IBM Archives - Page 4 Of 5

IBM Prepares to Deliver Consumption Based, As-a-Service Offerings | Gaining Altitude in the Cloud

March 12, 2014

IBM in late February launched BlueMix, a billion-dollar investment in a Platform-as-a-Service (PaaS) cloud based on its recent empire-building acquisition of SoftLayer. A TBR analyst says IBM’s as-a-service moves are changing the company’s DNA. My opinion? It’s a lot more significant than that! If Big Blue can integrate all its services in a true consumption-based model, it could set the standard for the new service model industry wide. The question is: Is this the way of the future?

The dilemma

Here’s the dilemma that faces the market and motivates IBM’s strategy. As I’ve blogged before, customers want consumption-based services. This means:

They only want to pay for what they use. They don’t want to pre-commit to volumes because they overpay when they do that. When they use a lot, they’re prepared to pay a lot; when they use a little, they only want to pay a little.
They want providers to make it easy to adopt their services. They don’t want big road maps and huge implementation schedules. Easy on, easy off is what they desire.

We see this fundamental desire for consumption-based coming across all service lines. But it leaves traditional service providers hamstrung to meet customer demands.

There are two routes to the change to consumption-based services:

Service delivery in a multi-tenant world — one platform and all customers use the same thing
Supply chain — completely integrate a consumption-based supply chain

The problem with a remedy for the dilemma

The problem is that the multi-tenant path does everything for providers but nothing for customers. Larger, sophisticated companies have different needs, but the multi-tenant platform forces customers to be the same as everyone else. Salesforce and other providers accommodate this issue with configuration vehicles, but fundamentally they have an unyielding standard. So providers must ask their customers to change their needs to meet the product’s standards rather than the product changing to meet the customer’s desires.

It’s a thing of beauty and a joy forever if a provider can get its customers to do that. But there are a very limited number of areas, and customers, where that can happen.

The alternative remedy

The alternative is to turn a provider’s entire supply chain into a consumption-based supply chain. This is the IBM strategy.

This path eliminates stranded costs. It also eliminates the problem of misaligned provider/customer interests that create a lot of friction in the market today. The traditional service model creates take-or-pay situations in which the provider has to provide the service whether or not the customer uses it — thus the misaligned interests.

That’s why what IBM is doing is so important. I’ve blogged before about how IBM’s recent acquisitions of SoftLayer, UrbanCode, Green Hat and Big Fix were the components of building a complete as-a-service stack from the bare iron up through the platform to the business process services. This fundamentally enables IBM to migrate to an end-to-end consumption-based world.

We have yet to see IBM roll this through in its fundamental pricing, but it’s still early; Big Blue has just now assembled the stack. But if it truly goes to market with the end-to-end consumption model, IBM will be able to address market needs much more completely than competitors, which are faced with the dilemma of having to take the risk on stranded costs and effectively price higher because of inefficient delivery models.

That’s what IBM has been putting in place. Is IBM leading in the way to the future in services? What do you think?

IBM Remakes Itself | Sherpas in Blue Shirts

March 10, 2014

You can bet IBM Global Services doesn’t want any more earnings announcements like its Q4 2013 report. Big Blue posted year-over-year revenue growth of only 4 percent instead of the 7 percent it indicated just three months ago and its 5 percent Q3 growth. Its margins are good, but clearly IBM has a growth issue. However, IBM is unfolding its strategic readjustment to drive global services growth in the future. It’s a three-pronged plan.

1. The exit path

Step one is to jettison the low-margin, commoditized and mature parts of the business, and I’ve blogged before about the crucial timing aspect of this strategy.

2. What is IBM doing with two acquisitions per month?

In the plan’s second prong IBM replaces its jettisoned revenue and direction by acquiring both software and services businesses. At the moment its acquisition pace is torrid — a little over two companies a month!

