Taking the podium on a February evening, Serge Godin braced himself to launch the biggest charm offensive of his 40-year career. For the co-founder of CGI Group Inc., the pre-dinner mission was to finesse an enormous corporate speed-dating session. Most of the faces staring up at him from tables arrayed like lily pads across the Montreal Marriott ballroom were complete strangers—newcomers to Montreal-based CGI from a spree of recent acquisitions. And yet these were some of his top managers—a hand-picked hundred-odd from 400 offices in 40 countries. The dinner was a highlight of a “CGI 101” orientation session.
Godin’s opening gambit was direct: “Please stand up if you’ve ever been acquired.” After most of the room lurched to their feet, Godin delivered his punchline: “It won’t happen to you any more.”
Over the course of the next hour and a quarter, CGI’s down-to-earth executive chairman hammered on with a set of similarly emphatic pledges, warnings and strictures. Godin, who is 63, has logged decades travelling around the world in pursuit of more than 70 acquisitions—including the purchase, just over a year ago, of Logica PLC, a European rival that more than doubled CGI’s footprint—and made it Canada’s largest technology company.
Speaking to his newly acquired managers, Godin’s central theme was that with the Logica deal, CGI is now positioned to be a world champion—albeit one powered by exactly the same model he crafted for his first big contracts, like the 1982 job processing data for the Alcan smelter in his home town of Shipshaw in the Saguenay. That model, Godin emphasized, is based on getting to know clients’ businesses well enough to become all but indispensable to their survival and growth. In the rapidly evolving IT industry, Godin added, you have to be in a position to weather every storm and economic cycle—not just for survival, but in order to acquire stumbling competitors: “It’s like when the stewardess says: If something happens, get your own oxygen mask on first. I like to be in a position to read the menu—not being the menu.”
Godin co-founded CGI (short for Conseillers en Gestion et Informatique, later freely translated as Consulting to Government and Industry) in 1976 with André Imbeau, who has kept a relatively low profile during his career at the company (the long-time CFO is now vice-chairman). By 1980, Godin reminisced at the dinner, he had 222 employees. In 1992 the head count reached 1,200. By 2010, after a tumultuous decade of acquisitions including the absorption of stateside firms American Management Systems and Stanley Inc., CGI employed 31,000. Last year, following the Logica deal, the payroll exploded to 72,000, a number that has been cut to 69,000. The steady growth in head count has been mirrored in a stock price that has made CGI one of the top performers on the Toronto Stock Exchange, gaining an average of 25% annually for 25 years. “There is no limit for you to grow within this company if you have the competence,” Godin vowed. “We are in the services business. There is no risk,” he continued. “It is amazing how strong you are together. I’m never scared.”
The message would have verged on cultish triumphalism had it not been delivered with Godin’s rustic charm. “Always keep it very, very simple,” he instructed his audience of highly successful players in the global economy’s most complex, information-rich, technologically sophisticated industry. And then, with the quiet delivery of a profoundly proud man (and a man with a controlling stake), he delivered his own verdict on CGI: “It’s getting there, eh, gradually?”
With annualized revenue OF more than $10 billion with Logica in the fold, CGI is Quebec’s homegrown tech giant, landing at 119th on this year’s Top 1000 list. It is among the world’s five largest companies dedicated to computer services, alongside Computer Sciences Corp., Accenture, Capgemini and Atos. With a market capitalization of $8.9 billion, CGI is worth a billion more than Research In Motion, whose tribulations are followed by many Canadians as religiously as if it represented the country’s only pony in the tech race. But mention CGI to most people and the first thing that comes to mind—or appears on-screen in a Google search—is computer-generated imagery.
But while you may not know about CGI, CGI knows about you.
CGI compiles Bell customers’ bundled telecommunications services bills. It handles payroll at large corporations such as National Bank of Canada. It helps manage electronic medical records for hospitals. It provides cybersecurity and surveillance services to businesses, and IT services to the governments of Canada, California and New York City. It serves six of the top 10 global telecom providers, nine of the top 10 European utilities and three of the world’s top six oil companies. All told, CGI touches the lives of hundreds of millions of people across North America, Europe and Asia.
But the company’s influence extends even farther. Through a multitude of contracts with the RCMP, Canada’s Department of National Defence, the U.S. Department of Homeland Defense and all three branches of the U.S. military, CGI has become deeply embedded in the overt and covert activities that governments direct against enemies throughout the world.
