June 6, 2006 4:00 AM PDT
Big Blue moves to 'off the rack' services
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IBM Global Services has built an image of being "technology agnostic"--willing to maintain servers from HP or write software for Microsoft's .Net platform.
"IBM had to break away from the reputation it had six or seven years ago, that they were pushing IBM products in services deals," Giera said.
As standardization becomes more popular, Giera expects all services vendors to offer discounts to encourage customers to use standardized services instead of more customized deals.
IBM Global Services spokesman James Larkin said Monday that the company remains committed to being technology agnostic and will continue to take on contracts involving a high degree of customization.
The Armonk, N.Y., company intends to maintain its long-standing partnerships with the likes of HP and Oracle, he said. What's changed is that IBM's products--notably, its servers--are becoming "best of breed," Larkin said.
"Increasingly, you'll see us bring IBM hardware and software to the fray, but that doesn't happen all the time. It depends on the circumstances," he said.
Regardless of how IBM chooses to sell services, customers have an incentive to go with more off-the-shelf service offerings: Forrester estimates that highly customized contracts cost 40 percent more than standardized offerings.
The increasingly global nature of the professional services market has already bitten IBM, which is also seeing downward price pressure in software and hardware. The company is rejiggering how Global Services operates, building on last summer's reorganization of the division, Rahmani said.
In the past, divisions in other countries--IBM's so-called "geos"--had primary control over deals. Now the company is making organizational changes to better share products and consulting skills in specific areas, such as desktop maintenance or applications for the financial industry.
"We were very much deal-by-deal, and each country was king," Rahmani said. "We really didn't share...Reuse was ad hoc."
To keep costs down, IBM is ramping up services operations in developing countries, including India, China, Brazil and eastern Europe.
In parallel, IBM is seeking profits in high-end business consulting services. Specifically, the company is trying to grow its business-process outsourcing business, in which it assumes control of a customer's accounting or human resources department, including both technology and employees.
In addition, IBM is seeking to codevelop products with customers by tapping its engineering expertise. For example, last week IBM announced a partnership with St. Jude Medical to work on a portable patient-monitoring system.
The ongoing changes at Global Services appear to be having a positive financial impact. Since last year's first-quarter slip, which was followed by layoffs and a companywide reorganization, IBM has met or exceeded its profit targets.
And Bernstein analyst Toni Sacconaghi forecasts that IBM's services business will improve its profit margins and drive higher revenue growth this year. In a recent research note, Sacconaghi said the main risks to IBM and Global Services are "increased competition in outsourcing and from offshore firms...(and) IBM could face execution issues stemming from its restructuring effort."
"It really comes down to how (IBM) will stick to the new strategy," Forrester's Giera said. "Will they give up deals that are not based on standard platforms? That's a big transition for the sales guys."
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