Rather than building products to move into more profitable business areas, Big Blue is buying companies so it can quickly shift high-growth platforms and embracing automation and the cloud. Four acquisitions show us where IBM is doubling down on acquiring capabilities:

Softlayer (2013) — global cloud infrastructure
UrbanCode (2013) — software delivery automation
Green Hat (2012) — software quality and testing for cloud
Big Fix (2010) — management and automation for security and compliance software updates

Two particular focus areas in automation platform and services stand out:

Analytics (automation of high-end analysis)
BPaaS (Business Process as a Service), which is an automated version of IBM’s infrastructure business.

Years ago IBM put hard caps on scaling the company by adding headcount, and this is a driver in chasing automation as IBM exits low-margin, labor-arbitrage offerings.

3. Battle-tested advantage

Unlike many of its peers building and piloting solutions and products, the third prong in IBM’s growth plan ensures the companies it acquires have fully formed battle-tested models. Instead of creating a baby that has to crawl before it walks, IBM acquires “teenagers” that can run — companies that already conducted pilots and ensured there is a market for the offerings. And then IBM super-charges the model with Big Blue’s awesome brand and sales and marketing strategies. This is a time-tested formula that has worked for IBM in the past.

As we watch IBM remake itself in this three-part plan to drive services growth, we expect the strategy will be successful.

Photo credit: Irish Typepad

IBM’s 2013 Acquisition Spree | Market Insights™

January 25, 2014

Visit the report page

LATAM GAO: Competitive for Some, Not so for Others | Market Insights™

January 15, 2014

The Latin American market for foreign multi-national corporations (MNCs) is very competitive: the leading provider (Accenture) has 20% market share, four global providers share ~50% market share, and smaller players account for the remaining third of the market.

On the other hand, IBM and Accenture dominate the LATAM GAO market for LATAM companies, with a combined market share of more than 70%.

Visit the report page

Just Like CSC and Dell, Sell Your Truck While It’s Still Running | Sherpas in Blue Shirts

October 23, 2013

When Bobby Pinson recorded his country & western song “Don’t Ask Me How I Know” dispensing bits of wisdom, I’m sure he didn’t realize he was providing advice to service providers. But my favorite line in the song is also great advice for today’s BPO providers — “Sell your truck while it’s still running.”

That’s what CSC and Dell did. In December 2012 CSC sold its credit services division “truck” to Equifax. A month earlier, Dell sold to Conifer Health Solutions its revenue cycle solutions line of business for healthcare providers. Wisely, they sold these business lines while they were still profitable. But they were not growing and were not consistent with the firms’ long-term strategies.

The business lines were sold to providers where the assets fit well with those companies’ core business and growth strategies, and which will invest in growing those lines of business. Both CSC and Dell then used the cash from those asset sales to invest in developing cloud services, which have a greater growth potential for their business.

The BPO space is full of big ideas and big investments in industry solutions or functional solutions that grew quickly and then stopped growing. In some cases the service providers are finding that they hit on a need in a micro industry and that the total market is only four or five companies that have that need. So the service line did not expand from the initial few clients.

In other cases, the provider built an offering that is now an unattractive area, so the business faces declining margins. Or perhaps the offering is based on technologies that are under attack by new disruptive technologies.

As we look across the landscape of service providers and their offerings, it’s clear that most companies have several of these kinds of businesses. Some are starting to look like a scientist’s attic stuffed full of experiments that didn’t work out.

These business pockets arose over the last few years because of the providers’ desire to drive growth by entering new markets. Many offerings were put together and sold at a price point that would allow them to scale and then become profitable after scaling. A few of these experiments in service offerings succeeded, but many stopped growing. When they don’t scale, the provider can damage its reputation by trying to drive profit improvement exercises on them afterwards in the form of price rises or a cut back in services. Existing clients become unhappy, and it affects other work they would otherwise do with the provider.

Fundamental question for BPO providers

There are many reasons to divest these BPO experiments that didn’t grow. The CSC and Dell asset sales pose a fundamental question for all BPO providers: Should you, too, sell your truck while it’s still running? Should you harvest these BPO pockets or should you run them out and let them decline?