The company’s ubiquity mirrors the onward march of computing, and in particular outsourced computing. When CGI was launched in 1976, the personal computer was in its infancy (the Apple-1 was introduced that year). And the expansion is far from over. In 2003, one billion gigabytes of data were in storage. That number is expected to increase 35,000-fold by 2020. All that data itself represents a vast new resource that its owners can market—to, for instance, creators of digital advertising, an industry that is expected to outgrow TV advertising. For companies like CGI and its many competitors—including IBM, Fujitsu, HP, Accenture and Deloitte—there has indeed been, as Godin says, almost “no limit” to growth.
And it hasn’t been a bad investment either. “Let me put it this way,” says Stephen Jarislowsky, the venerated founder and chairman of Montreal-based Jarislowsky, Fraser Ltd., which has assets of more than $30 billion under management. “I should have bought it.’’ In the first five months of this year alone, CGI’s shares have risen 37%.
Jarislowsky has been watching CGI for almost its entire lifespan, and can briskly distill its essence: “It’s basically to be able to look after the biggest companies in the world.” The beauty of CGI, he says, is that it occupies a low-risk niche within a high-risk industry. “This is not really an IT stock as such,” he says. “It’s a services company. It’s like IBM. It’s a defensive stock.” Godin gets a similarly succinct sketch: “He’s an excellent businessman and an excellent strategist. It’s an extremely intelligently run company.” The secret of CGI’s success? That’s easy, too: “My great admiration for Serge is based on how he’s been able to choose great people everywhere.”
Many of those people came on board via acquisitions. The company’s current CEO, Mike Roach, and its CFO, David Anderson, arrived when CGI purchased Bell Sygma from Bell Canada in 1998. George Schindler, president of CGI’s Canadian and American operations, and Jame Cofran, chief marketing officer, came to CGI with its 2004 purchase of American Management Systems.
More recently, João Baptista, president of CGI’s operations in the Nordics, Southern Europe and South America, and Colin Holgate, president of CGI’s Asia Pacific operations, arrived with the purchase of Logica.
Godin also fishes for talent among CGI’s government clients: Dr. James Peake, senior vice-president of CGI’s Global Healthcare Practice, is a former U.S. Army Surgeon General and Bush cabinet member. Barbara Fast, who leads CGI’s Army & Defense Intelligence Business Unit within its CGI Federal subsidiary, is a retired U.S. Army intelligence officer who joined the company in 2011 after 32 years of service and a stint at Boeing.
Almost the only member of CGI’s current management team not drawn from an acquisition or recruited from a client is the HR head. Should anything happen to her father, Julie Godin is in line to take over her father’s CGI stock. Thanks to the company’s dual-share structure, the family and co-founder André Imbeau are ensured control even though they own a minority of shares. “If I get hit by a truck,” Godin said with a chuckle at the Marriott, “we’ve made the decision to transfer the shares to Julie.”
The history of CGI is intertwined with that of Bell Canada Enterprises, which has relied on CGI to manage huge swaths of its business, from data management in the background to customer billing in the foreground. Until 2006, BCE also owned millions of CGI shares thanks to the 1998 Bell Sygma sale.
That deal not only gave CGI ownership of the unit managing Bell Canada’s IT systems, but it also made it the recipient of the largest outsourcing deal in Canadian history: a 10-year, $4.5-billion contract—a coup that Jarislowsky points to as Godin’s original masterpiece, and a harbinger of more to come.
In the view of Michael Sabia, who was CEO of BCE from 2002 to 2008, Godin is a visionary who hasn’t received the credit he deserves. “He’s been able to turn that business from something that started in a garage into a very large global business,” he enthuses. “This is an accomplishment of enormous magnitude. There are damn few people in Canada who’ve done what he’s done.”
Having spent years unsuccessfully attempting to take BCE private, Sabia has a special appreciation for Godin’s dealmaking talent. “This is a guy who has acquired, over the last 35 years, 70 different companies,” he says. “And every one of those acquisitions—every one of them—has been accretive to earnings. This is unheard of.”
In 2009, Sabia became CEO of the Caisse de dépôt et placement du Québec, the $176-billion Quebec counterpart to the Canada Pension Plan. And he found himself once again a CGI client, since the Caisse relies on CGI for a variety of services, including some IT management and advice on application development. “The nature of what they do requires some level of symbiosis,” Sabia says. “When you outsource a major system, you outsource part of your central nervous system.”
