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An Update on IBM/PwC Consulting IT Services Megadeal

IBM-PwCC Tie the Knot

 Old Concepts in New IBM-Boots Megadeal; Corporate IM Gets a Boost from IBM

TUCSON, Oct 2 - IBM announced today that it has completed the $3.5 billion acquisition of the PriceWaterhouseCoopers consulting unit (see "Half or Double Trouble?" - Aug. 12, and "IBM to Take $500M Charge" - Sep 3).  

"Everything is complete... we have globally closed our acquisition of PwC Consulting," said Ginni Rometty, general manager, IBM Business Consulting Services, in a teleconference with analysts. "And they are, in fact, all IBM-ers as of this minute... their e-mails, printers are also working (within the IBM system)." 

She added that the deal was closed in over 50 countries and 30 territories around the world. More than 90% of the PwCC partners have signed on with IBM.

The transaction was executed in record time (two months) for such a "megadeal."  IBM said a team of 600 professionals, half from IBM half from PwCC, "worked day and night" to make that happen.  The company obtained regulatory approvals for the acquisition from the U.S. authorities on Sep 9, and from the European Union on Sep 23, IBM said.

The combination creates a new global business unit, IBM Business Consulting Services, comprising more than 30,000 IBM and 30,000 PwC Consulting professionals. As a result, IBM Business Consulting Services becomes the world's largest consulting services organization, with operations in more than 160 countries. 

"We've adopted their (PwCC) operating model," said Rometty, meaning that industry-oriented structure is the primary organizational cut.

As part of the integration process between the two units, Business Consulting Services has determined that it will adopt IBM's sector and industry segmentation, and PwC Consulting's key solution areas.  Increasingly, companies are considering new ways of running their businesses such as business transformation (or process) outsourcing, and utility-based computing, IBM said. 

As you will see in the next story ("IBM Boots a Winner in the U.K."), that's hardly "new."  We first envisaged computing as a utility 18 years ago ("Is IBM a Utility?" - Annex Computer Report, 1984), and value-based pricing over 12 years ago (see Industry Stratification Trend - Mar. 30, 1990). What's new is that IBM is now coming around to embracing those concepts in practice.

"Moving from fixed to variable costs" (i.e., pricing IT services as percent of revenue that customers derives from it) is a new value proposition that both IBM and PwCC have been working on, Rometty said.  "It's the No. 1 topic of discussion in my meetings with clients," she added.

Asked what IBM has done to facilitate a blending of PwCC's entrepreneurial partner culture into IBM's corporate bureaucracy, Rometty said that PwC had already taken steps to change that in preparation for the IPO, which was expected to take place in August of this year (see "What's in a Name? PwC Consulting to Become Monday!" - June 6). IBM's acquisition announced on July 30 preempted the IPO.

Rometty declined to comment about the job cutbacks that will result from this acquisition.  Instead, she talked about the complementary nature of the IBM and PwC client relationships, and "one face to a client" that the merged unit will present.

IBM Boots a Winner in the U.K.

IBM Global Services booted a winner in the U.K. market on Oct. 1 when it announced an innovative $1.1 billion outsourcing deal with The Boots Company, Britain's largest retail pharmaceutical chain. Not only is this "megadeal" significant at this day and age of lean pickings of new contracts in the IT services market, but the structure of the deal has been described as innovative by the two companies.

IBM said that the deal will represent not just cost savings for Boots, but also new revenue opportunities for both the client and IBM. Boots is IBM's first client in the U.K. retail industry to embrace this concept. The two companies will establish an innovation center in Nottingham that will develop new uses for advanced technologies at Boots.

At the innovation center, IBM's technical experts and retail industry consultants will work to help Boots use technology to further enhance the customer experience and create operational efficiencies. Focus areas are expected to include wireless and mobile solutions that will enable Boots' employees to better serve their customers.

Now, IBM and Boots may be calling this an "innovative" concept in October 2002.  But that's exactly what we said the future trend in the IT services business would be in March 1990.  Yes, 12.5 years ago!  (see Industry Stratification Trend - Mar. 30, 1990).  Guess better late than never...

