A Very Good Year

I f any professional services company is qualified to write the definitive book on outsourcing and integration, that company is IBM Global Services (IGS) VB1, which for the seventh consecutive year takes top honors in the VARBusiness 500 ranking.

Consider this: Last year's $35 billion revenue at the Armonk, N.Y.-based company is equivalent to the 2002 revenue for the entire book-publishing industry, as estimated by the Book Industry Study Group. IGS' backlog of outsourcing stood at $102 billion last year, and the company contributed some 41 percent of parent IBM's revenue in 2001.

Despite the trials and tribulations of the past 12 months, IGS managed to follow through on an internal reorganization, adapt quickly to market changes and expand on its history in outsourcing and its relationship with its parent company, resulting in a 5 percent increase in year-to-year sales.

"All things considered, it has probably been a very good year for IBM Global Services," says Stephen Lane, research director for IT services at Aberdeen Group, Boston. "[IGS] weathered the storm in much better shape than many competitors."

The services giant,which has 150,000 employees in 160 countries,is still fairly nimble and is able to foresee or react to changes in the market. Shortly after Sept. 11, for example, IGS pulled together its senior team to consider the new and unique needs all of a sudden facing its customers, says Ralph Martino, vice president of strategy and marketing at IGS. As a result, the company formed several new units, including New Essentials and Safety and Security, he says. Within 45 days of its formation, Safety and Security had product offerings available; within 90 days, it had signed customers and partners, Martino adds.

"When Sept. 11 happened, we recognized there was a need for a different view, besides IT security and the traditional ways we'd worked with our commercial customers," says Rusine Mitchell-Sinclair, general manager of IBM Safety and Security Protection Services for IGS Americas. "We decided we needed to take a look at what was required in the public sector, what was required in the finance sector, and what was required in travel and transportation, because it really was taking on a flavor that went beyond IT security. It was going into collaboration, resiliency and this concept of moving data very securely from all different sources and databases."

That focus continues to pay dividends: Earlier this year, IGS partnered with Schiphol Group of Amsterdam to offer airlines and airports a security-access system that uses biometric iris-scanning technology. Schiphol Group, which developed the Automatic Border Passage system, elected to partner with IGS because of its global reach, systems-integration expertise and knowledge of the airline industry, according to Pieter Verboom, CFO of the Dutch airport operator.

Partnering Pays Off

Partnering, in fact, accounted for $6 billion worth of IGS' business last year, Martino says. IGS has thousands of remarketing partners, hundreds of asset partners, such as ISVs, and around 100 "teaming" agreements with regional or vertical integrators or VARs, he says. IGS hopes to expand its work with all types of partners, especially those targeting the vast midsize market, Martino adds.

"That is growing significantly. It did in 2001, and it's expected to grow again this year," he says. "It gives us good access to small and midsize businesses. As good as we are, we only have 9 percent market share, so there's a great opportunity for us to link with our partners and gain market share at the expense of our competitors."

In addition, smaller solution providers can tap IGS' wealth of 24/7 service offerings, such as e-business hosting, global support and e-business-on-demand utility offerings, to expand the solutions they can provide to their clients, Martino says. "It helps them expand their businesses without making the capital investments required," he notes.

Some companies, such as business partner Jacada, have built much of their businesses around IBM solutions. The Atlanta-based company, which extends and integrates legacy applications, has partnered with IGS for roughly nine years, says Peter Fausel, Jacada's president. Although some IBM products overlap Jacada's, IGS will bring the company into a contract if Jacada's products are better-suited to a particular application, he says.

"IBM Global Services is very focused on delivering customer value," Fausel says.

Streamlining Service

Although IGS is known for its big-name accounts,companies such as American Express, Campbell Soup, Merrill Lynch and Toyota,the company has a substantial presence in the midsize market, says Dave Liederbach, vice president of small and medium business and distribution channels marketing for IGS.

"We're in this market in a material way," he says. "The trick for us is to deliver the packaging of these services in a way that's unique to the midsize market and, at times, reengineer the cost structure and price set. Another aspect of the midmarket and how we serve it is through our partner arrangements."

At a time when many of its customers, large and small, were cutting costs, IGS has looked inward at simplifying its corporate structure.

"The idea was to create this factory organization for streamlining service delivery," says Linda Cohen, managing vice president of Gartner. "The customer did not want to go to five different organizations to get services. [IGS'] new organization makes it easier for customers and sales. All of that started to gel in 2001. In 2002, they've got to work on refining that delivery."

The restructuring makes it easier for IBM divisions,IGS, Software and Research, for example,to work together on solutions and cross-sell, IGS executives say.

"What's been really great from the services area is the ability to work with IBM Research and IBM Software," says Ann Moyer, an engineer at IGS. "One customer had an enormous amount of data it wanted visible to help-desk personnel. I went right to IBM Research and told them I needed a knowledge engine. They came up with about three or four different projects and showed us how to take all the customer data, run it through this environment, come up with best-case and least-case answers, and how to organize it," she says.

Moyer found the process so instructive that she asked the other branch of services, "Why not move this [process] into the consulting arena as well?"

Working with the rest of IBM also helps in other ways, company executives say. Before rolling out a solution, IGS tests it on other parts of the company, Moyer says. "Before an offering goes out the door, we have a captive audience. By the time it gets out, we've got the kinks worked out," she says. "Our pet [phrase] is: 'We eat our own dog food.'"

Three things have remained the same during the past 12 months: IGS' continued focus on outsourcing, its global presence and the company's ability to leverage its parent's name. Outsourcing represents some 40 percent of IGS' revenue, and in the first quarter of 2002, the company signed 10 outsourcing contracts, each exceeding $100 million. Two of the deals,with American Express and Nextel,were valued at $1.2 billion.

"Outsourcing is one of the strongest segments right now in the IT services industry," Aberdeen Group's Lane says. "Given who it is, IGS is very well-positioned to deliver on the IT life cycle."

Likewise, name recognition helped IGS increase sales, industry observers say. "I think IGS fared better than its competitors because of its brand," Gartner's Cohen says. "Not knowing whether a company's going to stay in business is a risk today. We definitely saw buyers flocking back to the companies they knew were stable."

Financial stability and its history in the IT sector were two reasons catalog retailer Lillian Vernon Corp. elected to work with IGS on its Web site, says Lillian Vernon, chairman and CEO of the Rye, N.Y.-based company. "We wanted some assurance that these companies would be around to implement and support a new site, given that so many Web-based companies were going out of business." (See "Made To Order," right.)

Tying Payment Into ROI

Indeed, IGS and its competitors face a tough audience these days. Corporate customers are scrutinizing the bottom line,and some are demanding that integrators truly partner with them by tying payment into return on investment. "IGS has to business-benefit when they're pricing," Cohen says. "That means pricing for results: You don't pay me until it pays off."

IGS already has adopted this approach in some instances, Martino says. "Our fundamental value proposition to our customers is to help them take costs out of their environment,their enterprise," he explains. "That's our business. That's what we do."

Adds IGS' Liederbach: "Executives are far more savvy about technology, so they insist on dealing with a partner that can discuss business issues and implementation. Every customer has had projects that had great strategic vision but [were impossible] to execute."

In the months and years ahead, in an effort to stay at the top of the channel's best-seller list, IGS plans to expand its technically savvy cast of characters in settings around the world, as they continue to resolve business problems and transform business practices through a combination of computing prowess and industry acumen. As the economic climate remains tight and cynics want proven ROI, 2002 promises to be a real page-turner.