Leader of the Pack: Doug Elix Opens Up

By Steven Lang, CRN
May 04, 2004 3:36 PM ET

On his last full business day as senior vice president and group executive of IBM Global Services, the largest and most powerful integrator in the world, Doug Elix sat down with VARBusiness to tell us what was on his mind. In an exclusive interview with this publication, the notoriously reclusive interviewee opened up about the changes he sees in the enterprise market, how to build margins, the changing consulting business and other topics. Soon enough, Elix will be immersed in sales and distribution, but on April 30 he was king of the solution-provider universe, with lessons learned and tales to tell about how to get to be No. 1 -- and stay there.

On the topic of making more money for IBM, Elix believes that trying to move margins too high can become problematic. "I think there's a reasonably normal operating margin, which can fluctuate up and down a bit," he told VARBusiness. "While I think there's always room for some improvement, there comes a point where if you try to drive margin too high, you're not leaving enough money to invest in your future nor satisfy the client."

Ultimately, he believes, growing earnings from services means growing the revenue base and growing business. Elix believes IBM has been able to do that through IBM's outsourcing business, even through what he believes have been difficult economic times. And one gets the sense that Elix is fiercely proud of, and believes strongly in, the future of IBM's outsourcing business.

"It's still growing, and I fully expect that the opportunity is there for it to continue to grow," he says, of outsourcing.

As for the consulting business, Elix acknowledges it has been a very difficult business in the past few years. In October 2002, IBM picked up PwC, a unit of PriceWaterhouseCoopers, for $3.5 billion and doubled its consulting pool to 60,000.

"The traditional consulting business has changed dramatically and probably changed forever. The idea of advice-based consulting has given way to accountability-based consulting," Elix believes. "That's fine by us. We like to do the transformations work...and we like to get involved in the technology projects that support it."

Elix believes that over the new few years, more consultancies with "roll up their sleeves and get dirty." He says IBM's own appetite for the kind of deal that involves a bunch of suits coming in, then writing a report is gone.

"A lot of the advice-consulting is free, upfront work in order to generate demand for actual operational work," he says.

Elix calls technology services a good business with moderate growth, although, he admits, it hasn't been growing for the past couple of quarters. But he's not worried. The IBM exec believes that companies will soon invest, focusing on initiatives such as refreshing their infrastructure and securing their networks further, and that business will come back.

When asked about the state of the enterprise business, Elix says he believes very strongly that business growth is back on CEOs' agendas as a route to earnings growth. To accomplish that, they'll need to transform their businesses, he adds, citing research that indicates eight out of 10 execs believe they need to optimize their enterprises, both facing the market and through operational efficiency. It is those realizations, he says, that are compelling IBM to push its on-demand strategy.

"The biggest opportunity...at the moment and [the one that is] long-term sustainable [as well as an] opportunity for our clients is around business-process management. [Our customers] want someone who can help [them] transform the business and then run it," he says adamantly. "There is no sign of the systems and applications outsourcing market slowing down. [There are] plenty of opportunities and clients."

For more of Elix's view from the top of the world, including his assessments of competitors EDS and Accenture, make sure to get your hands on a copy of our eagerly anticipated VARBusiness 500 issue, coming June 14.

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