In these types of engagements, IBM generally upgrades the technology underpinning a business process and tries to get the system running more cost effectively. The company has a small number of clients in each of its different business process outsourcing areas.
Along with software, business process outsourcing continues to be where IBM makes acquisitions. For example, last year Big Blue bought Indian call centre provider Daksh to beef up its support outsourcing services, and it purchased Maersk Data to offer a wider range of transportation services.
Rocky transition?
But, as the company's planned restructuring illustrates, reforming its massive services division will be a complex, and sometimes painful, process.
The areas that are expected to feel the brunt of layoffs are traditional "break-fix" computing services, an IBM insider says last month. The anticipated changes have already drawn protests by IBM workers in Germany and France, where IBM reported poor results last quarter.
Stalhman at Caris & Company says IBM's pursuit of higher-end services is a sound strategy but that the transition will cause "air pockets" that could disrupt the company's overall financial performance. He says IBM's current problems with Global Services will make it difficult for the company to meet its expectations in the second quarter.
Though IBM touts the growth of BPTS and its importance to the company's strategy, the area is still small compared with the rest of Global Services. In the first quarter of this year, BPTS revenue grew 40 percent to $900m, out of a total of $11.7bn in Global Services revenue.
On top of pursuing higher-margin consulting services, IBM is also upgrading portions of Global Services to be more profitable, noted Gartner analyst Michele Cantara, who covers the professional-services industry.
For example, Big Blue is investing in the computing infrastructure to allow it to host many customers' applications from the same hardware, making those services more cost-effective for IBM.
"If they can combine higher-margin services aimed at the CEO or CFO with more repeatable solutions, that gives them services at the high end and the low end," says Cantara. "IBM has to figure out the right balance."
