Sykes Enterprises, Inc.

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Sykes Enterprises, Inc.

100 N. Tampa St., Ste. 3900
Tampa, Florida 33602
U.S.A.
Telephone: (813) 274-1000
Toll Free: (800) 867-9537
Fax: (813) 273-0148
Web site: http://www.sykes.com

Public Company
Incorporated: 1977
Employees: 17,300
Sales: $603.61 million (2000)
Stock Exchanges: NASDAQ
Ticker Symbol: SYKE
NAIC: 541512 Computer Systems Design Services; 811212 Computer and Office Machine Repair and Maintenance

Operations at Sykes Enterprises, Inc. revolve around the concept of “customer relationship management,” or CRM. In practical terms, CRM translates into 41 Sykes technical support call centers worldwide. Sykes Enterprises offers its clients, mainly large hardware and software manufacturers or telecommunications firms, the opportunity to outsource customer support. The company’s call centers operate as a transparent extension of the client company. For example, calls to a software firm’s technical support line can be routed directly to a technically savvy telephone agent at one of Sykes Enterprises’ call centers in small towns across the nation.

Many of Sykes Enterprises’ clients market their products globally, and in order to provide comprehensive services the company has opened multilingual call centers worldwide, in countries as diverse as Costa Rica, South Africa, Sweden, and the Philippines. The company’s international operations also include a distribution and fulfillment service in Europe, encompassing such services as multilingual sales order processing, inventory storage, product delivery, and returns handling.

Besides offering support to the buyers of a company’s product, Sykes Enterprises’ technical support centers also help the company’s own employees utilize technology adeptly. In addition, Sykes Enterprises offers custom designing of software and general customer relationship management consulting. The company believes that maintaining solid customer relationships and building brand loyalty are key to helping clients survive in the competitive technology market. In an article written for CRMCommunity.com, Senior Vice-President Chuck Sykes emphasized that no automated system can replace a well-trained technician in responding to questions and ensuring customer satisfaction. Although such quality service can be expensive, Sykes Enterprises is able to keep costs under control through specialization and implementation of the best technology. Sykes wrote, “We offer efficiencies of scale and knowledge to cost effectively deliver fast, friendly effective service at every level of the enterprise.”

Launching an Engineering and Design Firm: 1977-92

John H. Sykes founded Sykes Enterprises, Inc. in 1977 as a small technical engineering firm in Charlotte, North Carolina. He had already acquired several years’ experience in the engineering field. After leaving college without graduating, he spent ten years working on procurement for two aviation companies in Charlotte. Later he moved to Philadelphia, where he eventually became senior vice-president of CDI Corp., an engineering services company. Faced with little prospect for advancement, Sykes determined that he would have to seek new challenges elsewhere. He moved with his family back to Charlotte and, with three employees, started Sykes Enterprises.

The company’s initial purpose was to provide design and engineering services to Fortune 500 companies. One of Sykes’s first clients was IBM. When the computer firm arrived in Charlotte in 1978, Sykes Enterprises designed their work space. From that job evolved the Design Services Department. The next year a technical writing group began working on contracts for various clients. Other employment during the 1980s included creating standardized technical drawings and providing construction management for companies such as Walt Disney, AT&T, Amoco, and Pacific Bell.

Sykes sought out large industrial clients from the beginning, preferring to avoid work in the government and aerospace fields. Such contracts are usually won on the basis of price, Sykes noted in a 1990 interview with a Charlotte-area business journal. On the other hand, he said, “Industrial companies look beyond price, they’re good for long-term business relationships.”

Another of Sykes Enterprises’ early clients was Texas Instruments Inc. A small technical writing job for the company, won in 1982, led eventually to the creation of an entire branch devoted to the field. Technical writing and software design became the two major aspects of the company’s operations. In 1984 Sykes Enterprises formally split into two divisions, Information Services and Technical Services.

Business was strong and the firm grew rapidly. The company expanded into New York in 1983 and Colorado in 1985. By 1990 Sykes Enterprises had branched out into Texas and established an Information Services Division in Tampa, Florida, which was later to become the company headquarters. Another office was opened in England as the company anticipated being able to offer program-testing services throughout Europe. In 1990 Sykes Enterprises also purchased Orbitron International Inc., a consulting firm specializing in software services for financial and communications companies. The acquisition brought in an additional $10 million in revenue.

