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Think big and very blue. With an $85 billion active backlog, IBM Global Services (IGS) is so far ahead of its nearest competitor that it has created a consulting league of its own.
So far, the current economic slowdown only registers as a blip for IGS. Integration contracts run a minimum of six months, and in the case of outsourcing, deals are frequently booked for seven years at a stretch. Moreover, just as its name implies, IBM is running one of the best global hedge funds in business today. If the U.S. market drops, it has the rest of the world to pick up the slack.
IGS currently has 148,000 people on staff, making it the most labor-intensive portion of IBMs portfolio. Moreover, it added about 15,000 people last year and expects to do the same again this year—a feat that should be remarkably easier given the slump in the Web-integration market.
“Weve seen a lot of people coming to us lately,” says Doug Elix, senior VP and group executive for IGS.
Generally speaking, IGS has an easier time retaining employees than a typical consulting firm. While the overall services market had an attrition rate of about 15 percent to 20 percent, IGS hit a high of 8 percent in the Internet boom. It currently has a turnover of about 6.5 percent.
The services wing turns in about 37 percent of IBMs total income and about 40 percent of the total revenue, and it has been growing at between 10 percent and 15 percent for years. Given the size of the business, thats a lot of zeros in the right place. And it presents a lot of opportunities for smaller integrators looking for a global partner.
“Partnering is absolutely critical to us,” says Elix. “Doing it well gives us a competitive advantage.”
IGS breaks down partnering into five separate areas. First and foremost, it has inked a huge number of deals with service partners (specifically, integrators and consultants) that can help it penetrate small and midsize companies where IBM has little or no presence, because the cost of sales is too high. That is particularly valuable to IBM in vertical markets and in companies where relationship-type selling is critical.
IGS also has set up close partnerships with companies that can help deliver its services, not to mention IBMs products. Among the partners are AT&T, Avnet, KeyLink and Qwest Communications. “Theres a tremendous opportunity to spread out our offerings if we hook up with delivery partners,” Elix says. “Weve spent over $3 billion worldwide with delivery partners.”
Third, IGS has set up partnerships with software vendors such as Ariba, Commerce One, i2 Technologies and Siebel, which it believes are linked to new ways of doing business. Those partnerships are aimed at e-commerce, but Elix says others will develop and IGS will cement relationships to prepare for new opportunities.
It also has established a set of technology partnerships with companies like Alcatel, Cisco and Lucent, which help the company identify new technology trends and jump on them quickly. And finally, IGS has aligned itself with companies that can brand a market and help develop it.
One of the shifts under way in the market could put increased reliance on the delivery partners. Elix says that while outsourcing was viewed as a cost-cutting measure in the 1980s and 1990s, it now is being viewed as a smarter way to run a business. Given that outsourcing is at the core of e-business and IBM has been promoting e-business for the past five years, thats not surprising.
What is surprising is who has adopted outsourcing. While large companies continue to have the resources to do the cost analysis and determine what should be kept in-house and what should be pushed out, midsize companies are starting to hop on the bandwagon.
“Theres a very large group of medium-sized companies—those with 1,000 employees or more—that cannot get the economies of scale in their own organization or the expertise they need,” Elix says. “That helps to keep outsourcing in demand. In addition, the economy is making cost savings important to people. But its more than that. At the outset, outsourcing was driven by cost savings. Then it became cost savings plus value. Now its value plus cost savings.”
Elix says the next wave will be e-sourcing on a utilitylike basis. Just as people can turn power on as they need it, they will be able to source services on demand—such as bandwidth or extra Web capacity. “This is in its very early stages,” Elix says. “But it will be done through service providers as a normal way of doing business.”
Add to that infrastructure services and an emphasis on complete solutions, and the picture looks pretty good for a giant service provider that can provide soup-to-nuts services.
For a company that built the underpinnings of the New Economy and then watched distinct pieces of it inflate and collapse, its not a bad place to be sitting.