IBM is consistently more profitable than its peers in the global services market. Why are they succeeding and staying out in front of competitors? If you take a deep look at IBM’s impressive record of profit and growth, the reason behind its success becomes apparent: IBM has a clear strategic intent and makes hard decisions well before others. It’s a critical distinction. And it puts it in the right markets at the right time and with the right offerings.
IBM clearly understands how to assess markets and are committed to investing for its future in the right markets even though those may be hard decisions.
For example, years ago it foresaw that the emerging markets were going to be a source of growth. Well ahead of other providers, it understood the importance of investing in those markets. At that time China was an emerging market, but IBM’s assessment was that it would be huge and dominate the Asian market. So they moved its Asia administrative teams out of Japan and Australia to Shanghai — a location that at that time was far from comfortable for their executives but would become the heart of the Chinese economy.
As another example, IBM recognized early that PCs were commoditizing, and it wanted to provide high-value hardware. It sold its PC division to Lenovo; at the time Dell and HP were still actively trying to grow in that space. IBM exited the space early and history has shown how that commoditization turned other providers’ businesses upside down.
The latest example of IBM’s record of making tough, smart decisions based on its strategic intent is its recent spinoff to Synnex of its customer care unit for call center services. Although it’s an attractive space in the outsourcing world, call centers and voice work are not growing and IBM believes they are likely to experience further commoditization.
In order to uplift the profitability of its overall portfolio, IBM needed to divest this slow-growing, less- profitable segment and invest in new areas for growth (such as customer care analytics). It’s another hard decision that took a lot of commitment and bravery.
Interestingly, as with PCs, in this recent spinoff IBM will be able to have its cake and eat it too. The sale to Synnex (and its subsidiary Concentrix, which runs outsourced call centers) gets the asset and business unit off IBM’s balance sheet. But IBM still retains the client relationships and the capacity to integrate call center services in with its other offerings by having a strategic relationship with the buyer. Synnex/Concentrix will become an IBM business partner and the companies are planning to jointly pursue business opportunities.
IBM clearly understands that not all revenue fits in its portfolio and that there is a life cycle for IBM’s commitment to stay at the leading edge of services. Therefore, as service lines age and fade, it divests them.
We think there are lessons here for other service providers. Others tend to put more emphasis on revenue and less on profitability and ongoing growth. In doing so, they will find themselves in several years wishing they had followed IBM’s example sooner.
See our related viewpoint on this topic: SYNNEX Acquires IBM’s Contact Center Business – Canary in the Coal Mine for the CCO Market?
Photo credit: Chris Dag