IBM Divides to Conquer

News Analysis: There comes a time when size alone is not enough.

There comes a time when size alone is not enough. IBM Global Services reached that point last year when IBM Chairman and CEO Sam Palmisano divided the unit, which is responsible for $47 billion of IBMs $91 billion in revenue, into three pieces.

The units and their leaders are: Enterprise Business Services, headed by Ginni Rometty; Integrated Operations, led by Bob Moffatt; and IT Services, under the hand of Mike Daniels. The three report to Palmisano.

"We are three people with different backgrounds and capabilities. A single person cant run a business of this magnitude. I dont know that individual," Moffatt said.

One analyst said the new structure makes sense.

"One thing is for sure: IGS had become too big to stay as one entity. Thats beyond debate. What can be debated is how to break it up. What Sam Palmisano did last spring is kind of creative," said IBM watcher Bob Djurdjevic, president of Annex Research, in Phoenix.

Another analyst voiced skepticism.

"These three pieces are each bigger than most companies. Each one is a complicated business to run and a difficult business to reap good profit on," said Linda Cohen, an analyst at Gartner, of Stamford, Conn.

"Aside from the fact that it may confuse the customer, it is a difficult way to manage the company internally."

Cohen added that a single leader from IGS may emerge. "Lets see which one rises to the top," she said.

Although the IGS structure appears well-suited to address the trend of customers to multisource—or select best-of-breed outsourcers—Rometty said the multisourcing trend may be as much an invention of consultants imaginations as it is a real-world phenomenon.

"If Im a client, how am I going to do my finance and accounting processes? Do I really want to distribute those among different people?" asked Rometty.

"For finance and accounting, would I like to work with the same person whos going to help me transform the process—and put the applications in place to support the process—who may have some very interesting analytics, which we use IBM research a lot for?"

Following this thinking, from IBMs point of view, ideally the Enterprise Computing Systems unit would serve as a channel for the others.

Customers would start at the top with business transformation outsourcing then work down to application development and data center management.

Indeed, Moffatt said IGS executives, as one might expect, are given monetary incentives to bring other IBM units into deals.

Nonetheless, Moffatt and Rometty said they are willing to let the customer be the boss—if a customer wishes to go a la carte, then so be it.

One analyst said she suspects few customers follow the pattern of business transformation first, then application development, followed by infrastructure management.

/zimages/1/28571.gifRead more here about IBMs arsenal.

"Customers ask if its not just McKinsey plopped on top of an outsourcing deal," said Julie Giera, an analyst at Forrester Research, of Cambridge, Mass.

"There are some deals like this, but customers are multisourcing on an increasingly frequent basis. Like General Motors, they want multiple suppliers all delivering pieces and parts. Customers want traditional outsourcing based on price."

Pointing out the difficulty of making consulting work with outsourcing, Giera noted that IGS rival Electronic Data Systems had acquired McKinsey-style consultancy AT Kearney, only to spin out the unit last year.

Until something like that happens at IBM, IGS is the industrys only source of business transformation, IT outsourcing and application development components, which can all work together in concert—or not.

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