IBM Endorses Corporate IM

Instant Messaging, or IM in the compu-buzzword world, is coming of age.  A concept that began years ago with chatty Internet users has now reached the world's largest enterprises.  They are embracing this technology to boost productivity and reduce communication costs. 

In the latest development in this space, IBM has partnered with IMlogic to manage employees' use of IM through the IBM Lotus Sametime real-time collaboration software. This alliance marks a dramatic shift at IBM in terms of recognizing the power and potential of instant messaging.

According to Gartner Group data quoted by Yahoo, companies that use IM throughout their organizations could reduce internal e-mail volume by 30 to 40 percent and voice mail volume by up to 15 percent.

As a result, there are now more than 20 million corporate IM users, according to Giga Group, and its usage is growing at an annual rate of 200 percent. 

Those figures make IM the fastest-growing communications medium in history. Which makes it the latest example of an erstwhile fad turning into an important trend.

 Happy bargain hunting!

Bob Djurdjevic

For additional Annex Research reports, check out... 

"IBM to Take $500M Charge" (Sep 3), "IBM Layoffs Confirmed" (Aug 14),  "Half or Double Trouble?" (Aug. 12), Wall Street/Main Street Chasm (June 25), “Wall Street Casino,” (June 21), Big Blue Salami (June 19),  Sam's Dull Scalpel (June 4), Looming IBM Write-offs (May 23), "No New News at IBM" (May 15),  "Looming IBM Layoffs" (May 14),  "Sam Is No 'Change Agent'," (May 6), Additional Stock Buybacks Authorized (Apr. 30, 2002),  "IBM 5-Yr Forecast: From Here to Eternity?" (Apr. 2002),  “Tough Times, Soft Deals,” (Apr. 25, 2002), "A Disastrous Quarter," (Apr. 17),  Industry Stratification Trend (Mar. 30, 1990),  “Gerstner’s Legacy: Good Manager, Poor Entrepreneur” (Jan. 2002),  "Big Blue Starting to Unravel," (Apr. 8, 2002), SEC Launches Formal Probe of Wall Street Research (Apr. 25, 2002),  “SEC to Tighten Stock Option Rules” (Apr. 5, 2002), "Sir Lou OutLayed Lay!" (Apr. 1, 2002), "IBM Pension Fund Vapors," (Mar. 23, 2002), Is IBM Cheating on Taxes, Annex Bulletin 99-17 (May 1999),  IBM 5-year Forecast 2001: An Unenviable Legacy (June 2001) "Break Up IBM!" (Mar. 1996), Fortune on IBM (June 15, 2000), “Smoke and Mirrors Galore,” July 2000), Annex Bulletin 98-14 ("Wag the Big Blue Dog"), Armonk's Fudge Factory (Apr. 9, 1999)Where Armonk Meets Wall Street, Greed Breeds Incest (November 1998)Stock Buybacks Questioned: Is IBM Mortgaging Its Future Again?, 97-18 (4/29/97),  "Some Insiders Cashed In On IBM Stock's Rise, Buybacks" 97-22, 7/27/97,  Djurdjevic’s Forbes column, "Is Big Blue Back?," 6/10/97;  “Executive Suite: How Sweet!,” (July 1997), "Gerstner: Best Years Are Behind", Aug. 10, 1999), "IBM's Best Years Are 3-4 Decades Behind Us" (July 1999), "Lou's Lair vs. Bill's Loft" (June 1999),  "Corporate Cabbage Patch Dolls," 98-39, 10/31/98; Djurdjevic’s Chronicles magazine October 1998 column, "Wall Street Boom; Main Street Doom", “Louis XIX of Armonk,” (Aug. 1996), "Mountain Shook, Mouse Was Born" (Mar. 25, 1994) etc.]

Or just click on and use "financial engineering" or similar  keywords.


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Volume XVIII, Annex Newsflash No. 2002-17
October 2, 2002

Editor: Bob Djurdjevic
Published by Annex Research, Inc.

P.O. Box 97100, Phoenix, Arizona 85060-7100
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