DXC Technology Pricing Spineometer: 3 of 5 Vertebrae


Tim J. Smith, PhD
Founder and CEO, Wiglaf Pricing

Published July 31, 2023

DXC Technology, a global technology and IT services company with over 130,000 employees, had a lackluster Q4 2023. Revenue decreased 10% to $3.6 billion while earnings before interest and taxes dropped 13.2% to $462 million over the same period last year.

What drove this outcome?  A review of DXC’s May 18th earnings call and financial report provided some insight.

DXC is primarily a service business.  It operates with a Global Business Services (GBS) and Global Infrastructure Services (GIS) division.  With over 130,000 employees, DXC generates approximately $111,000 per employee.  As a service company, Mike Salvino, CEO of DXC, appropriately prioritize staffing, team training and skill set development, and organization culture and corporate rhythm.

A human-resource service company is largely a fixed-cost business.  As such, revenue stability is necessary to maintain the resources (people) over time.  Ken Sharp, the outgoing CFO of DXC, spoke to the importance of keeping the book-to-bill ratio, a metric of future revenue stability, near but above unity.

Other key messages from the executive team were communicated in their earnings call.  Executives expressed a desire to reduce their dependency on the resale market due to low margins in that sector.  They sought to increase revenue in AI and predictive analytics, security, and infrastructure.  And most important was their efforts to change the “operating system” of DXC away from focusing on performance by region and towards a focus on offering.  (This is a large shift for a consulting company.)

Based on this research, we can set expectations regarding the needed pricing capability at DXC Technology.  Revenue to pricing professional benchmarks suggest DXC should have 25 to 75 people dedicated to pricing.  These professionals should be working on a large number of challenges reflective of the variety of challenges DXC addresses.  Client managers would need strong guidance on price expectations by industry, customer, offering, region, and other factors. Offering managers would need strong insight into pricing metrics, models, and changes in the competitive price level.  Project-based work requires strong project management and estimating methodologies to set price expectations.  Macroeconomic factors of currency fluctuations, input inflation, and wage staffing costs must be addressed. If the contracts are long-term, as some of their engagements undoubtedly are, the use of indices related to the wage rates in a country might be expected.  On top of these issues, DXC operates globally with ~60% of its revenue denominated in Euros and ~40% denominated in US Dollars, implying a need for pricing professionals to address the pricing practices in many different countries and regions.

Does DXC Technology have the appropriate pricing capability to address its commercial goals and strategic challenges?

Research into the quality of DXC’s pricing team yielded positive results.  Over 40 individuals could be identified as specializing in pricing, though some might be working on pricing consulting with clients and others in transfer pricing, others are definitively focused on pricing DXC’s services and offerings.  Pricing professionals worked at the analyst, lead, manager, and principal levels.  Pricing professionals engaged with deal strategy, bid teams, commercial operations, competitive intelligence, and other functions.  Pricing professionals were distributed across the Americas, Europe, Asia, Australia, and elsewhere.

Open questions remain.  (1) We are unsure of what technologies and pricing methodologies are used at DXC.  (2) We expected to see a greater emphasis on offering pricing and new business models given the changing landscape of IT (cloud, AI, SaaS, etc.)  (3) Management expressed a disdain for low-margin reselling business calling into question the ability of DXC to reward resale revenue at a lower level than direct services sales; something along the lines of a Deal Quality Score methodology.  Note that one of the largest businesses on the planet, Cargill, does a lot of low-margin business.

Given the importance and capability of pricing at DXC Technology as indicated in financial reports, management statements, and our pricing capability research, and given their performance, we have come to the following conclusion as of July ‘23.

DXC Technology Pricing Spineometer: 3 out of 5 Vertebrae.

DXC (DXC Technology Co) rose from 23.8 on the day prior to their earnings call to 24.8 one week later. FY 2023 revenue of $14.4 B with a 12.5% operating margin and P/E ratio near 8.1.

Currently, a 1% improvement in price would yield a 10.2% improvement in EBIT holding all else constant for DXC Technology.

Chart your path to 5 of 5 vertebrae in your Pricing Spineometer and improve your profits with Wiglaf Pricing. Includes competitive benchmarks, a 67-point corporate inspection, and a three-year pricing improvement roadmap.

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About The Author

Tim J. Smith, PhD, is the founder and CEO of Wiglaf Pricing, an Adjunct Professor of Marketing and Economics at DePaul University, and the author of Pricing Done Right (Wiley 2016) and Pricing Strategy (Cengage 2012). At Wiglaf Pricing, Tim leads client engagements. Smith’s popular business book, Pricing Done Right: The Pricing Framework Proven Successful by the World’s Most Profitable Companies, was noted by Dennis Stone, CEO of Overhead Door Corp, as "Essential reading… While many books cover the concepts of pricing, Pricing Done Right goes the additional step of applying the concepts in the real world." Tim’s textbook, Pricing Strategy: Setting Price Levels, Managing Price Discounts, & Establishing Price Structures, has been described by independent reviewers as “the most comprehensive pricing strategy book” on the market. As well as serving as the Academic Advisor to the Professional Pricing Society’s Certified Pricing Professional program, Tim is a member of the American Marketing Association and American Physical Society. He holds a BS in Physics and Chemistry from Southern Methodist University, a BA in Mathematics from Southern Methodist University, a PhD in Physical Chemistry from the University of Chicago, and an MBA with high honors in Strategy and Marketing from the University of Chicago GSB.