IBM: PwC integration is on track

IBM's process to bring PwC Consulting into its fold is proceeding successfully and on schedule, an IBM executive said Monday, but analysts say it's too early to tell how well the two organizations are melding.

At stake is IBM's multibillion dollar bet that by swallowing PwC Consulting, it will be able to strengthen key areas in its Global Services arm, which is already the world's largest provider of IT services, both in terms of size and revenue, to better compete against service providers like Electronic Data Systems (EDS) and IT vendors with big service groups like Hewlett-Packard.

In particular, observers agree that, in theory, acquiring PwC Consulting was a good move for IBM because it could bolster Global Services' business strategy consulting services, as well as certain vertical industry practices, such as pharmaceutical, and technology areas, such as customer relationship management.

But with the US$3.5 billion acquisition completed, now comes the hard part of integrating PwC Consulting with its 30,000 employees and a private partnership mindset within IBM Global Services, which has a staff of 150,000 and is part of one of the world's largest publicly traded corporations.

Frances Karamouzis, a Gartner analyst, gives IBM credit for "clearly putting a lot of effort" into the PwC Consulting integration and for appointing PwC Consulting executives to key top-level posts within IBM Business Consulting Services, the new unit created from the acquisition.

However, at this point, she is reserving judgement on the integration process because IBM hasn't provided enough details about new post-acquisition services, nor are there yet real-world client testimonials about the benefits of a combined IBM-PwC Consulting services portfolio.

To evaluate the success or failure of the integration, the market would need to see "joint bundled services that were legacy IBM and legacy PwC Consulting seamlessly aggregated and delivered to clients -- that hasn't happened yet, nor been put to the test."

"It's not clear to me how they plan to bring synergies between the old PwC Consulting and IBM together to create new offerings that should be something you can't get anywhere else," she said. "I'd challenge the new unit to articulate those new services that previous to this merger you couldn't find in the market."

"It's all been very general up to now. They've been hitting the high points, but they need to get to the next level of detail," she said.

IBM is now in the second of the three phases of integrating PwC Consulting, whose acquisition from accounting giant PricewaterhouseCoopers it announced in July and completed in October, said Eric Pelander, Global and Americas Leader for Strategic Change Solutions at the new IBM Business Consulting Services.

The first phase included the actual closing of the deal, the establishment of the new unit's operating models and the naming of the unit's key top executive leaders, he said. Also during the first phase of the process, IBM met with joint clients to inform them of the new business unit's structure and clarify how specific accounts and engagements would be handled.

The second phase, which IBM expects to complete this month, involves filling in details around the operating model of the new unit regarding specific industries and technology areas, as well as appointing practice area team leaders and mapping the consultants to the different teams, he said.

Then next year comes the third and final phase, focused on putting in place new IT systems and tweaking existing systems to fit the unit's business model, Pelander said.

Integrating the two different cultures has been aided by the fact that PwC Consulting had already begun a process to become a publicly traded company, Pelander said, referring to PricewaterhouseCoopers' original plan to spin off PwC Consulting via an initial public offering. When IBM agreed to acquire it, "PwC Consulting was already on a path to going public and taking steps to change its structure to a corporate one. A lot of groundwork had already been laid," he said.

Another factor that is smoothing the meshing process is that IBM is not approaching the integration with the traditional acquirer's mentality of imposing its way of doing things on the acquired, Pelander said. Instead, IBM is adopting many PwC Consulting practices and philosophies, and naming PwC Consulting executives to key top positions, he said. "We didn't go in thinking IBM had the perfect model. So the new model looks more like PwC Consulting than IBM. In a lot of ways, we intend to operate like PwC Consulting," he said.

The ultimate goal for IBM is to "redefine how consulting is done" leveraging a staffing and know-how depth he claims no other IT service provider has. With PwC Consulting, IBM will be able to provide broad end-to-end services offerings to clients, encompassing not only the technical side but also the business strategy, he said.

When asked to comment about a Wall Street Journal article published in September that stated that 4,000 employees at the new Business Consulting Services division would lose their jobs as a result of the PwC Consulting integration, Pelander said it is still too early to speculate on possible staff reductions. Whether people are hired or fired will depend on the unit's work levels, he said. He said that at this point, there have been no significant staff reductions at Business Consulting Services, which has about 60,000 employees, half from IBM and half from PwC Consulting. Business Consulting Services was formed by the combination of PwC Consulting and IBM's Business Innovation Services division.

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