It is no secret that IBM has been evolving its business over the past decade from a hardware business to a software and services business. On the services side, this has resulted in large investments in offshore service delivery centers in India and China, as well as nearshore delivery centers in lower cost U.S. rural areas.
A byproduct of this business evolution is that IBM has been undergoing what they refer to as ‘workforce rebalancing’ over an extended period of time. IBM does not like to use the term layoff as this signals more of an immediate cost-cutting response to a business decline, whereas IBM views their business as continually evolving over time to stay at the forefront of market trends and delivering the greatest value to its customers. But IBM’s workforce rebalancing has essentially been a layoff of its higher-salaried, long-tenured consultants located in high-cost geographic areas offset by new hires of more junior resources, in lower cost geographic areas at lower salaries. This has resulted in lower costs and higher profit margins for IBM, and a significant contributor to IBM’s EPS performance growth.
The thought process is that there are standard IT skill sets that are required to deliver services to customers and that it is cheaper to hire recent graduates to perform standard commoditized IT services. There is a downside to this strategy for both IBM and its customers. While recent graduates may be able to perform discrete services, they often lack the experience and expertise to provide thought leadership, manage unforeseen problems, modify or package these discrete services in a manner to directly solve a client specific issue, and possess the confidence and skills to effectively manage potential crisis situations. The ability to effectively utilize and adapt a technical skill set to address client-specific scenarios, some of which may be novel and not previously encountered, goes beyond the ability to perform services in isolation and takes years of experience and mentoring to obtain. The downside for IBM is that these types of issues can lead to customer dissatisfaction and impact IBM’s ability to maintain or renew services, as well as win new business. Since IBM’s other business units feed off of IBM services as a point of entry, there is the potential for the impact to be felt across the entire business.
We are not claiming that IBM lacks thought leadership or highly skilled resources, but in areas of commoditized IT services, we have heard from more clients encountering challenges with the level of performance from IBM. This would include services such as system implementation, testing, hosting, and run support services – service area capabilities that should be mature for a company with the level and breadth of experience of IBM. Complaints center less on the fact that problems or challenges arose, but rather the lack of IBM’s ability to adhere to certain industry practices, develop a remediation plan, execute the plan in a timely and quality manner, and in general, provide thought leadership to course correct. Instead, clients have said that IBM has pointed to the narrow scope of services in a SOW, irrespective of whether the listed services address the overall goal or business solution that is at the heart of the SOW as if the services are provided in a vacuum. We have been informed of other scenarios whereby IBM resources have essentially asked clients to tell them what to do to help solve the problems.
We believe that these types of performance issues are being contributed to by workforce rebalancing. In the past, reports of these types of services issues were less frequent when IBM employed more experienced resources for commoditized IT services.
Contracting for commoditized IT services is a little like hiring a general construction worker who has studied and practiced all the individual carpentry skills (sawing, hammering, sheet rocking, etc.) but has limited experience building anything. When you ask them to build a one-room addition to your house, will they have the ability to package those skills and manage the project, including foreseeable and unforeseeable issues, to achieve your desired result?
As IBM continues to commoditize IT services with delivery centers and lower cost junior resources, we recommend customers conduct more thorough due diligence to screen the resources assigned to their projects initially and on-going to best enable achievement of the desired results.
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