In 1991 many companies were having a hard time weathering the recession. Leaner business years, however, worked in Sykes Enterprises’ favor. Many companies were looking to outsource support services, and employment at Sykes actually rose during the early 1990s. In 1991, the company had 1,150 employees at 23 offices in the United States, Canada, and Europe. Technical writing and testing of programming formed the basis of most contracts. IBM remained a loyal client, while a relationship was developing with the U.S. Air Force. Sykes Enterprises documented security and maintenance procedures for the Air Force satellite system.

Turning to Customer Service in the 1990s

After 1992 Sykes Enterprises made several moves that were precursors of the coming focus on customer relationship management. The company acquired two firms in 1992, Jones Technologies, Inc., a call tracking software maker, and the programming firm Forrest Ford Consultants of St. Louis. Jones Technologies was located in Sterling, Colorado, a small town of about 11,000 whose economy had been hit hard by the recession. In 1994 Sykes opened a customer support call center in Sterling, providing technically skilled job seekers with an alternative to low-paying jobs with little future. The call center marked the beginning of what was to become the most profitable division of Sykes Enterprises. Software and hardware manufacturers were realizing that customer service was a vital part of retaining brand loyalty among buyers of their products, but found it difficult to maintain efficient and reliable call centers of their own. Sykes decided to target those companies with a cost-effective option for outsourcing customer support. When a customer had a question about a recently purchased product, a call to the manufacturer would be seamlessly directed to a Sykes call center.

Recognizing the potential for this approach, Sykes Enterprises moved its corporate headquarters from Charlotte to the Information Services center in Tampa. Then the company proceeded to open additional call centers throughout the Midwest. The Greeley, Colorado center opened in 1994, followed by the Ponca City, Oklahoma center and the Klamath Falls, Oregon center in 1995. Sykes now employed 2,000 people.

The center in Sterling provided a model for those that followed. John Sykes saw many advantageous qualities in small midwestern towns, including a good workforce, the lack of a distinctive accent, and the ability to straddle time zones with locations across the heartland. Identical call centers sprung up across the area. In 1996 centers were opened in Minot and Bismarck, North Dakota, and in Hays, Kansas. Each facility contained 432 seats in a 42,500-square-foot building. Ideally, the centers were located near an institution of higher education with the ability to provide a technically proficient employee pool.

Small towns everywhere wanted a part of the economic revival that Sykes Enterprises could bring. Sykes, however, required a concrete demonstration of support from each locality before any call center was agreed upon. His demands were the same for every community: the company required a deed to between 12 and 15 acres of land and a $2.1 million commitment to assist in building the call facility. Such terms made it possible for Sykes to recover his investment in a new center within the first few years of operation.

Although the demands were non-negotiable, communities did not find them excessive. Ponca City even voted for a half percent sales tax increase to fund a new center. A potential center in Ocala, Florida, however, was derailed when the town made demands beyond what Sykes was willing to meet. Ocala managed to find the land and raise the funds, but when it asked that Sykes guarantee 100 or so jobs, he objected to the town changing the conditions of the deal and backed out.

Company Perspectives:

Our mission is to help support our clients’ customer care management needs through our global outsourcing and consulting capabilities.

Our goal is that every client will be more efficient, more profitable, and have stronger loyalty to their company brands due, in part, to the services provided by SYKES.

In pursuit of this objective, SYKES will: Be relentless in our commitment to quality; Employ the best individuals in our industry and reward their commitment to excellence; Maintain a strong financial position, through growth, profitability, and wise investments; Embrace a partnership philosophy with our customers, business partners, and vendors; Be a responsible, contributing corporate citizen in the communities where we do business; Operate with a commitment to ethics and a true concern for others.

Sykes’s major clients, however, had customers beyond the borders of the United States. In order to provide comprehensive services to large hardware and software manufacturers, Sykes would have to establish a presence around the world. While English-speaking call centers were opening across the Midwest, Sykes began a multilingual expansion in Europe. Sykes Enterprises’ international headquarters opened in Amsterdam in 1994. As with the U.S. centers, the choice of location was not random. The Netherlands had many more multilingual citizens than countries such as France or Ireland, and labor costs there were not as high as in its equally multilingual neighbor Belgium. In 1996 Sykes Enterprises acquired Datasvar Support AB of Sweden, which led to the establishment of call centers in the Swedish cities Sveg and Jarvso.

