To become a phoenix rising from the ashes, Atos needs to crystalize its ambitions

Atos’ history is one for students’ textbooks, its CEO Nourdine Bihmani implied at Atos’ recent Analyst Day. It has catapulted from being a well-oiled M&A machine to spectacularly hitting the buffers after accounting scandals, CEO changes, and grappling with innovator’s dilemma. All this led to the well-documented spin-off of its margin-sapping infrastructure business. For details, see our blog post from last year, Service providers must buy Atos’ crown jewels now and learn from dithering over Kyndryl. There are few comparisons for such a corporate development journey. Suffice it to say IBM is the obvious one.

All of this means Atos’ existing and potential clients need clarity from the provider. What does the future look like for them? Here, we analyzed Atos’ recent update to investors to see if it delivered the clarity its clients crave.

Can Atos learn from Kyndryl?

Unlike the logic IBM applied when it divested Kyndryl, the Atos brand name will stay with the non-profitable infrastructure business, and the new cool-kid on the block with the shiny digital, cloud, and cybersecurity capabilities will operate under the new Eviden brand.

What struck us most when listening to Atos’ executives was their humility and honesty. In contrast to IBM’s launch of Kyndryl, the Atos board did not shy away from referring to the reasons leading to the separation in the first place. The cue for this approach is in the audience: Executives had to regain the investors’ trust. Thus, the board talked about a “managed decrease” of its current contracts, a painful process of renegotiating and phasing out unprofitable contracts. Because executives were presenting to investors, they were equally blunt about a headcount reduction of 7,500 FTEs.

The board’s message was clear: It has stabilized the business. The figures demonstrate that core revenue growth improved to 1.2% year-over-year for FY 22 from -9.2% in FY 21, and the operating margin increased to 0.7% from -1.3% in FY21. What wasn’t clear was the strategic positioning.

Is there a viable positioning for an infrastructure-centric provider?

The fundamental question for Atos is figuring out what it needs to change to become more successful than the infrastructure business in the erstwhile combined entity. Successful divestments of its Unified Communications & Collaboration business, Unify, and its Italian subsidiary in 2023 have rid it of underperforming business units; however, there is still no indication of where acceleration will come from. From a portfolio perspective, there is a renewed focus on

• Technology advisory and customized services: Consulting services across data, AI, digitization, and automation
• Hybrid cloud and infrastructure: New emphasis on hybrid over private cloud; with AWS being Atos’ new best friend, this fits well with current market trends
• Digital workplace: Atos’s crown jewels and strongest offering
• Digital business platforms: A highly selective and narrow set of platforms including identity management, sports events, and environmental, social, and governance (ESG)

This list clearly doesn’t represent a notable needle shift in Atos’ portfolio; it’s a refinement that could leave enterprises wondering where the provider plans to generate growth. To address that question, Atos has identified two key accelerators.

Offshore and GenAI are the levers for margin

Rather than shifting its portfolio, Atos is seeking efficiency gains by increasing offshoring and aggressively introducing generative artificial intelligence (GenAI). The goal is to increase the offshore ratio from 54% to 65% to buffer the negative impact of key high-cost locations in France and Germany. Moreover, Atos intends to accelerate its journey toward autonomous operations, with GenAI expected to compress the bottom of the talent pyramid by automating activities such as proposal writing or PO creation. Talking openly about the impact of automation and AI is unusual, and for a French company, it is even more unusual. What it tells us is that a combination of contract renegotiations and workforce redesign is meant to drive the turnaround—not a portfolio overhaul.

Ambitions must be bolder than digital workplace and hybrid cloud

Organizations’ digital foundations are broader and more complex than infrastructure services. Becoming cloud native means blending IT and business operations. Therefore, Atos’ clients should encourage the provider to crystalize where it feels it has the right to win. This must be bolder than just infrastructure. Atos cannot rely solely on its sibling Eviden. Rather, it needs to drive new partnerships with the likes of ServiceNow and Databricks to be more relevant to its customers. Apps modernization and emerging ecosystems should be top of the agenda.

In general, operations leaders need more clarity on the collaboration with Eviden. Eviden’s launch was so soft that the market didn’t take much notice. Atos repeating its close collaboration with Eviden to reassure client and stakeholders of delivery capabilities is also confusing amid the ambiguity surrounding its portfolio and general market offerings. Atos’ clients need clarity on how the collaboration with Eviden affects their delivery experience.

The cultural change is starting at the top

Half of Atos’ board members are French. This is a significant shift to a much more global composition for a company that is extremely French—in terms of board members, dominant culture, and client base. Atos should use the opportunity to drive deeper cultural change, encapsulating becoming more global, younger, edgier, and focused on digital engineering, benefitting clients of all shapes and sizes. Regarding geographical reach, Atos still has to crack the US market.

The Bottom Line: Atos has begun stabilizing the top line. Now it must re-invent itself—and keep clients in the loop while it’s changing.

Atos has stabilized the organization, giving confidence to enterprises in the short term. The thrust of the change is about balance sheet acrobatics and workforce change. The real challenge is moving the organization away from having a “bad bank image” to finding new revenue opportunities and reinvigorating its portfolio. Currently, it is stuck in a low-margin environment. For its customers, the risk of disruption has significantly reduced. Now, they need to see what the “new Atos” really is and where it has the right to win.