Since the Caisse effectively serves as Quebec’s investor-in-chief, it’s no surprise that it has also partnered with CGI on other business. A pivotal opportunity arose in 2012, when Godin launched CGI’s effort to buy London-based Logica. It was a move not short on ambition, since Logica was a much larger competitor by revenue, with huge contracts with the U.K. government and scores of other European governments and companies.
In the ensuing deal, CGI paid about $2.7 billion in cash and assumed $515 million in debt, pushing CGI’s total debt to more than $3 billion (since reduced). CGI estimates the purchase will increase earnings by 25% to 30% in the first year, and then accelerate. To help pay for Logica, CGI sold $1-billion worth of shares at $21.41 to the Caisse. Two years later, with CGI shares in the $30 range, Sabia has reason to be pleased: Not only does the Caisse own a quarter of CGI, but its investment is now worth an extra $500 million.
Logica, says Godin, “had been on our radar screen since 2006,” in large part because the U.K. firm had purchased a French company, Unilog, that Godin had coveted. Godin’s first visit to Logica’s London offices came in 2007 during a freak snowstorm, he reminisces. “A lot of people didn’t make it into their office that day because of the storm, and the secretary who greeted us was surprised to see us,” he recalls. But it was no problem for a Quebecker. “I told her we were tough after 400 years of natural selection.” As is often the case with Godin’s jokes, the line contained a predatory subtext: A few years later, he came back to buy the company.
Logica, he says, is the perfect fit for CGI, and the integration of the two companies is running a full year ahead of schedule. “I’m quite impressed by that because I thought that was going to be, if not mission impossible, then certainly mission very tricky indeed,” says Anthony Miller, managing partner at TechMarketView, a British IT analyst.
Godin and CEO Roach say they look at the integration of Logica simply as a bigger, more intense version of an exercise that CGI has mastered through scores of previous such deals. “It’s always been in our DNA to continue to grow, which is a bit unique in Canada, where you tend to have entrepreneurs who cap and sell,” says Roach. “Essentially, when we acquire a company, what we are acquiring are professionals who have very deep relationships with clients,” he continues.
“It’s a process that takes some time. In the first year, we’re very focused on putting our operating methods in and delivering good-quality services, because without that you’re not going to sell anything else. Then, after we build our capabilities with the client, we expand our wallet share with that client and we expand with new clients.”
It’s all part of a master strategy Godin and Roach refer to as “buy and build.” The ultimate aim is to establish relations so intimate with the client that decoupling becomes almost impossible. The beauty of the Logica deal, they stress, is that it allows CGI to offer globe-straddling services to clients such as Rio Tinto, the Australian mining giant that bought Alcan (and with it, embedded CGI consultants), and Manulife Financial Corp., which operates in Asia and the U.S. as well as its Canadian home base. “We have the capability to follow those customers who want to go global,” Roach says. “When their supply chains are global, we’ve now got a supply chain that can match that, bring scale to their backrooms and let them focus on their core business.”
With acquisition and expansion, adds Roach, has come decentralization. “It’s all about attracting and retaining the best people. So our guy in Sweden is the Serge Godin in Sweden. He gets up every morning and thinks about the same things Serge does. In Finland, it’s the same thing: We want to be Finnish there. The relationships are local.” To bring discipline to its heady mix of acquisition, expansion and decentralization, the company relies on the “cookbook”—the company’s manual of operating principles. Or maybe it’s a bible? “We’re like missionaries,” Roach suggests before intoning a CGI mantra: “Follow our clients. Shape our clients. Grow with our clients.”
Many of those CGI clients, today and in the future, will be in the health-care business, which is slowly catching up with the revolution in electronic record-keeping.
On a May visit to Ottawa, Ed Percy, business development director for CGI’s European health arm, offered a blunt warning to a thousand or so Canadian health information specialists gathered to talk about the interface between IT and health care. “You’re working in the last of the great supply-driven industries,” Percy observed. Driven by patient demand for better services and better information, health care is being transformed into a service industry just like any other; increasingly, Percy warned, care providers such as physicians, clinics and hospitals will have to compete for market share. “The arrival of consumerism is going to stress health care in ways we can hardly envisage.”