If you leave them in place, the best that can happen is they become an anchor against growth because their future growth prospects are limited. It will make it more difficult to grow your company going forward. These BPO pockets contribute to mass but not to growth.

We wonder if others will follow CSC and Dell down the path of divestitures. What do you think? Other than these providers and IBM, we we have not seen many firms with the discipline to prune their business. Will we see a movement of others learning from these examples and start pruning back some of their portfolio?

For the right buyer, it might be a great model to aggregate these BPO business pockets and build a business around them. Pull them out of the fast-growing areas and build a separate company that has an appetite for this kind of investment. There’s an interesting proposition.

Selling the truck while it still runs is poignant advice that we should reflect on. Who knew that CSC and Dell were getting their strategic thinking from country/western songs?

Photo credit: Don O’Brien

Jilted — What Happens When Your Provider Sells the Service Line That You’re Buying? | Sherpas in Blue Shirts

October 7, 2013

So you’re in an outsourcing relationship and so far you’ve achieved impressive results in meeting your objectives. Then you wake up one day to the unwelcome news that your service provider sold that line of business to another company and you’re now relegated to a provider you didn’t select. What should you do? Do you need to start flipping through the pages of your contract? Should you be concerned? Let’s face it: this isn’t a far-fetched scenario; it easily could happen to anyone.

In fact, it actually did happen to you just a few weeks ago if your organization was buying voice and call center services from IBM. Big Blue sold its customer care outsourcing unit to Synnex and its subsidiary Concentrix.

Maybe you now feel like a jilted lover — and rightfully so. IBM loved you when they signed the contract. But now they’ve sold your contract.

It’s not a new problem by any measure, but IBM’s recent divestiture brings heightened awareness to the fact that buyers can end up with a different service provider overnight — perhaps even one that they considered early on but rejected in final selection, opting instead for the strength and commitment of the chosen partner. It feels like a betrayal.

Having said that, I think customers can get overly excited about such a situation.

So what is the best way to deal with a situation like this?

As with many of life’s surprises and dilemmas, the answer is situational. In this particular case, the fact that the provider is IBM makes a significant difference. IBM is well known for divesting assets in its portfolio that are viewed as a mature or declining space for IBM and thus would not receive ongoing investment from IBM. But Big Blue has a tradition of standing behind its services and ensuring that the services are delivered even if it sells that business. And that is what happened with the sale to Synnex.

Synnex will combine the IBM business with the business of its subsidiary Concentrix, whose core business is running outsourced call centers in the customer care space. So the silver lining in this cloud for IBM’s former customers is that their new provider will be willing to invest in deeper call center capabilities and technologies.

The divestiture leaves IBM freer to invest in analytics technologies in the customer care space. As further evidence of IBM standing behind its commitments, Concentrix will become an IBM business partner and the providers will jointly pursue business opportunities.

IBM has a history of entering into and maintaining ongoing relationships with the buyers of services that indicate they want to invest in the service space. Certainly buyers need to pay attention to this situation, but it could be a very good outcome for Big Blue’s former customers in this space.

However, not all providers have the integrity of an IBM, so customers should be concerned about their providers selling a service line the customer is buying. Our advice is to make sure you have contingency plans in place in case it happens. A moment of reflection up front plus due diligence in the provider-selection phase is equally important. Ask yourself: Does this potential partner for us have the integrity and commitment of IBM for ensuring a good outcome for us whether or not they sell the service line, or could we end up jilted?

Doing a Double Take on IBM’s Spinoff in the Customer Care Services Market | Sherpas in Blue Shirts

October 3, 2013

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

Who’s Trying to Crash the Party for Accenture, Deloitte and IBM? | Sherpas in Blue Shirts

October 1, 2013

In the worlds of sports and business, there are many examples of teams coming from behind and winning big. Oracle Team USA’s exciting win over Team New Zealand in the 2013 America’s Cup yacht races last week is certainly a big one.

