Avoiding "commodity hell"
These high-end services are meant to set IBM apart from low-cost technology suppliers such as Dell, and traditional computer consulting companies such as HP, EDS and Accenture. The strategy is to combine IBM's technology products and research with its business-minded consultants, which is something few other services companies can do, IBM executives claim.
In a similar vein, a desire to get out of "commodity" businesses was the primary motivation for IBM to sell its PC business to Lenovo, a transaction that closed earlier this week. Chief executive Sam Palmisano says in December that the PC industry's high-volume, low-price model was at odds with IBM's strategy to be a "high-value innovation provider."
By offering a greater number of business services, IBM is also trying to fashion a more lucrative services business. Margins in traditional computing services, such as maintenance and support, are being squeezed by competition and by customers who increasingly renegotiate more favourable contracts, note analysts.
In one example of the kind of deal Big Blue is after, the New York Stock Exchange contracted with IBM's engineering group to design handheld computers to be used by traders. That consulting job in turn led to more significant sales of back-end software and server hardware, says Lee Green, IBM's director of worldwide corporate design.
BPTS "is such a significant market that it's an avenue... we can't ignore", says Eric Pelander, the leader of strategy and change services for IBM's Business Consulting Services group, formerly PricewaterhouseCoopers. "BPTS is a strategic focus for IBM... so you will see a refinement of our portfolio."
As part of its consulting push, IBM is also getting a more substantial foothold in the business process outsourcing field, an expansion beyond IBM Global Services' roots building and maintaining computer systems on site.
The company is in the latter stages of negotiations with Midwest energy company NiSource in a deal that could be valued at $2bn over the next 10 years.
Looking to lower its operating costs, NiSource is in discussions with IBM that involve handing over several of NiSource's business functions, including information technology, human resources, customer support, billing and procurement, according to NiSource spokeswoman Kris Falzone.
"We're looking at a potentially transformational outsourcing engagement," says Falzone. "We are trying to focus on our core business."
