IBM reported a bad quarter. These things happen
- though when IBM sneezes, the whole tech sector often catches a cold.
More concerning are some systemic issues in its services arm - its
biggest single business unit. For a while now I have noticed IBM proposals have
moved to roughly a third US badged employees, a third contractors and the rest
offshore (either employee or outsourced contract) model. While this is in line
with what a Bechtel does in construction or a Boeing does in aerospace, I am
not convinced IBM, big as it is, has the deep program management capabilities or methods
needed to manage such staffing diversity or team complexity. Worse, from a buyers
perspective and IBM's overall competitiveness, the savings from lower cost
contractors or offshore staff are often not being passed along.
Time for buyers to seek more pricing transparency (and appropriate
pricing for contractors and offshore components) and to hold IBM's feet to the
fire for better team staffing and management. Vendors like Infosys have shown
they can make gross margins of 40%+ plus on offshore models - so IBM can be
similarly healthy and delight its buyers' budgets at the same time with better
delivery execution.