In the years ahead, Percy continued, health care is increasingly going to be driven by patients demanding access to reams of digital information—“data that can be produced anywhere and consumed anywhere”—about their health conditions. “Health-care data is orders-of-magnitude more complicated than any other industry,” he explained. And because this data is deeply personal and highly confidential, all of it will have to be stored and managed with utmost professionalism.
Seen in this light, it made sense that CGI was a major sponsor of the Ottawa gathering, where its global health-care head, Dr. Peake, was a keynote speaker. His central message was that “economic pressures in health care are going to turn into huge smouldering platforms for reform” and that data analysis will drive those reforms through huge investments that “we see as an opportunity.” As his boss, Roach, emphasizes, “health care is a global issue, and therefore a global opportunity. Demographics are driving health costs up everywhere, especially in the U.S. That’s why we broke out health as a separate business line. It’s growing at almost 30% to 40% year-over-year. E-health is happening everywhere.”
As a vector for CGI’s continued global growth, health care offers rich opportunity. The firm is already a major presence in health-information consulting in Canada and the U.S. Stateside, CGI has won numerous new contracts stemming from the Obama administration’s reforms, adding to the business the company already has with two-thirds of the information systems behind the vast Medicare and Medicaid systems.
Abroad, attention to chronic diseases and health care is exploding among governments and affluent consumers in emerging markets like China, India, Brazil and Russia, and global health care corporations are stampeding into these markets.
All that data—whether it’s for the highly sensitive health-care business or clients in other sectors—has to be securely managed, which is where Peter Aglaganian comes in. He joined CGI back when its headcount was about 3,000. After 17 years with the firm, he runs its Montreal data centre, one of more than 45 that the company has arrayed around the world. Today Aglaganian is conducting a tour. Located on a side street in the city’s east end, the nondescript glass-and-steel building offers no clue to the untrained eye as to what goes on inside.
As part of what Aglaganian calls CGI’s “sober and discreet approach,” there are no corporate logos on display. At the back of the building, there is an internal loading dock with secure doors both inside and out, so that trucks can enter as if into a space station’s air lock. “You can unload without getting rained on, but you can also do it without being seen. So no one can see you unload a Sun 20K server that’s worth a couple of million bucks,” Aglaganian explains. A large screen in the lobby security office shows feeds from dozens of security cameras around both the outside and the inside of the building, as well as CGI’s backup Montreal data centre, which is housed in the Complexe Desjardins office tower in the city centre. The security facilities are designed to allow guards to live on-site if need be (as they did during the famous ice storm of 1999), and they have a separate ventilation system to allow them to survive a gas attack.
In case of a power outage, there are diesel generators and enough fuel on site to keep the centre operating for up to 36 hours, Aglaganian says. The building is mostly devoid of people and spotlessly sterile, though at peak times 75 people work here. The air conditioning is designed to produce double the required capacity, and can run on either cold water or Freon gas. The company’s data-handling capabilities boast both vertical and horizontal redundancy, Aglaganian stresses. That means everything here is buttressed at the backup centre. “One of my principles in data-centre management is ‘own the building.’” he says. “Total control.”
The building, by the way, has a shell and perimeter barrier of reinforced concrete, in the style of American embassies, to prevent vehicular penetration. The exterior doors are bullet- and blast-proof. All of the security processes are regularly audited. “We have had no physical attacks, knock on wood,” Aglaganian says. And then he changes the subject.
In the 12 years that CGI has owned it, this centre’s computing power has trebled. More growth is on the way. “We’re attractive to our friends south of the border,” Aglaganian explains. “Why? We have some of the cheapest electricity in the world and it’s green hydro power.” Not surprisingly, perhaps, Hydro-Québec is a CGI customer.
As for the data coursing through the building, “We have a wide variety of customers here, the government sector—provincial and federal, the health-care business, whether it be diagnostics or imaging, hospitals that run fairly critical systems with us. We have banking and financials, insurance companies,” Aglaganian says.
But operators of data centres can never be totally sure about the content or provenance of every bit of data that’s arriving and leaving through the fibre-optic pipes, he says: 180 customers rely on CGI for data services at this facility, and almost any given bit of data could be pulsing through at any given time. “I don’t know if I can mention some of our customers in the States,” Aglaganian hazards with a glance to a corporate communications officer listening in on his presentation. “That depends,” says the communications officer with a wry smile. In any case, CGI does not allow clients’ data to cross borders.
