Why I Sometimes Don't Trust Gartner Magic Quadrant Research

Why I Sometimes Don't Trust Gartner Magic Quadrant Research

Gartner has created one heck of a brand with its Gartner Magic Quadrant research. Hundreds of vendors scramble to qualify for the Magic Quadrant -- which identifies top technology companies in dozens of different markets. CIOs, in turn, often use Gartner's Magic Quadrant research to help select IT products and services. Sounds great -- but some of Gartner's Magic Quadrant Leader picks make me scratch my head. Here's one example...

Gartner has placed CSC (Computer Sciences Corp.) in  the "Leaders" quadrant of a new report called "Magic Quadrant for Communications Outsourcing and Professional Services." The report apparently examines 19 vendors of IT services, and it includes coverage of the managed services market.

CSC issued a press release celebrating the Magic Quadrant Leader news. It quoted Nick Wilkinson, global president, market and product strategy, CSC Managed Services Sector. Wilkinson may be a sharp guy. And CSC may be making progress in the managed services market....

A Reality Check

... But am I the only guy who recalls CSC's managed services mess -- which triggered CSC earnings problems, shareholder angst, and management changes in 2011?

Check CSC's SEC filings and you'll see the company suffered key setbacks in its managed IT services business in 2011. The setbacks forced CSC to make management changes, basically sending the head of the company's managed services business into early retirement.

In its Q2 2012 earnings results (announced Nov. 9, 2011), CSC CEO Michael Laphen mentioned numerous strong areas within the company. But he also conceded CSC's problems in the managed services market. He said: "With respect to the bottom line, MSS [Managed Services Sector] is a turnaround story and as previously announced we have made several organization and process changes aimed at accelerating improvements."

Gartner Applies Some Magic

Fast forward to the present, and Gartner is celebrating CSC's IT services and managed services expertise.

I have not read the Magic Quadrant for Communications Outsourcing and Professional Services report. But to understand its true value in this case, simply read Gartner's own disclaimer:
"About the Gartner Magic Quadrant: Gartner does not endorse any vendor, product or service depicted in our research publications, and does not advise technology users to select only those vendors with the highest ratings. Gartner research publications consist of the opinions of Gartner's research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose."
Sounds like the Magic Quadrant is worth everything... and nothing.

CSC's Updated Managed Services Performance

As for CSC -- the company is set to announce Q3 results on February 8, 2012. Back in November 2011, it sounded like CSC was making real progress with the MSS (managed services sector) turnaround.

On the November 2011 earnings call, CSC CEO Michael Laphen said:
"As previously reported, MSS operating margin performance, although improved from the first quarter, continues to be a drag on the company's performance and the primary contributor to the reduction in our guidance numbers. As part of our remediation plan to return to acceptable levels of margin performance, we put new leadership in charge of the MSS business, including a dedicated senior executive to focus exclusively on operations and delivery. To speed and ensure the remedy of the delivery issues occurring in the Nordics regions, we've assembled and insured a seasoned team into that region to manage necessary corrective plans and actions. MSS's previously identified startup issue has progressed to a contract resolution. We anticipate that our collective remediation actions should result in operating margin improvement over the second half and into next fiscal year.

With respect to new business, the Managed Services segment had a strong quarter, with $2.6 billion in bookings. At the half, MSS recognized a 55% increase in bookings compared to the first half of fiscal year '11. Key MSS awards in Q2 includes Ingalls Shipbuilding, ArcelorMittal and a global multi-brand products manufacturer, all of which are new logos for CSC."
That sounds promising, but we'll get the updated views in the February 8, 2012, earnings call.

The Bottom Line

Gartner suggests CSC is a leader in IT outsourcing and managed services. CSC concedes the company's managed services business hit bumps and has been executing "remediation actions."

So which view is more accurate?
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