IBM's Shift to Services-Based Business Model

Strategic Insights -

IBM has repositioned itself as a services provider, addressing not only technology issues but also business problems, according to Bruce Harreld, senior vice president of strategy for the company. This move is backed by significant investments, including the $3.5 billion acquisition of PricewaterhouseCoopers' consulting arm at the end of 2002. The company's services arm now accounts for more than 50 percent of its revenue, which totaled $89.1 billion in 2003.

Key Takeaways:

  • IBM has transformed its business model to focus on services, with the services arm generating over 50 percent of its revenue.
  • The company's acquisition of PricewaterhouseCoopers' consulting arm in 2002 at $3.5 billion was a key step in this transformation.
  • IBM's strategy is to offer customers a one-stop-shop for all their technology needs, including software, services, and hardware.
  • The company's emphasis on services is driven by customer demand for integrated solutions and lower costs.
  • IBM's acquisition of 15 software companies since 2001 is part of its efforts to enhance its software offerings.
  • The company's $10-billion program to allow customers to be billed only for the services and support they use is designed to reduce upfront costs.

Statistics:

  • $3.5 billion: The amount IBM spent to acquire PricewaterhouseCoopers' consulting arm in 2002.
  • $89.1 billion: IBM's revenue in 2003.
  • $10 billion: The value of IBM's program to allow customers to be billed only for the services and support they use.
  • 15: The number of software companies IBM has acquired since 2001.
  • 50 percent: The percentage of IBM's revenue generated by its services arm.
  • 60 hours/week: The number of hours employees normally work but only complete 20 hours of work in.
  • $6 billion: The value of EMC's focus on the data storage market.

Sources:

  • Andrea L. Stape, "IBM Gets it Covered," Knight Ridder/Tribune Business News (c) 2004, Providence Journal, R.I.
  • TechWeb News, technology industry publication
  • Data Mobility Group, New Hampshire
  • Enterprise Storage Group, Milford, Mass.
  • IBM Corp., investor relations website
  • April 27, 2004, April 27, 2004, Providence Journal