UK outsourcing giant Capita is diversifying out of staffing services with stakes in 5 tech start-ups. The company is one of the British government’s largest contractors and responsible for both managing the BBC license fee and assessing disability claims made to the Department of Work and Pensions. Capita works with all 5 of the start-ups it has invested in, providing them a number of full-time staff.
Capita’s start-up incubator, Capita Scaling Partner, is behind the new direction being taken by the parent company and has a target of building stakes in 10 start-ups by the end of the current year. A spokesman for the unit commented that it would:
“Help fledgling companies navigate the pitfalls of getting a new business off the ground and maximise the benefits of their relationship with Capita. We are the only incubator to include dedicated full-time staff as well as space for each of the businesses that we know of.”
Capita’s initiative is part of a broader strategic shift being implemented by chief executive Jonathan Lewis. He has the ambition to reposition the outsourcer as a provider of digital services and software. By doing so he hopes to become a direct competitor to outsourcers such as Accenture, who provide higher margin professional services staff. The kind of digital economy staffing services Capita is hoping to move into typically provide margins of around 30%. Lower value outsourcing services have struggled to return a profit in recent years.
Another step in that direction has been the launch of Capita Consulting, which will employ up to 450 consultants specialising in advising large companies on the digital economy. Around 400 software development experts have also been recently added to Capita’s 63,000 employees over the past twelve months.
Until recently, Capita has been seen as more of a peer to blue-collar outsourcers such as G4S, Serco and Mitie than to higher margin professional services contractors like Accenture. However, the blue collar and lower margin sections of white collar outsourcing market have struggled in recent times with all of the big players issuing profit warnings and announcing shifts in strategy. Government contractor Carillion, one of the UK’s largest outsourcing companies, last year collapsed into administration. G4S and Mitie are also pivoting towards offering staff that are experts in contemporary technologies.
Capita itself was forced into a profit warning last year as well suspending dividends and a £700 million rights issue. The company is currently undergoing a major cost-cutting and disposals programme after net debts were forecast to hit £1.15 billion. Analysts have largely welcomed the move into new technologies with Applied Value analyst Stephen Rawlinson commenting for the Financial Times:
“Capita is making up for more than a decade of neglect in its knowhow and technology. The current pace of development is rapid and the outcome not yet proven. If it can succeed, then it has considerable value, above current levels.”
One of the tech start-ups Capita has taken a stake in is Firefly AI. The company has developed an algorithm able to predict with 89% accuracy the part of an image that will most draw an observer’s attention. Among its early clients is Italian broadcaster Media Set, which has used the algorithm to significantly increase the number of downloads on its video-on-demand platform. Figures were improved by 19% in just 10 weeks by enabling the company to refine and enhance viewer attention.
Financial advice app Munnypot is another of the start-ups as is Artificial, an insurtech start-up whose software allows insurers and brokers to digitally quote and issue policies. That speeds up the underwriting process and reduces the volume of administration.