In 1996 the company employed some 3,000 customer service technicians in ten call centers scattered across Europe and the United States. It was an opportune time to finance current and future expansion by going public. The company’s April initial public offering on the NASDAQ raised $61.2 million with the sale of 3.4 million shares. The shares nearly doubled on the first day, reaching $35.50 when the market closed on April 30. A secondary offering of 2.6 million shares followed in October. Sykes stock was trading near $48.75, and a three-for-two stock split was declared.

Growing Rapidly After 1996

The company’s stock fell to more sober levels the year after its IPO. By the middle of 1997 the price per share had fallen about 30 percent from the October high. A Wall Street Journal analyst, however, blamed the lower price on high-profile failures elsewhere in the telemarketing sector rather than on internal weaknesses at Sykes. Sykes Enterprises occupied a fairly stable position with its focus on technical support—employee expertise was an essential part of its operations, making it risky for clients to switch to a customer support provider that may not have the proven knowledge base of Sykes call centers. Also, Sykes insured itself against the loss of a single major client by pursuing contracts with diverse firms.

In 1997, therefore, the company continued its aggressive expansion. It concentrated its efforts in the international field, creating a separate International Division to look at growth in Europe and Asia. Acquisitions abroad included Telcare of Wilhelmshaven, Germany, Traffic of Belgium, TAS Telemarketing in Germany, and McQueen International, a technology services company based in Scotland. As a result of the $74 million McQueen acquisition, Sykes was able to open a call center in the Philippines. Shares rose 14 percent on announcement of the McQueen deal, which was expected to increase the company’s global presence. Another new call center in South Africa also added to Sykes’s non-European facilities.

Nor was domestic expansion neglected. Sykes Enterprises opened offices in Lexington, Kentucky, and Atlanta, Georgia. Info Systems of North Carolina, a designer of computer software for the manufacturing, distribution, and retail industries, was acquired. The company also branched out into a new sector with a joint venture known as Sykes HealthPlan Services (SHPS). The joint partnership would serve companies that desired to outsource the administration of employee benefits. After another year of growth, Sykes Enterprises had over 6,000 employees.

The early months of 1998 brought some doubts about the viability of Sykes’s acquisition strategy. A New York analyst downgraded the Sykes stock from a buy to a hold rating and the share price fell 19 percent as a result. Causes for concern were a slowdown in internally generated revenue at the end of 1997 and the fact that a new software product, an offsite troubleshooter, was not selling as expected. Sykes, however, saw no reason for retreat. New support centers opened in Tampa, Florida; Les Ulis, France; Manhattan, Kansas; and Charlotte, North Carolina. By November company stock had fallen 45 percent from a year earlier, but Sykes Enterprises remained confident based on the fact that it had met all revenue growth targets since its 1996 IPO. Difficulties at telemarketing firms were making Sykes stock fall by association, even though the company was in the business of phone help, not phone sales. Sykes demonstrated confidence in its unique technical customer service approach with the acquisition of two call-center companies in December. Oracle Service Networks Corp. of London, Ontario, was acquired for $35 million in stock and TAS GmbH of Hanover, Germany, for $12 million in stock.

More call centers opened in 1999, domestically in the communities of Milton-Freewater, Oregon; Ada, Oklahoma; and Scottsbluff, Nebraska; and internationally in Ed, Sweden. Sweden’s favorable business climate led to increased investment in the country. The 70-seat call center in Sveg was expanded to 324 seats and was chosen to serve as the company’s Scandinavian headquarters. Customer care operations were. also purchased in Heredia, Costa Rica. That year Sykes was inducted into the Software Support Professionals Association’s Hall of Fame for winning that association’s STAR award five years in a row. Sykes seemed intent on belying any concerns about the company’s strategy.