There’s also a race happening among the global services providers in the tier-one transformation services space. I’ve blogged before about the big three currently in the lead in this space: Accenture, Deloitte and IBM. But other service providers are trying to crash the party for the big three because increasingly transformation is the lucrative differentiated space in a commoditizing marketplace.

Transformation is the axis upon which higher-value services are delivered today. It drives profitability and growth in the services marketplace and is the most desirable of capabilities in a maturing market where high growth at profitable margins is increasingly difficult to come by.

Providers coming around the curve in the tier-one transformation space are not new kids on the block and not trying to reinvent themselves. They’re just strengthening their existing capabilities and strategies so they can cross the border and be invited to opportunities to compete against Accenture, Deloitte and IBM.

So who are the potential party crashers? Here are the ones we’re watching.

Cognizant and TCS. Clearly these two strong players are making big strides in the transformation area, particularly where they are already embedded in an account. Both have above-industry growth rates and very strong profitability, and increasingly they are in the mix in large transformation plays. Both are leveraging their large existing client portfolios and capitalizing on the permission and reputation that they have built with those clients to be considered for more expensive and larger-scale transformation opportunities. Often this comes on the back of significant investments in industry capability.

Most Indian firms aspire to achieve a spot at the table; but with the exception of Cognizant and TCS, most of them are somewhat off pace in their ability to regularly get in the mix for consideration for large transformation opportunities.

E&Y, KPMG and PwC. Deloitte’s sister audit firms and consulting companies also are working hard to build capabilities to join the leaders in the tier-one transformation services space. Each is capitalizing on the strengths they already possess.

E&Y’s formula is to search for transformational opportunities in its top 50 accounts and invest in a depth of understanding of the relationship and capabilities needed by these clients. It is rare to see them venture away from these top 50.

The strategy for both PwC and KPMG is to add capabilities and grow inorganically, and both have been on the acquisition trail. They continue to build out their systems integration and consulting activities to become more transformational partners.

Who’s buying transformation?

It’s important to note that the growing influence of business stakeholders in provider selection is fundamental to all attempts to participate in the transformation marketplace. Their increasing influence (at the expense of the CIO and shared services groups) is evident by the fact that the CFO, business unit heads or CMO often now drive the funding as well as the project management in new deals.

Which of the above providers are most likely to join Accenture, Deloitte and IBM at the tier-one transformation space party? We believe it will be the companies that are most adept at addressing the new business stakeholder groups’ issues.

Deloitte: The Global Services Dark Horse Challenging Accenture | Sherpas in Blue Shirts

August 15, 2013

Accenture has beautifully moved into the number-one spot among transformational service providers. They snatched it from IBM, their biggest competitor for that spot.

How did they do it? Accenture created a significant gap between itself and IBM in two game-changing aspects: customer access and talent.

Accenture gained a leg up on IBM in customer access because it was better able to access the emerging business stakeholder groups outside of the IT organization. They were better able to communicate with the CFOs or business heads and leads, which helped increase Accenture’s credibility around transformation services. Discussions with the business stakeholders also gave Accenture visibility into large transformational opportunities.

In the second aspect, Accenture built a larger and deeper bench for consulting and systems integration (SI) talent than IBM.

Accenture has taken transformation services to a level that’s hard to beat.

But IBM has taken the challenge seriously and has been busily recruiting consulting talent. They started in the ERP arena and are now extending it to other areas. We’re seeing a lot of ex-strategy consultants showing up at IBM from Booz Allen and other firms.

So IBM is closing the gap created by Accenture in consulting. As they do that, they are starting to win back market share.

But then along came the dark horse, Deloitte.

Deloitte is contesting both Accenture and IBM for large transformation deals. But it’s able to be more disruptive to Accenture — in fact, the disruption is right along the same lines as Accenture followed to beat IBM.

Access to boards of directors and senior management suites has been a defining differentiator of Accenture and IBM compared to other providers in the transformational services landscape. But Deloitte is able to match them in this customer access aspect. And the dark horse provider has even better access than Accenture to the business stakeholder groups, particularly the office of the CFO, which is becoming increasingly important on large transformational agendas.

