As a big part of the effort, Big Blue will institute a series of changes in its operations, including planned layoffs of between 10,000 and 13,000 employees, the company said Wednesday. The brunt of those changes are planned for its European operations.
The goal of the restructuring is to reduce bureaucracy, eliminating the need for a traditional pan-European management layer and creating small, more flexible teams that can work better across borders. Around the world, IBM plans to consolidate service work into fewer locations.
The announcement follows disappointing financial results for the first quarter of this year. The restructuring is expected to involve a pretax charge of between US$1.3 billion and US$1.7 billion in the second quarter.
The moves illustrate an internal race at IBM to retool its US$46 billion Global Services division, which represents half the company's revenue. Big Blue is pushing aggressively into high-end business consulting and outsourcing services, yet it's still tied to its traditional services business. It's restructuring efforts are designed to accelerate its move toward business consulting and away from traditional computing services.
"The dilemma IBM faces is that they have the most coherent strategy and simultaneously the most retrograde businesses," said Mark Stahlman, an analyst at Caris & Company. "The traditional body-shop consulting and outsourcing components of Global Services are lagging."
As part of its shift, IBM plans to announce on Thursday another in a line of business consulting services, which it calls business performance transformation services (BPTS). Its latest offering will let corporate clients contract with IBM product designers and consultants to explore business opportunities pegged to new products.
The impetus behind the "transformation" services is to give IBM a larger portion of corporate spending, including money dedicated to nontechnology functions such as human resources, accounting and customer support. The way it works is that IBM either takes over a customer's processes wholesale or dispatches its business-savvy consultants to rewire how that company does business. IBM estimates that spending on these business processes comes to some US$500 billion.
Avoiding "commodity hell"
These high-end services are meant to set IBM apart from low-cost technology suppliers such as Dell, and traditional computer consulting companies such as Hewlett-Packard, EDS and Accenture. The strategy is to combine IBM's technology products and research with its business-minded consultants, which is something few other services companies can do, IBM executives claim.
In a similar vein, a desire to get out of "commodity" businesses was the primary motivation for IBM to sell its PC business to Lenovo, a transaction that closed earlier this week. CEO Sam Palmisano said in December that the PC industry's high-volume, low-price model was at odds with IBM's strategy to be a "high-value innovation provider."
By offering a greater number of business services, IBM is also trying to fashion a more lucrative services business. Margins in traditional computing services, such as maintenance and support, are being squeezed by competition and by customers who increasingly renegotiate more favourable contracts, note analysts.
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