Global Services Plays Pivotal Role

Unit is a key component in IBM's On Demand strategy, but some users question cost, objectivity.

After a recent speech at Harvard Universitys Kennedy School of Government, in Cambridge, Mass., in which he recounted his decision in the early 90s to change IBM "from a manufacturer to an integrator," outgoing Chairman Lou Gerstner was asked a surprising and direct question by an IBM Global Services employee:

"The format we use is the mainframe construct," the employee said. "Can we take the leap to make the company more services-focused? When were given a project to do, the template seems created by the Server Group."

While Gerstners answer was noncommittal, the question remains a critical one for IBM Global Services: How can it maintain a balance between the vendor-neutral objectivity that many customers expect and its inevitable role as a sales channel and support wing for IBM hardware and software? How IBM under new Chairman and CEO Sam Palmisano answers that question will be critical, considering the companys increasing dependence on IBM Global Services. Not only does the unit account for more than $40 billion in annual revenue and more than half of IBMs employees, but it also looms as a key component of the companys On Demand strategy with the addition of PricewaterhouseCoopers consulting business.

For Douglas Elix, senior vice president and group executive at IBM Global Services, in Armonk, N.Y., the answer is clear: "Our job is to solve a customer business problem, not to push IBMs hardware or software."

The need for objectivity, particularly in business process consulting, in which former PwCC personnel are expected to specialize, will be in particularly sharp focus. But Elix is steadfast. "We are very firm that we dont want PwCC people to lose their objectivity," he said, although he added, "but we do want to make sure they are well-educated on the IBM capabilities."

IBM Global Services

  • Top executive Douglas Elix, senior vice president and group executive
  • Revenue 44.9 percent of company total in Q3, 2002; 43.9 percent in Q3, 2001
  • Head count 180,000 in Q3, 2002; 150,000 in Q3, 2001
  • Key products Application development and management services, business consulting services, business continuity and recovery services, business process outsourcing, business transformation outsourcing, e-learning, IT outsourcing, systems integration, storage services, Web services consulting, Web hosting
  • What to watch in 2003 Blue Typhoon, a new utility management infrastructure offering that creates a virtual pool of computing resources that enterprises can tap and pay for on demand; further integration of IBM Business Consulting Services, created through the acquisition of PricewaterhouseCoopers consulting unitSource: IBM, eWeek reporting
According to at least one enterprise customer, however, IBM Global Services has not been as objective—nor as cost-effective—as it should be.

"They would always pitch IBM servers in a solution. They were very revenue-focused," said Greg Smith, now CIO of the National Wildlife Federation, in Washington, describing his dealings with IBM at the organization for which he previously worked, which he declined to name. Smith said he was eventually able to wring a good deal of cost out of the relationship, which only showed how fat a profit IBM had been reaping.

Such concerns with the cost of IBM Global Services offerings—coupled with overall slowing in IT spending—contributed to a slowdown in the companys services revenues toward the end of last year; after serving as the engine of IBMs growth through much of the late 1990s, IBM Global Services reported just a 2 percent increase in revenues in the third quarter. IBM officials say that in the third quarter alone, potential outsourcing customers deferred 11 long-term deals, each valued at $250 million or more.

Certainly, not all enterprises are holding off on new services deals with IBM, and some arent particularly concerned with questions of IBM Global Services objectivity. For Kenny Klepper, senior vice president of systems technology at Empire Blue Cross Blue Shield, in New York, IBMs making and selling its own hardware is welcome. "IBM has its own hardware and knows its hardware. Its a plus for them," said Klepper, who awarded IBM Global Services a 10-year, $900 million outsourcing contract recently.

Customers may be even less particular about who makes the hardware should IBMs eBusiness On Demand initiative take hold. Last year, IBM Global Services won a contract with Mobil Travel Guide to power an online travel planning site that is now in alpha testing and is due to go live this year. The deal started out as "a traditional outsourcing [request for proposal] for servers, network and database administration services," said Paul Mercurio, CIO of Mobil Travel Guide, in Park Ridge, Ill. But then IBM offered a proposal for Linux On Demand Services, hosted computing resources that Mobil would pay for on an as-needed basis.

Mercurio jumped at the offer, and it helped Mobil get its site up and running in less than 30 days.

According to Elix, that goes to show the flexibility of IBM Global Services. "As long as it solves the customers problem and it produces revenue and profit for IBM, then we feel good."