’s financial performance. It is trailing its peer on operating margin. While its Q3 2021 performance has slightly improved to 6.0% the leading Indian provider are out of sight and even Accenture appears miles ahead. Put another way the acquisition of Syntel hasn’t transformed their offshore operations. Its M&A strategy is largely focused on bolt-on acquisitions. DataSentics and Nimbix for Big Data and Analytics as well as Visulbi for Snowflake capabilities are the recent examples. None of Atos acquisitions have transformed the company culturally and strategically. What Atos got through consistent M&A was scale and reach. What it needs, however, is cultural and strategic transformation. Either it must apply a completely new playbook, or it might expose itself to being acquired not least given the low share price.

Exhibit 1: Quarterly revenue growth of ten largest IT services providers Q1 2020 to Q2 2021</6>

Source: Published Financials and HFS Research, 2021

Exhibit 2: Quarterly operating margins of leading IT services providers

Source: Published Financials and HFS Research, 2021


Its low share price leaves Atos exposed to opportunistic M&A moves. But more than anything else the company needs to shed its image of an unexciting safe pair of engineering hands steeped in the European culture and establishment. Competitors like Infosys and Wipro have upped their game and taking advantage of the buoyant demand environment. Atos stands out by regressing. The new CEO will have his in-tray full.

Sign in to view or download this research.


Lost your password?


Insight. Inspiration. Impact.

Register now for immediate access of HFS' research, data and forward looking trends.

Get Started