IGS Rules

An Australian, Elix first joined IBM in 1969, catching the organization's eye early as it assigned him increasingly important roles Down Under in systems engineering, marketing and management. In fact, he was named CEO of IBM Australia/New Zealand in 1991, a position he held before transferring to the United States in 1996 to become its general manager of IBM Global Services-North America, as well as the chief exec of IBM's Integrated Systems Solutions.

Elix, just named senior vice president and group executive of sales and distribution, hands off the coveted IGS slot to former CFO John R. Joyce. The moneyman inherits a mammoth undertaking, managing close to 190,000 employees and attempting to best Elix's enviable track record--a 17.16 percent sales increase last year and a fast hold on the VARBusiness 500 No. 1 ranking. Soon enough, Elix will be immersed in his new role as senior vice president of sales and distribution, but to date he has been the undisputed king of the solution-provider universe, with lessons learned and advice to impart about getting to be No. 1 on the VARBusiness 500 (IGS has ranked at the top for nine years)--and staying there.

Partners--Getting It Right
Elix was eager to talk about partnering, bringing up the topic without even being asked. Perhaps it's the recent spate of increasingly loud rumblings from partners and other solution providers who are concerned that IGS' increasing dominance makes it the 800-pound gorilla that sleeps wherever it wants.

"I've reached the point where I'm not sure I can run a $40 billion services organization and not admit there are going to be areas of conflict," he began candidly of IGS' interactions with integrators. "It was never going to be any good if the attitude of [our company] was, 'Because we need business partners, we've got to give them services.' Or for the biz partners to say, 'Because we're your business partners, you can't compete with us.' That was never going to fly."

Elix says that IGS and its business partners needed to work through that situation. And while some believe it still exists in varying states, Elix says he is pleased with recent discussions with partners and what he terms their "level of maturity."

He says IGS plans to be very clear about where it will invest its resources and with which partners it will form significant alliances to build practices. "And if you choose to go there, then you choose to meet us in the marketplace," he says bluntly. On the other hand, he says, "If you choose to work with us in other areas where we don't have the capability, or want to work with [us to build a practice], then we will find good spots for you, especially getting into the [midsize] marketplace." Elix knows IGS can't meet growth goals without partners. In addition to integrators, he speaks of the company's push to produce channel-ready products for VARs. "Reselling through partners was up about 13 percent in 2003, and we would like to continue that aggressive growth rate," he says. He called its relationships with ISVs "critically important," at the same time noting that some might do work around some of the software packages IGS has built practices around. "Don't expect us to have a partnership there," he warns, "especially if you're going into an enterprise [situation]."

Elix is equally resolute about accusations that IGS favors IBM products: "It has been a point of view that has never been supported by fact. If you look at the variety of hardware and software vendors we work with in our outsourcing deals, systems-integration work or product-support services, you'll see something that looks exactly like the marketplace."

"The more compelling answer," he says, "is that it would be an economically stupid way to move your product because when you manage operations for someone, the cost of the product is a very small percentage of the total cost of managing operations. The largest cost is the people and facility and services. The money is to be made out of how well you manage labor and facilities."

He concedes he can get "pretty passionate" about the topic: "[Sun chairman and CEO] Scott McNealy gets upset because he thinks I've become pro-IBM instead of pro-Sun," Elix says. "No, it's just that his products are too expensive. I'll leverage whatever products I can. And in many cases, the customer still keeps some tight control over the architecture and the product selection."

Business Growth
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 says. "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 or satisfy the client."

Elix also thinks this competitive marketplace dictates that productivity improvements be given back to the customer in price, not to a service provider's margin. 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 its outsourcing business, even through difficult economic times. And one gets the sense that Elix is fiercely proud of, and trusts 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.

As for the consulting business, Elix acknowledges it has been difficult 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 says. "That's fine by us. We like to do the transformation work, and we like to get involved in the technology projects that support it."

Elix thinks that over the next few years, more consultancies will "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, up-front work in order to generate demand for actual operational work," he says.

Elix calls technology services a good business with moderate growth. The IBM exec believes companies will soon invest, focusing on such initiatives as refreshing their infrastructures and securing their networks further, and that business will come back.

Business-Process Management
When asked about the state of the enterprise business, Elix says he's convinced 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," Elix says.

"There is no sign of the systems and applications outsourcing market slowing down. [There are] plenty of opportunities and clients," he says. And while Elix won't commit to saying outsourcing will increase, he's pretty convinced it won't decrease either. "Outsourcing has grown even through tough times," he says. "I think it's a sustainable market [and] we will continue to invest in it."

The Future
IGS will continue to grow over the next couple of years, organically and perhaps through strategic acquisitions, Elix says. While declining to name names, he says the company evaluates candidates on an ongoing basis, while also considering divestitures in areas that might have peaked.

"We evaluate acquisition opportunities that either fill in capabilities that are difficult to build or where consolidation in the marketplace could lead us to take on something we [already] do and get the advantages of integration."

Sometimes, Elix confides, IGS' management gets a little overwhelmed by the size of the business. It's then, he says, that IBM chairman Sam Palmisano steps in to offer enthusiasm and encouragement. "He sits there and says, 'Why do you think that way? There are businesses you can create,'" Elix says.

To that end, Elix believes innovative approaches to customer needs will build entirely new markets, like business-process management. "It could be as large as the whole IT market is today," he says.