Regrouping in the New Millennium

In 2000 Sykes Enterprises finally hit a real bump, as company stock fell substantially and leadership was unstable. The company’s woes began in January, when a warning that fourth-quarter earnings for 1999 would fall below expectations sent the share price down 51 percent in a single day. A second blow came when certain accounting errors were revealed. Because of delays in the recognition of software revenues, Sykes was forced to restate its financial reports for several quarters and whole fiscal years. The blunder resulted in a heavy penalty and a loss of credibility with Wall Street. By the fourth quarter, the stock had fallen to $3.13 from a 2000 high of $52.25.

Key Dates:

1977:: John H. Sykes founds a small engineering services firm in North Carolina.
1984:: Sykes Enterprises splits into the Information Services and Technical Services divisions.
1990:: Acquisition of Orbitron International Inc. adds $10 million in revenue.
1992:: Purchase of Jones Technologies, Inc. shifts focus to technical support call centers.
1994:: International headquarters opens in Amsterdam.
1996:: Sykes Enterprises goes public.
2000:: Accounting problems send stock value plummeting.

To add to the difficulties, the company chose a CEO who left after only five months. David Grimes, who assumed leadership in July, left his post in November. John Sykes resumed duties as CEO.

The company felt a need to restructure its business around proven sources of profit. As a result, all distribution and fulfillment centers in the United States were closed, while those in Europe were consolidated into five facilities. The firm’s medical-benefits management unit, Sykes Health Plan Services, had been performing poorly and was sold to an investment firm.

While trimming underperforming business sectors, Sykes continued to invest in its call center operations. Support centers opened in Morganfield, Kentucky, and Virginia, Minnesota, while construction began on two centers in Florida and one in Virginia. The company’s Asian branch expanded into Shanghai. By the end of the year, Sykes Enterprises had 14,000 employees and 42 customer care centers: 18 in the United States, three in Canada, two in Costa Rica, and 19 in Europe, South Africa, China, and the Philippines. Moreover, the company had scored two promising contracts with Ford and Delta Air. Those companies inaugurated a program to supply their employees with personal home computers, and Sykes was chosen to provide onsite and phone support for the deal.

Revenue rose to $603.61 million in 2000, up from $572.74 million the previous year, and revenues in the core technical support business rose 27 percent. Such figures backed up John Sykes’s optimism at the April 2001 annual shareholders’ meeting. Sykes focused on the firm’s accomplishments, while recognizing that it would take some time to regain Wall Street’s trust after the mistakes in 2000. Unfortunately, more rough times were ahead in 2001. A disappointing third quarter forecast again sent the stock down 42 percent, this time to $6.99. In another accounting slip-up, the company had to restate earnings to reflect a change in the way it accounted for certain cash grants from government development authorities.

Sykes’s answer was to continue to streamline operations. A call center in Charlotte was closed, leaving 41 centers worldwide. Another strategy was to increase involvement with the telecommunications sector. Revenues from the communications industry, including support services for Internet service providers, broadband technologies, and cellular phones, reached 26 percent of total revenues in the first half of 2001. In 1999 such services had accounted for only 10 percent of revenues. In a move to target the communications industry, Sykes announced in October 2001 that it was adding 1,200 customer care service agents, bringing its call centers up to full capacity.

Third quarter results for 2001 met expectations, and CEO John Sykes expressed guarded optimism that the expansion would attract additional business from the telecommunications sector. Although the economy was on an uncertain path following the September terrorist attacks in New York, Sykes’s core operations were expected to continue to attract businesses looking for cost-effective, quality customer care solutions.

Principal Subsidiaries

Sykes Realty, Inc.; Sykes Financial Services, Inc.; Sykes Enterprises Delaware, Inc.; Sykes Enterprises—South Africa, Inc.; CompuHelpline; McQueen International Incorporated; Sykes Enterprises Incorporated, S.L. (Spain); Sykes Enterprises of Canada, Inc.; Sykes Latin America, S.A. (Costa Rica); SEI Technical Services, Ltd. (U.K.); Sykes Enterprises Incorporated Holdings B.V. (The Netherlands); Sykes Datasvar Support AB (Sweden); Sykes Holdings of Belgium B.V.B.A.; Sykes Enterprises GmbH (Germany); McQueen International Limited (Scotland); Sykes Canada Corporation.