Deloitte also brings similar consulting and SI talent as Accenture, plus it has deep industry knowledge and industry practices; thus Deloitte is highly relevant on industry and domain topics, not just on technology.

But far more interesting is the central difference in the way Deloitte and Accenture approach transformational problems. Accenture tends to carve out the attractive outsourcing pieces and leave the asset-heavy risk-shifting pieces for others. Deloitte takes a much lighter touch and agile approach. The dark horse tends to reconfigure transformation agendas to be more of a consulting and SI effort and less of an outsourcing effort. This doesn’t work well with every client, as some prefer an outsourcing approach; but this lighter, more agile approach makes Deloitte’s offering more complete and distinct.

IBM is starting to narrow the gap that Accenture created. But Accenture is still the reigning king among transformational service providers. Both need to watch out for the dark horse as Deloitte has emerged as a tier-one transformational provider in the same category and same quadrant as Accenture and IBM.

There are other providers trying to get into the tier-one group. But that’s another story. Stay tuned for a future blog post on who they are and how they’re trying to compete.

Empire Building: The Impact of IBM’s Acquisition of SoftLayer Technologies | Gaining Altitude in the Cloud

June 25, 2013

The cloud services space just got a lot more interesting. Announced earlier this month, IBM paid a hefty price — $2 billion — to buy Dallas, Texas-based SoftLayer Technologies, the world’s largest privately held cloud computing infrastructure provider.

IBM is now well on the way to delivering on the goal stated in its 2012 annual report: to make a key impact on cloud and reach $7 billion annually in cloud revenue by the end of 2015. Clearly IBM wants to participate in the revenue potential from the growth of cloud services. Big Blue has already spent $4.5 billion over the past five years to build its SmartCloud portfolio of cloud services, but those acquisitions were in the private cloud arena. To compete broadly in this lucrative market, IBM needed a compelling offering in the public cloud arena.

A recent report from North Bridge Venture Partners and GigaOM Research predicts the cloud market will reach $158.8 billion by 2014. And Gartner predicts the market will grow to $210 billion by 2016.

The SoftLayer acquisition accelerates IBM’s efforts to establish a footprint in the public cloud arena without having to start from scratch when AWS, Google, Rackspace and others already dominate the space. SoftLayer’s cloud infrastructure platform, and its existing 21,000 customers, gives IBM immediate scale and relevance.

Other than increased revenue, why does IBM want to have a compelling offering in the public cloud space in the first place?

They believe — correctly, I think — that significant workloads will migrate from the data center and private clouds to the public cloud. There is a set of workloads that, quite frankly, are more attractive in the public cloud than they are in a private cloud space (web hosting, application development and testing, and email, for example). It makes more sense to pay for these services on an hourly basis rather than on a monthly or yearly basis.

We believe these types of services currently comprise about 50 percent of the workloads that currently run in IBM customers’ data centers or their private cloud environments. So about half of IBM’s customer workflows are well positioned to move into the public cloud. They won’t all move at once, but we see clear indications that they are starting to move. If IBM is to provide comprehensive cloud services, it needs a smooth path for migrating those workloads. SoftLayer gives IBM the capability to create a glide path.

Thus, IBM’s acquisition of SoftLayer is both a defensive strategy and an offensive strategy. On the offense, they want to increase market share in the fast-growing public cloud space and need a compelling offering to compete with AWS, Google, Rackspace and other cloud players. On the defense, they need to create a migration path from traditional IT infrastructure space into the public cloud.

I don’t think the SoftLayer acquisition is a game-changer. Nor do I think it remakes the cloud space. But it does put IBM into a credible role.

Will this acquisition be enough to secure IBM’s position as a cloud leader? I suspect it isn’t enough, given the role that IBM likely will want to play. I think we will see further acquisitions to build up IBM’s capabilities and scale.

Photo credit: Simon Greig (xrrr)

Announcing our inaugural conference: Everest Group Engage, The Pragmatic Edge: Designing Your Future. Learn more.

Tag: IBM