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COMPANY OF THE YEAR
More than a bug buster, Keane eases firms into brave new computer world
ohn Keane began his computer-services business in 1965 in a small office above a Hingham doughnut shop.
Today, Keane Inc. resides above the ritzy Olive's Restaurant in Charlestown, a move that symbolizes how the company has boomed along with the market for corporate computer care. Few have ridden the wave as well as Keane Inc., The Boston Globe 100's Company of the Year.
Keane claims the number one spot after boosting its revenue by more than 50 percent last year to $1.08 billion. Profits rose 87 percent to $96.3 million.
The increases stem from a huge demand for Keane's services, such as fixing the software-coding problem known as the ''Y2K bug,'' designing electronic-commerce programs, and setting up ordering systems. Typical clients include airlines and hospitals.
''The real benefit a consultant can bring a client today is their experience,'' says John Keane, now 67 and still chairman and chief executive. ''Success comes from taking one person's knowledge and making it part of the general way an organization works.''
The outlook isn't all rosy. Analysts fret that Keane will stumble in 2000 if it can't find work to replace revenue from fixing Y2K problems, and shares have fallen from a high of 421/2 on Jan. 8 to around 25 today.
Keane has bounced back before, however. This is the second time it has captured the top Globe 100 spot: The first was in 1990, before gains by financial service firms and retailers such as TJX Cos. made Keane's revenue look paltry. By 1993 Keane had fallen to 91st place on the Globe 100 as its profit margin hovered around 5 percent, where it stayed for most of the decade.
But 1998 proved to be another breakout year as Keane's profit margin improved to 9 percent, in large part because of repeat orders from corporate customers. Of Keane's top 25 clients five years ago, the company still does business with 24 of them today, said John Keane Jr., 39, now co-president of the company with brother Brian, 38.
Currently, work to fix Y2K problems accounts for 20 percent of Keane's revenue, down from 33 percent last year.
''Our model is achieved by having strong local-client relationships,'' said John Keane Jr. That's a result of putting a lot of workers on the front lines. Keane employs about 10,000, but only about 600 work in Massachusetts. The rest are scattered among 50 field offices in North America and in the United Kingdom, where Keane sold $55 million in services last year. Company officials expect the UK operations to be a base for a round of European expansion.
New sales in Europe are expected to help Keane reach its goal of $3 billion in revenue by 2003 and $5 billion by 2005. Profits should increase about 25 percent each year, said Brian Keane.
Analysts think Keane's targets are achievable but worry that the company might not reach them so quickly.
''I see a slower rate of growth'' compared with the company's forecast, said First Albany Corp. analyst Damian Rinaldi. He rates the stock ''accumulate,'' meaning he doesn't expect shares to increase much in the short run. New orders won't appear as quickly as Keane hopes, he said.
A few are more optimistic.
''They've got a lot of long-term contracts that take a while to show up'' as new revenue, said Morgan Stanley analyst Mike Sherrick. ''The cash [stream] is going to be lumpy, but what's important is that their pipeline continues to grow.''
Either way, Keane has come a long way since John Keane Sr. left IBM Corp. to begin his venture 34 years ago. Keane realized Big Blue didn't offer much support to buyers of its mainframe computers.
The market seemed like a niche then, but one ripe for exploitation by a talented technical staff. Many would-be competitors were put off by salary costs, but Keane and larger competitors such as Computer Sciences Corp. and Anderson Consulting - and now IBM itself - serve a software-services market estimated at $100 billion in North America alone.
Keane is dwarfed by those competitors, but Brian Keane said the company is making up ground. Keane often wins projects worth between $5 million and $20 million, jobs larger competitors don't bother with.
''One of the great things about a company like this is they're pretty boring,'' said First Albany's Rinaldi. ''They do one thing well and then they move on to the next thing. They don't need to win just a few giant, mega-contracts to succeed.''
Typical for Keane is the work it does for PSE&G Co. in Newark, which hired Keane in 1996 to run the utility's older mainframe and minicomputers. Keane's team of about 35 people performed so well that the utility has already decided to renew its contract.
''When I measure the noise that comes into my office from their work, it's low,'' said Glenn Rogers, PSE&G's vice president of information technology. He also hired Keane to make sure many systems would continue to function after midnight on Jan. 1, 2000; as many as 100 Keane employees were working for PSE&G this year.
John Keane Jr. hopes the knowledge those employees gained won't be lost as they move on to new jobs. To help recycle work, Keane hired an executive about a year ago for a position called ''director of knowledge management'' and charged him with creating an electronic library of the company's best business plans and technical memos.
Keane has also been on an acquisition spree: Last year it bought four midsize services companies specializing in such areas as customer-relations software and data warehousing. Brian Keane said purchases will continue as Keane tries to expand market share.
''It's a tremendous industry,'' he said. ''It's huge and it's highly fragmented. Any student of economics would suggest that when there are benefits from the economies of scale, you'll see consolidation.''
But Keane itself isn't for sale, he said.
''We're one of the few companies positioned to be a consolidator,'' he said. ''We have a distribution network, in the form of our offices, that's very tough for any competitor to replicate.''
This story ran on page D5 of the Boston Globe on 05/18/99.
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