One of the most interesting answers comes from a company that not so long ago was ridiculed as being far too conservative. Yet ever since its acquisition of PricewaterhouseCooopers Consulting (PwCC) in 2002, IBM has been leading the way in the convergence of IT and consulting and trumpeting its cause through liberal use of the slogan 'e-business on demand', now an IBM trademark.
The pace of change in the business environment is now so fast that companies require on-going strategic consulting integrated with IT expertise and outsourcing at the other end of the pipeline, making it possible to quickly translate business decisions into technological processes. That is the vision behind 'e-business on demand', IBM explains, and it is possible because of its ownership of the huge strategic consulting firm.
Pundits tend to also see the integration of the former PwCC into an IT firm as a positive move, though the reasons they give can sound less grand. If anything goes wrong, the client, "now only has one throat to throttle," says Steve Milunovich, chief technology officer at Merrill Lynch in New York. What IBM now offers is in effect a promise to improve specific business processes, rather than a fancy new technology.
All that does not, however, mean that the transition has gone completely smoothly. Take Aleksander Kwiatkowski, managing partner at IBM Business Consulting Services (formerly PwCC), who says that the media have exaggerated the negative impact of the excessive focus on novel technologies in the bubble years.
"A lot of people lost money, it's true, but the technologies developed then are still with us and that is what matters most," he says. That does not, however, appear to be the line taken by IBM as a whole.
"The transition could not be completely seamless in a people business like this," says IBM's General Director Dariusz Fabiszewski. "There were important cultural differences between PwCC and us, as the consultants can be a little removed from the technology and innovation side of the business."
Ever since coming to his current job about 12 months ago, Fabiszewski has declared that it is his ambition to lead the country's largest IT company and has made clear that it is services and consulting that will help him realize this goal. The New York-listed giant does not release results of its country divisions so it is difficult to say how far IBM has gone down the road to achieving that ambition, but the partial data suggests its fortunes are improving.
While the firm still has a long way to go before it can bridge the gap with Hewlett-Packard, the current market leader with estimated sales of zł.2 billion, or double IBM's 2003 result, its revenue structure has improved. While last year 40 percent of revenues came from the high-margin sector of services, the proportion rose to 60 percent in the first months of this year. Fabiszewski had previously declared that it was his intention to bring the proportions in line with those recorded globally, where services account for roughly one half of revenues.
Outsourcing has accounted for most of that growth, as IBM has been consolidating its position as the leader in this market segment. Apart from typical IT outsourcing, the company also runs an accounting and financial outsourcing center in Kraków. It currently services only one client, BP's retail transactions in the UK, but another deal is under negotiation and it is expected to be closed within a couple of weeks. The company also says that it will undertake "a significant investment" with a view to doubling the size of the center.
Last year IBM declared that it would invest zł.390 million ($100 million) in the region. Fabiszewski says the money is available and that some of it has been spent on boosting employment, especially sales support staff. The company could also make several acquisitions in this country, but Fabiszewski declined to comment on whether it is actively looking for acquisition targets, saying, "If we are, then the search is not happening at the level of country management, but at the pan-European, or even global, level."
It is, however, the organic growth of the business that is expected to make the boss's ambition of leading the largest player in the business a reality. According to unofficial estimates, the firm expects its revenues to grow around 20 percent this year, or double the pace of the forecast market growth. That is still rather less than is needed to double the revenues by 2006, as Fabiszewski has declared IBM aims to do. It may be difficult under the current climate when companies still have vivid memories of the overly optimistic investments in IT of just a few years ago. Fabiszewski is, however, optimistic, saying that the risk aversion of businesses has been reversed.
"The rebound in technology spending began as of the last quarter of 2003," Fabiszewski says. Just a few months ago, a top manager at IBM was complaining that domestic businesses tend to spend on patching up their existing infrastructure, rather than investing in novel technologies. Companies fail to see the larger picture, he said back then. Fabiszewski asserts that the situation has changed radically and that businesses, when they do spend money on technology, want completely new systems. Many companies are now determined to have technologies on a par with those found in their Western European counterparts. As in all industries, it is the European Union accession that dominates the thoughts of IT experts who explain the uptick in spending by fears of increased competition from more technology savvy companies in the established member states.
Fabiszewski also points to privatization as a driver of the market, saying that up-to-date IT systems are an essential determinant of whether a company is an attractive acquisition target for potential investors. Considering the current pace of privatization, however, it is hard to share Fabiszewski's optimism as to its effect on tech firms.
It is the public sector that IBM may have to turn to, if it is to grow at a steady pace over the coming years. According to Eugen Schwab-Chesaru, an analyst at Pierre Audoin Consultants (PAC), a research firm, the public sector accounts for a surprisingly small share of the market, considering the need for IT projects in this sector. He estimates, however, that the public sector will account for 20 percent of the IT market by 2007.
Fabiszewski shares the evaluation of the public sector as the market segment that will grow at a greater pace than the other segments. He says, however, that for IBM, public-sector contracts, "are just as important as in any other area." He adds, though, that it is also the most difficult segment of the market.
He points to the inadequacies of public procurement law, saying, "it is a very good law when you are buying cars or office furniture, but it completely fails when it comes to the realities of modern technology." Suppliers will always be able to win tenders by offering low prices due to accounting tricks and then fail to meet the requirements of the client, he says.
Nevertheless, IBM is among the many firms that expect an increasing share of revenues to come from the public sector. Last year, it signed an agreement with Germany's SAP on co-operation in the field of e-government. Across the western border, the two companies have been extremely successful in developing and implementing systems for public administration, typically based on open-source software. In this country, however, Microsoft has a firm grip on the market. IBM's great rival is working on the first comprehensive e-administration project in the country, in the Małopolska region in the southern part of the nation, and it may prove difficult to reverse the bureaucrats' seeming fondness for Windows. Fabiszewski says, though, that there is a significant amount of interest in open-source among administration officials.
"The problem is, however, that there is a relative shortage of firms developing applications for open-source," he says. He adds that potential clients in the public sector name that factor as a principal reason for their unwillingness to make the switch from Windows.
Even as it is looking to the government as a potential source of revenue growth, IBM is one of the legion of firms that are hurt by the unstable institutional environment. Last year, Fabiszewski says, IBM Polska lost an 'insourcing' contract to provide services for the corporation's global operations that would create 500 jobs due to plans to introduce VAT on offshore services.
"The apparent tax risks are so high as to drive away investment," he says. That does not mean that the company will not allocate a large part of the zł.390 million ($100 million), set aside for this region, to Poland.
Aleksander Nowacki
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