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Sunday, May 14, 2006

IBM - A Disaster In The Making: Cringley

Robert X. Cringely sees IBM as a disaster-in-the-making.In the article discussing Google's future opportunities, Bob hides these well thought out observations about the world' largest service player- must read for all interested in the global consulting industry to reflect and respond with their thoughts. As he puts it, Big Blue as a total enterprise is running primarily on customer inertia and clever advertising. Claiming that IBM is in trouble, he sees lots of his friends inside IBM to be unhappy. The company is not going anywhere, but it is also going nowhere. He lists a number of facts to support his argument :
- The disconnect between the traditional public image of the company (basic research, advanced R&D, patents, patents, patents) and the fact that most of their revenue-generating businesses aren't about hardware or software products at all, but services.
- Looking at the compensation system, he sees that IBM's major incentives right now are for signing business and cutting costs. In many IT firms, IBM included, billable hours are important. This results in a system where little is done to improve service efficiency, because doing so would lead to fewer hours and less revenue. Efficiency kills, so at today's IBM it is generally avoided. With costs going down, quality suffers!. (Enlightened/ Bitten organizations now are increasingly beginning to recognize services as a differentitator and are beginning to reward equally or more in a few cases as with sales - today in this opportuntunity abundant world - sales is sort of given - rewards need to be for consistent growth and delivery frameworks need to be robust to factor in productivity and rapid rollouts. Isn't true that every consultant is a sales guy as well).
- The result is that an increasing number of customers are unhappy with IBM, signings are harder, so there is less return business. To get that signing incentive, IBM's sales folks are now under-pricing deals. The people who do the actual work are still expected to show a profit though, even if one wasn't designed into the contract in the first place. So to still be profitable, they under-deliver on the contract, and this leads to an even lower quality of service (People in the know of things can easily relate to this - Costs, Quality, Productivity are interrelated). This he contends is a death spiral that top IBM management either doesn't see or simply doesn't want to admit.
- IBM's primary innovation has been to move as many jobs offshore as possible, cutting costs for now, but at a horrible long-term cost to the company (This may be debatable though).
- IBM’s Global Technology Center - has spent millions of the company's money, are masters at promoting themselves, but have delivered very little of real value back to the services organization.
Losers, he thinks of IBM ..
Come to think of it - substitute IBM with any other known name from consulting & services industry – would it look any different –unlikely barring a few.(I do know of a few really having different models, metrics and approach). The whole service industry and enterprise software industry plays on the customer inertia and lack of an alternative. Whats that disruptive model that would shake up the services industry – clearly offshoring played that role to an extent but the laggards seem to be catching up here/atleast make up an appearance of catching up. Seen from a service industry perspective, next technology breakthrough heralding new opportunity could help them rejig their model – like what BPR/ERP wave did earlier or the dot com era – SOA is still many years down the line. Seen from a customer perspective, how does one lock themselves out of this ? Seen from an investor perspective, how to value service companies where increasingly the differentiation factors seem to be just the scale and historical presence.These are definitely key concerns. Innovation inside consulting and service organization needs a different mindset to foster and manage - clerical approah shall have deleterious effects. Perhaps in respect of IBM and a large number of others - Bob has really nailed it.

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