A Big Deal For Businesses Large And Small

VARBusiness

This deal, M&A experts say, does nothing more than wipe out some of the excess capacity residing at the top of the IT-services food chain, where discounting has been rearing its ugly head and where auditors are distancing themselves from their consulting arms. Read through the PwC Consulting prospectus for its IPO, and you'll see it's no wonder it opted for a buyout: No matter how blue chip its list of underwriters were,and there were many,this was going to be one hard sell. PwC's revenue was declining in the June quarter, and it expects sales to continue falling for several months.

IBM's move to scoop up PwC represents only the start of consolidation that will occur among multibillion-dollar global integration and consulting organizations. With IT spending under enormous pressure, the mighty must fall, and IBM is best-positioned to add to its portfolio and keep marching to the services drum that beats so loudly in the head of IBM CEO Sam Palmisano.

Speaking of Palmisano, let's pause to consider his behavior. This is Palmisano's first big deal, and it's about the size deal his predecessor, Lou Gerstner, cut his teeth on when IBM acquired Lotus in 1995. When Gerstner announced that deal at a packed New York press conference, it was amid great fanfare. Cameras flashed, questions were shouted out, and headline writers had a field day. In contrast, on the day the PwC deal was disclosed, an official-looking IBM press release was issued with some nice, neat quotes attributed to Palmisano, along with a grip-and-grin photo of Palmisano in a freshly ironed suit, shaking hands with PwC CEO Samuel DiPiazza in front of IBM's headquarters. That was it.

Palmisano delegated the arduous task of explaining the fine print to IBM CFO John Joyce and IGS senior vice president and group executive Doug Elix. You could write a book on that subtle move. Did the board warn the relatively new CEO not to stick his neck out too far should the deal turn sour? Perhaps. Or were the details of the deal best left in the hands of Elix, who engineered it and is running what amounts to the future of IBM? Most likely. Either way, the strategy worked, and because there's no possible way the powers that be will let Palmisano stumble,lest he have a Compaq on his hands,this deal is going to be wrapped up quickly, neatly and quietly. Just watch.

If all goes as planned, IBM will leave its services rivals and manufacturing competitors scrambling to figure out how to keep pace with a company that's the dominant force in computing today and is intent on inflicting pain on its rivals. Think of Tiger Woods, who mysteriously forces competitors to beat themselves as he forges ahead.

But, is it a stretch to say that affects the average VAR or larger solution companies, which populate the VARBusiness 500? In some respects, yes, though it's understandable that integrators are deeply concerned about how they can survive in the shadow cast by a $40 billion behemoth. IGS contends it wants to partner with ISVs, VARs and integrators that have specialties it doesn't possess. It has no desire, it says, to take deals off your table. Let's hope not, because an organization with more than 180,000 professionals operating in a soft IT market can start to drill down deeply in the midmarket in a hurry. IGS will have to make a concerted effort to alleviate fears and turn those suspect of its motives into trusted partners. That won't be easy.

There's also a very valuable lesson here for solution providers who serve SMBs, so the timing of this particular issue of VARBusiness is fortuitous. The future of IGS,and IBM for that matter,depends on the company's ability to address customers' business issues first, and then pull technology and services in to solve those problems. The deal dramatically accelerates the company's desire to sell, based on a theory that business and technology are finally one. PwC strengthens that argument and provides business managers with people who can solve problems with the right mix of technology and business-process adjustment.

That's an approach worth imitating,no matter how large or small your solution-provider organization.

What do you think of the IBM deal? Let me know at [email protected].