Services Drive Big Blue's Future

First came word that a recent report from analyst firm IDC placed the $35 billion IT services organization ahead of all its rivals in the area of brand awareness and customer perception. Then came the announcement that one of the world's largest investment indices changed Big Blue's classification from a hardware-led business to one driven by software and services.

The recent IDC study, which surveyed 240 U.S. business and IT executives, found IBM is considered by them to be best-in-class in the areas of business and IT strategy consulting. According to IDC, IBM Global Services took first place in all three of the top attributes that companies look for when selecting a services firm: technical expertise, ability to work with employees and track record. In addition, IBM Global Services came in tops in services areas, including supply chain management, CRM and ERP services.

Then on Friday came another announcement that starting June 24, the FTSE All-World Index will officially change the way it classifies IBM--moving away from the traditional classification as a hardware company to one driven by software and services.

Last year, services and software made up 55 percent of IBM's total revenue and nearly 65 percent of gross profit.

While it's been almost a year since the company's services revenue actually surpassed its hardware-related business, the announcement about the classification change to a services and software entity comes as a strong acknowledgement of IBM's ongoing strategy to redefine itself and distance itself from the low-margin product business.

"We're delighted with this because we think a reclassification is appropriate and is a more meaningful reflection of the company's current and future business model," says John Connelly, general manager of IBM Global Services strategy and change division. "We have characterized ourselves as a services-led company for more than a year now and it's great to have this acknowledged by one of the great exchanges as a reflection of what we have been saying."

The positive news for IGS comes only a few weeks after IBM started a series of companywide layoffs that executives say are designed to "rebalance skills" and streamline operations for the future. Though IBM execs have been mum on the exact layoff figures, word is that IGS eliminated upwards of 2,000 people from its pool of 150,000 employees.

Check out the June 24 issue of VARBusiness to see how IBM Global Services fared in our VARBusiness 500, the 14th annual ranking of the industry's largest IT solution providers.