From the beginning, computer technology and the intelligence and military worlds have been deeply interwoven—and so it is now with CGI. In recent years, the company has moved aggressively into the cybersecurity arena. It operates a major cyberlab in Ottawa, known as the IT Security Evaluation and Test Facility, where governments and businesses rely on CGI to harden their core technologies before they’re deployed. It is one of only three such facilities in the country. “When you look around the world—not only the U.S.—there’s a lot of similarities between governments. They’re shifting more to cybersecurity,” Roach explains. “Cyber is not only government; it’s industry as well.”
In 2011, CGI formed a Canadian Defence, Public Safety and Intelligence unit under the leadership of Lieutenant-General (retired) Andrew Leslie. Leslie quickly recruited Ken Taylor, a former cyberwarrior with the Canadian Department of National Defence, and John Proctor, an internationally recognized security and risk expert who had logged 22 years with the British and Canadian forces.
The $1.1-billion purchase of commercial and government contractor American Management Systems in 2004 gave CGI a leg up in the American security and defence market. And in 2010, CGI purchased a U.S. military IT contractor, Stanley Inc., also for $1.1 billion. The Stanley deal, according to Cormark Securities analyst Richard Tse, helped entrench CGI in multiple federal roles. “They are quite embedded,” he explains. “Stanley was an entity that was really effectively managing many of the back-office systems for government and military. They are the company that processes a lot of U.S. passports and visas.” Accordingly, CGI has “built offices all over Virginia,” Tse says.
But the Logica acquisition has reduced the proportion of CGI’s business that is American. George Schindler, president of CGI’s U.S. and Canada operations, says about 5% to 8% of overall company revenue is in the defence and intelligence realm. Of that, a significant amount would be American, since Schindler says CGI’s stateside business is roughly half civilian and half not. But while the company handles sizable quantities of military and intelligence data (CGI was the first company to be accredited as a cloud provider for the U.S. government), the nature of these contracts is hard to establish.
This is not surprising. Canadian software companies involved in U.S. defence work must tread carefully, as Pratt & Whitney Canada, a subsidiary of United Technologies Corp., discovered in 2012 when the parent company was fined $75 million for providing software for the development of a Chinese attack helicopter. According to a recent Pentagon report, Chinese cyberwarriors represent a major threat to the United States—a threat that the Pentagon increasingly relies on IT contractors like CGI to counter.
And work in Washington is highly politicized. This is a client, after all, that increasingly relies on IT to propel weaponry like drones, and to conduct cyberattacks on targets such as Iranian nuclear facilities.
All told, it’s no wonder that when Serge Godin is asked whether CGI works on military front lines, he is quick to deflect the issue. “I hate that kind of a question.” He adds, “the guys are empowered locally. We are not involved because we have proper structure. All that kind of information is highly protected locally. Even from us. Even Mike [Roach] and me, we don’t have a right to see that.”
Schindler joined CGI in 2004 after nine years with American Management Systems. Until 2011, he ran CGI Federal, which handles CGI’s U.S. government contracts. But Schindler also declines to answer questions about the nature of CGI’s U.S. military contracts, citing confidentiality agreements. That said, CGI’s defence contracts represent just a fraction of CGI’s total business, Schindler emphasizes. “It’s got to be put in perspective.”
But CGI’s global role in assisting controversial military activities undoubtedly expanded into new spheres with its acquisition of Logica, notes Frank Slijper, a Netherlands-based ethical investment adviser who specializes in military industries. Logica played a crucial role in developing IT systems for the British military, says Slijper, and it played an important part in the British-Israeli drone program, which supplied the British forces with drones used in Iraq and Afghanistan.
While executives won’t discuss whether CGI contracts involve warfare, company job postings and press releases suggest this may be the case. A search of the CGI careers website for “electronic warfare” in May turned up 74 jobs. One posting calls for a “cyber warfare specialist.” Another recent posting called for an employee located at a U.S. base in Kuwait to assist with operations in Iraq and Afghanistan. In Afghanistan itself, CGI sought an air transport logician capable of passing a U.S. Army physical examination.
Asked about press releases that have touted the company’s “mission-critical operations” for the “warfighter,” Schindler deferred to Roach, who replied, “we don’t comment on sensitive business with our customers.”
Which is reassuring. Intimacy, after all, requires a good measure of discretion.
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