June 6, 2006 4:00 AM PDT
Big Blue moves to 'off the rack' services
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The massive professional services division is undergoing a reorganization meant to make some of its consulting services resemble discrete menu items, rather than all-you-can-eat catered meals.
The shake-up of the $47.5 billion business--which accounts for more than half of IBM's revenue--reflects downward price pressure from an increasingly global computing-services industry. Having more repeatable offerings helps improve the profit on delivering services, analysts said.
The changes also underscore IBM's need to reignite its services business. Once an engine of growth that helped avert IBM's demise a decade ago, Global Services is in need of some tinkering to continue fueling profits.
"We need to reengineer how we do systems integration," said Val Rahmani, IBM's general manager of infrastructure management services. "We need to make service offerings look like a product...It's a very different thought."
In one reflection of the change, Rahmani was moved from one of IBM's product groups, its Unix server hardware business. She reports to senior vice president Mike Daniels, one of three executives appointed by CEO Samuel Palmisano last summer to lead Global Services.
The strategy at Global Services calls for the creation of standardized offerings built using IBM's hardware and software.
For example, IBM is developing security services using its Tivoli software. Rather than build it anew in every customer engagement, the company can now offer that same security service--spelled out on a product list like shrinkwrapped software--to many customers, IBM executives said.
That's a significant break from the current modus operandi at IBM Global Services. Large professional-services providers--including IBM, Hewlett-Packard, Computer Sciences Corp. and Electronic Data Systems--typically operate on a deal-by-deal basis.
High customization a tough sell
Services can be anything from worldwide installation of a complex business application to ongoing maintenance of data center gear. Generally speaking, the more complicated the job, the better for the services vendor, because highly customized systems translate into more consulting time.
But Forrester Research analyst Julie Giera said that the "your mess for less" approach is becoming a tougher sell. Offshore companies, offering everything from application development to business-process outsourcing services, are using lower prices to crank up their competitiveness against established companies. In reaction, all providers are focusing on standardized services, because they can offer them at lower cost, Giera said.
"The entire industry has to move this way, because the industry is moving to a global delivery model," she said. "It's a transition that IBM has to make--and it's going to be tough."
A standardized service that can be delivered over and over translates into better profit margins. For example, a program for setting up Web-based customer account management can be reused widely among banking industry customers, reducing the need for IBM to design and write that code again.
That notion of reuse and standardization is increasingly being spread across IBM Global Services, according to company executives. Rather than simply hawking amorphous "services," Big Blue has developed 10 technology services product lines with published prices. The product lines cover common corporate computing needs, such as system architecture or storage.
Although "productization" may be good news for IBM's profit margins, the shift does put to risk its vow of working with other vendors' gear, Forrester's Giera said.
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