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IBM targets majority share in outsourcing with new service

June 20, 2005

IBM aims to be a major “business transformation outsourcing” (BTO) provider not only to survive in the increasingly competitive IT industry but also to carve out the largest market share.

Its client solutions executive for IBM business consulting services for Asia, Allen Jacobs said BTO is about providing people, business process and technology in an outsource delivery model.

This newest service by IBM will create a brand new market and, if successful, can be very helpful for its customers worldwide.

He said while BTO might appear similar with business process outsourcing that has been around for some time and was generating good business for many Malaysian IT companies, BTO was different because of its commitment to a business goal that has to be constantly achieved.

For example, if an IBM customer specifies a goal for it to respond quickly to market changes, then IBM’s solution would deliver products and services faster and with much less expenses.

“If another customer requires upfront and ongoing cost-savings for a specific business function, then IBM, with its economies of scale, will offer lower transaction costs and continuous savings by constantly comparing its results with the most savings achievable within the industry,” he said.

Jacobs said that most companies, when faced with competition, might initially embark on cost-cutting measures but once financial gains had eroded or if market share continued on a downward spiral, they might want more internal efficiency or to be able to respond with speed and agility when changes in its business environment occurred. Thus, companies here can benefit from a BTO value proposition.

“The company (customer) must decide what must be achieved to be the best in its industry.

“Once the competitive edge (business goal) has been established, it is easier to decide on which core competency to outsource. This competency can be a function, a department or the entire business division,” he said.

Then IBM or any other BTO providers come into the picture.

The provider is responsible for designing the new process model, building the supporting infrastructure, developing and executing the transition plan as well as to manage the cultural and human aspect of change, Jacobs said.

Customers, he said, should select BTO providers based on what they do best and they must know the best way to transform and operate the process, system and infrastructure. They must also be able to prepare and educate employees on how to use BTO services.

He said IBM would not impose any charges if it failed to deliver, adding that every IBM BTO venture had produced successful results since its inception two years ago.

IBM’s BTO customers have had employees moved into the BTO centre (it can be an IBM division or a joint-venture company between IBM and its client) and they generally moved from a cost centre to a revenue centre and focus on delivering specialised services, he added.

Procter & Gamble Co 's BTO arrangement saw IBM taking over its human resources function where 800 P&G staff in 28 countries became IBM employees.

Jacobs pointed out that there were businesses functions associated with strategy development and policy settings and requires decision-making authority should not be outsourced to a BTO provider.

According to him, functions that inhibit execution of strategies or where a lack of efficiency in its processes, can be handed over to a provider.

Examples of such functions include customer relationship-related activities, human resources, finance, administration and procurement.

He noted that as these processes were normally functions and IT intensive, cost reduction via economies of scale and ongoing technological innovation could improve even world-class performances.