DXC Technology

DXC Technology, formed from the 2017 merger of CSC and Hewlett Packard Enterprise Services, was an IT services company with approximately $17.7 billion in revenue (FY2021) and over 130,000 employees globally. The post-merger integration had left DXC with a bloated cost structure: duplicated corporate functions from two legacy companies, an oversized real estate footprint with hundreds of facilities worldwide, a contractor workforce that was expensive relative to full-time employees, and an inefficient network and telecommunications infrastructure inherited from the merger. SG&A and overhead costs were well above peer benchmarks as a percentage of revenue, and the company was losing share in a competitive market while simultaneously overspending on general operations. Operating margins were thin and free cash flow had been negative ($-648 million in FY2021), signaling a company burning cash on overhead rather than generating returns.

CEO Mike Salvino, who joined in September 2019, launched a comprehensive cost reduction program targeting $500 million in savings across multiple G&A categories:

• Staff optimization and offshoring: Increased the ratio of offshore to onshore employees by moving work to lower-cost delivery centers in India, Romania, Bulgaria, and the Philippines. This was not simply layoffs but a deliberate restructuring of where work was performed, with full-time employees in low-cost locations replacing expensive contractors and onshore staff in high-cost markets.
• Contractor conversion: Systematically converted expensive contractor positions to full-time employees (FTEs), reducing the per-person cost while improving knowledge retention and delivery consistency. DXC had inherited an unusually high contractor mix from the merger.
• Real estate consolidation: Closed and consolidated offices and data centers across the global footprint, reducing the number of facilities and total square footage. With the shift to hybrid work, many facilities were underutilized and represented pure overhead.
• Network and telecommunications rationalization: Consolidated legacy network infrastructure from two pre-merger companies onto a unified platform, eliminating redundant circuits, contracts, and management overhead.
• Third-party spend optimization: Renegotiated hardware and software vendor contracts, consolidated procurement across business units, and eliminated redundant third-party tools and services that had accumulated from the merger.
• Organizational delayering: Reduced management layers and spans of control, eliminating middle management positions that had been duplicated across the merged entity.

• Cost savings delivered: DXC eliminated $500 million in costs across staff optimization, contractor conversions, real estate, network, and third-party spend, meeting the stated target.
• Margin expansion: Adjusted EBIT margin increased by 230 basis points in FY2022, demonstrating that cost reduction translated directly to improved profitability.
• EPS improvement: Non-GAAP diluted earnings per share increased 44% in FY2022, reflecting the combination of cost reduction and share repurchases.
• Free cash flow turnaround: Free cash flow improved by $1.4 billion compared to FY2021, reaching $743 million in FY2022 — a dramatic reversal from the cash-burning pre-transformation period.
• Revenue trade-off: Total revenue declined from $17.7 billion (FY2021) to $14.4 billion (FY2023) as DXC exited low-margin contracts, but the remaining revenue base was significantly more profitable.
• Timeframe: Cost reduction program executed over FY2020-FY2023 (April 2019 to March 2023).

• New CEO with a turnaround mandate from the board had the authority to make decisive cost cuts that incumbent leadership had avoided
• Post-merger duplication provided obvious cost reduction targets that did not require difficult trade-offs — many savings came from eliminating redundancy rather than cutting capability
• Shift to hybrid and remote work during COVID-19 accelerated real estate consolidation that might have taken years under normal conditions
• India and Eastern European delivery centers provided mature, lower-cost alternatives for work that had been performed onshore by historical inertia rather than strategic choice