IBM acquisition causes services shake-up

The IT services scene gets interesting as IBM fires a salvo at the high-end of the market with its acquisition of PWC Consulting (PWCC), and jolts other vendors into re-examining their IT services strategies.

Rolf Jester, research director for IT Services at Gartner Inc., said the impact of the PWCC acquisition cannot be ignored.

"This poses a challenge because other players cannot afford to let IBM Global Services have such a strong lead," he said.

According to Jester, the acquisition adds capabilities at the higher, business consulting end of the services spectrum. "PWCC brings with it a reasonably substantial level of business process outsourcing experience, and contacts with major enterprises for outsourcing of services where they run the processes, not just the IT."

Francis Fong, country manager, Strategic Outsourcing, IBM Singapore, said the comprehensiveness of the merged entity would be a big plus for customers. "We will be able to do everything from maintenance services, to project management, to outsourcing and services," he said.

In the IT services market, Jester felt that there were still too many undifferentiated players out there and "the buyers are not going to accept that."

He said the services arms of IBM's competitors lacked some crucial competencies. "Their services are generally at the lower end of the spectrum, such as product support," he said.

"This is a profitable business with good margins, but is not future oriented." For example, growth estimates for such services in North America are already flat, he added.

IBM's competitors will have to consider how to offer such business consulting expertise. "They will need to forge serious, long-lasting, preferential type alliances with other companies to deliver these services," said Jester.

While services vendors generally agreed on the need for the partnership approach, they were less committal when it came to "preferential" alliances.

"Sun provides infrastructure technology and expertise," said Darlene Yaplee, vice president, Integrator Alliances, Sun Microsystems. "We don't want to do business logic or business process re-engineering; we stick to our strengths."

Yeo Ngee Seng from Alliances, Marketing and Strategy, Hewlett-Packard (HP) Services Asia Pacific, said there was a distinct advantage for HP and its customers to be able to partner with all systems integrator partners. "This gives us a superior teaming capability by combining our deep technical expertise with their business process and application -expertise," he said.

But he said HP did not rule out any services-related acquisition in the -future.

Yaplee of Sun also commented on the issue of vendor neutrality. "It is doubtful that PWCC can retain its status as an objective, independent consultancy," she said. "IBM's moves in this space cloud the objectivity of the solution."

Jester of Gartner did not see that as a key concern. "Totally impartial advice has not been true for some years with the 'Big Five' consulting firms because they also implement solutions and you need good partnerships with vendors for that."

Instead, what he sees as an issue is the possible conflict between IBM Global Services and IBM Corporation's channel partners with the acquisition of a greater system integrator capability by IBM.

With the acquisition, most of the PWCC staff in Singapore will be assigned to IBM Global Services' Business Innovation (BIS) group, with others going to the outsourcing arm. There are about 160 PWCC staff in Singapore, while IBM Global Services is about 1,000 strong.

Fong said both companies will continue to function as independent entities till 30 September when U.S. regulatory approval is expected to be given.

But that is not going to be the end of the story, said Jester. "My stab at what's going to happen, is that there will be one more major acquisition before the end of next year," he said.

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