Beyond Blue
BusinessWeek magazine has an in depth article on IBM's transformation journey from a computing company into one that provides "business-performance-transformation-services." Spurred by IBM's CEO Samuel J. Palmisano, IBM is attempting to shake off its dependence on the $1.2 trillion computing industry with a growth rate of 6% annually, and join the business process outsourcing industry -- a move that Palmisano hopes will pull IBM out of trenches where they're battling for commodity dollars, and instead, place them in the position where they can not only oversee the entire computing industry, but all industries, all businesses. It's not that IBM will leave the computing industry behind. It still has a huge stake and reaps lots of profits from its hardware and computing services businesses. It has a huge patent library and thousands of research scientists dreaming and innovating. What IBM expects however is that margins will continue to decline in their traditional base. They face stiff competition as ever, and commodity players like Dell and Asian manufacturers are also slowly pushing into the low end of IBM's high end businesses. Margins in the outsource processing business -- or the bigger picture of business transformation that Palmisano is hocking -- is higher.
IBM gained a leg up in their new future with the acquisition of PWC Consulting in 2002. With PWC came an infusion of tens of thousands of business focused employees. IBM's business consulting staff are at 50,000 today -- about 15% of their workforce, and growing at a clip of 10,000 per year. Existing employees are also being retooled. Business people with the technical know-how is a potent combination. A cultural shift is also underway. Gone are the days when different divisions had tunnel vision for their vertical. Now, any IBM initiative has the ability to leverage on expertise across the entire enterprise.
It all sounds like great news for IBM's future, but its still a gamble. Firstly, there is competition. Accenture is already entrenched in the industry IBM is going after, although they lack the technical breadth that IBM has. Wipro and Tata Consultancy of India are challenging both IBM and Accenture, with low costs. As well, some of services IBM is targeting are already on the radar of other computing companies and are likely to become commodities themselves. Secondly: IBM's promises reengineering. There isn't certainty there that businesses may want to have their operations so transformed that they grow a dependency on an outsourcer and are unable to cut the cords if needed. Lastly: do you believe IBM can actually pull this off? It sounds like a world-domination scheme, but there isn't certainty that IBM can do it.
IBM just got out of the PC business because they could no longer compete in it. Dell was beating the pants off them, and IBM was stuck selling PCs via some very inflexible channels. With the cord cut, Lenovo may stand a chance by going head to head against Dell by playing Dell's game of driving operational efficiency and lowering costs. However, if IBM's business-performance-transformation-services was so great, why couldn't IBM leverage it for its own operations to transform IBM into a better computing company? I'm not convinced that IBM has what it takes -- yet. And then, I would still have reservations about giving away any key operations, especially those that are a strategic differentiator, to an outsourcer that will turn around, leverage on the expertise they've gained on my payroll and help my competition. At the end of the day, this is good for IBM -- and may have short term payback for their customers, but is not strategic.
IBM gained a leg up in their new future with the acquisition of PWC Consulting in 2002. With PWC came an infusion of tens of thousands of business focused employees. IBM's business consulting staff are at 50,000 today -- about 15% of their workforce, and growing at a clip of 10,000 per year. Existing employees are also being retooled. Business people with the technical know-how is a potent combination. A cultural shift is also underway. Gone are the days when different divisions had tunnel vision for their vertical. Now, any IBM initiative has the ability to leverage on expertise across the entire enterprise.
It all sounds like great news for IBM's future, but its still a gamble. Firstly, there is competition. Accenture is already entrenched in the industry IBM is going after, although they lack the technical breadth that IBM has. Wipro and Tata Consultancy of India are challenging both IBM and Accenture, with low costs. As well, some of services IBM is targeting are already on the radar of other computing companies and are likely to become commodities themselves. Secondly: IBM's promises reengineering. There isn't certainty there that businesses may want to have their operations so transformed that they grow a dependency on an outsourcer and are unable to cut the cords if needed. Lastly: do you believe IBM can actually pull this off? It sounds like a world-domination scheme, but there isn't certainty that IBM can do it.
IBM just got out of the PC business because they could no longer compete in it. Dell was beating the pants off them, and IBM was stuck selling PCs via some very inflexible channels. With the cord cut, Lenovo may stand a chance by going head to head against Dell by playing Dell's game of driving operational efficiency and lowering costs. However, if IBM's business-performance-transformation-services was so great, why couldn't IBM leverage it for its own operations to transform IBM into a better computing company? I'm not convinced that IBM has what it takes -- yet. And then, I would still have reservations about giving away any key operations, especially those that are a strategic differentiator, to an outsourcer that will turn around, leverage on the expertise they've gained on my payroll and help my competition. At the end of the day, this is good for IBM -- and may have short term payback for their customers, but is not strategic.
IBM now has a new unclear vision under the leadership of the new CEO, Sameul J. Palmisano. The newly appointed CEO is attempting to shake off the company’s dependence on the $1.2 trillion dollar industry with a growth rate of 6% annually, and join the business process outsourcing industry. Palmisano further hopes that this move of his will pull IBM out of trenches where they're competing with companies such as
ReplyDeleteOracle, Microsoft, Dell, ect. for commodity dollars. Instead, he wants to place IBN in
a position where it can oversee the entire computing industry and all businesses
that decide to hand over their marketing and finance operations to IBM. This “business transformation” does not mean that IBM will resign from the computer supplying industry. After all, the company still has a huge stake and reaps a lot of profit from its hardware and computer services. “To pull of his strategy, Palmisano must win a torturous trifecta: He must manage wrenching change inside IBM while, as a pitchman, convincing corporate customers worldwide to hand over their operations.” I believe that IBM can be and will be successful in this venture of success. However, it has a long way to go; a really long one too, I must add. After all, I believe that riskier ideas attract higher profits. At the current moment, IBM is on its way towards a very “risky adventure.” Eventhough “Palmosano’s strategy promises a neat escape,” we have to bear in mind that IBM is entering a completely different industry where many worldwide companies have already established their names. For example, their most deadly rival, “Accenture Ltd., the $15.6 billion services giant has been dipping a big toe into business process outsourcing.” Other international companies such as, “Tata Consultancy Servies Ltd.” and “Wipro” are well established companies in that industry. However, these companies lack the technical breadth, and the brand name (chpt 13) that IBM posses. The main question still exists: “Will services go the same way hardware has?” After reading the article a few times, I have mixed opinions about that question. I feel that at the current moment in time IBM is not capable, or should I say not ready for this business transformation just yet. Not until the company has a clear vision of how far and where they want to go, and a clear understanding of what it will take to succeed in their mission. However, I believe that eventually IBM will succeed in accomplishing its mission.
~Akshat = akshat48@aol.com~