InformationWeek

November 16, 1998

Palmisano Extends IBM Relationships

Analyzing The Integrators

Methodology

Fortune One's Outsourcing Challenge

For Some, Small Vendors Are Better

Merger Mania Vs. Merger Meltdown

CSC Chief Emphasizes Flexibility

Sprinkle Delivers For Deloitte

For Aris, Boutique Is Bountiful

Vendors Plan For Post-2000 Work

Behind The Numbers: Sizing Up The Integrators

Research Charts

IBM Global Services expects to set yet another revenue record this year, thanks in large part to its ability to leverage the executive relationships IBM has built for decades. "We want the relationship for life," says Sam Palmisano, senior VP and group executive of the services unit.

Palmisano and his team lay the foundation for services deals--so far this year, the company has landed 27 valued at more than $100 million each--while IBM chief Lou Gerstner is often brought in to close them at the CEO-to-CEO level. That's not to say that Palmisano, a 25-year IBM veteran, isn't a closer himself, observers say. "He has always related extremely well to top decision-makers," says Yankee Group analyst George Logemann, who calls Palmisano a "full suit" rather than an "empty suit."

In the first three quarters, IBM Global Services generated $24 billion in revenue--nearly as much as the $26 billion the unit generated all of last year. The seven-year-old services organization, which is growing at a steady clip of more than 20% a year, now contributes 29% of IBM's total revenue, compared with 19% just three years ago.

Global Services is also turning a profit. In the third quarter, its profit margin was up one percentage point, the result of the company's increased emphasis on high-margin work such as consulting, as well as more careful discrimination of the outsourcing contracts it takes on, says IBM CFO Doug Maine.

That kind of growth takes care and feeding, so it's no surprise that Global Services has a formal process for maintaining good relationships with its clients. Independently conducted annual customer interviews focus on customer satisfaction with the services company's technical skills, business knowledge, responsiveness, quality of service, and contribution to expanding a customer's business. Project executives are individually evaluated, and customer satisfaction ratings are linked to employee bonuses.

To keep pace with customers' expectations, Global Services has also expanded its portfolio of services. Ten new services contributed half of revenue growth this year, Palmisano says. Among them: business-process outsourcing practices in customer-relationship management, human resources, and procurement; E-business advisory services; year 2000 work; enterprise resource planning implementation; and Total Solutions Management, a multivendor maintenance and technical-support offering launched early this year that brought in $600 million worth of multiyear contracts by September.

Palmisano has built the business from the ground up. Five years ago, after helping IBM launch the AS/400 midrange computer and serving as an executive assistant to former IBM chairman John Akers, Palmisano was named president of Integrated Systems Solutions Corp., now part of IBM Global Services. At the time he joined the fledgling services organization, he recalls, "I never imagined we'd be the biggest in the world."

In addition to his work on the AS/400 launch, Palmisano led the charge to give IBM Global Services its "global face," says analyst Logemann, knitting together IBM's overseas services organizations into a single company.

It's unlikely that IBM Global Services will let up anytime soon. As Palmisano notes, "We have to reinvent ourselves constantly." Its customer relationships depend on it.

--Bruce Caldwell