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Sunday, November 21, 2004

IBM and BPO Strategy -Part 1

Knowledge@wharton has published a detailed analytical article about IBM's BPO strategy with offshoring and new expertise acquisitions.

IBM and BPO Strategy - After decades of specializing as a computer manufacturer and provider of computer-related services, today's IBM processes thousands of insurance claims, ensures that Procter & Gamble employees get paid, and takes charge of repairing televisions and CD players sold by Philips Consumer Electronics. Taking on tasks such as customer service and human resources management is part of a broader shift among traditional information technology companies to get into what's often called business process outsourcing (BPO). BPO is a fertile market, expected to grow from about $405 billion last year to $682.5 billion in 2008, according to research firm IDC. Interest in such operations - and especially in their migration to countries such as India - continues to ride high.
IBM CEO Sam Palmisano thinks the intersection of technology and business process services holds great promise. As he sees it, IBM is poised to help customers with a new set of services that includes technical assistance but adds strategic advice about business methods. Palmisano dubs the concept "business process transformational services," and claims it represents a massive market nearly a third as large as the $1.2 trillion spent annually on IT. "It is a $500 billion opportunity," he told analysts earlier this year. "We plan to exploit this opportunity to drive revenue and growth rates beyond those which are traditionally available in the information technology industry." In essence, the new IBM sees big bucks in focusing on the "B" in IBM. But the strategy carries some risks. They include competing against new foes, handling novel tasks and explaining a grandiose vision to customers. What's more, the business process push requires a thorough understanding of different industries. Staying on top of specific industries and their changing trends should be a challenge for IBM, says longtime industry analyst John Jones. "Historically, that's not been one of IBM's strengths," Jones notes.
From Business Machines to Business Methods - IBM was behind the curve on the emergence of the personal computer, and was slow to adapt to the changes it brought in the marketplace. IBM grew from $8 billion loss in 1993, to a profitable organization today, by emphasizing services as a key to the company's turnaround with about 50% of of IBM's $89 billion in revenue in services. IBM became a leader in IT outsourcing, which refers to a company farming out work such as managing central computer centers or handling technical support calls. IBM began extending its services reach from the technology arena to business tasks about the time the company acquired the consulting wing of accounting giant PricewaterhouseCoopers, in late 2002.

The India Connection - A more recent acquisition further demonstrated IBM's commitment to business process services. Earlier this year Big Blue snapped up Daksh, an Indian BPO provider with 6,000 employees. Daksh, which also has a facility in the Philippines, gives IBM an army of lower-wage employees ready to handle services such as telemarketing and transaction processing.

IBM is beginning to nab business process contracts. Recent Deals:

- 300 Million $ - Philips Consumer Electronics – Ater-sales-service
- 10 Yr 400 Million – Procter & Gamble deal for payroll & benefits
- 7 Yr 180 Million $ D& B deal for managing customer service

(Part II shall follow)
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