IBM Shows Growth in Services

By Saul Hansell N. Y. Times News Service | THE JOURNAL RECORD, February 10, 1998 | Go to article overview

IBM Shows Growth in Services


Saul Hansell N. Y. Times News Service, THE JOURNAL RECORD


It was the way the new, improved IBM was supposed to work. In September 1996, Louis V. Gerstner Jr., the company's chairman, lured a handful of corporate chief executives to a daylong strategy seminar. During a discussion of research collaboration among companies in different fields, Robert B. Shapiro, the chairman of Monsanto, wondered aloud whether his pharmaceutical and agricultural- products company could use any IBM technology in its genetics research.

Within weeks, a SWAT team of IBM executives was dispatched to Monsanto's headquarters in St. Louis, armed with tantalizing discoveries from IBM's labs that could be used to help map the gene structure of seeds and human cells. Once in the door, the IBM salesmen looked for other opportunities. Lo and behold, a year later, Monsanto signed a 10-year deal worth hundreds of millions of dollars to IBM.

But the contract wasn't for computers or for software. And gene research was the smallest part. Instead, the agreement called for IBM to run Monsanto's mainframe computer system, to install and maintain its 20,000 personal computers, to operate the network that links its facilities and to write new application programs for the company. Having gotten its foot in Monsanto's door, IBM showed its stuff -- and its stuff these days is services. Competing with everyone from Electronic Data Systems, the computer-services giant, to accounting firms to the pimple-faced high school nerds who set up Web sites for small businesses, IBM has grown in a few short years into the world's largest provider of technology services. It advises clients on technology strategy, helps them prepare for disasters, trains their employees and even gets them onto the Internet. The services business was started in 1990, three years before Gerstner was hired. But it played right into his strategic gamble that the way to revive the tottering company was to capitalize on what others saw as IBM's handicap: its sheer size. He quickly pulled back from the strategy of his predecessor, John F. Akers, to divide IBM into smaller, more nimble units, perhaps in preparation for spinning them off. Rather, Gerstner decided, IBM would offer its traditional big customers one-stop shopping for computer products, from microchips to mainframes. And services would be the glue that bound all the hardware together. While Gerstner has stabilized the other parts of IBM, the unit now called IBM Global Services has been the engine of growth. Its revenue rose from $2.1 billion in 1990 to $19 billion last year, with increases exceeding 25 percent annually. That is now one-fourth of the company's sales, more than from mainframe computers or any other product line. And services now account for half of IBM's 240,000 employees. "It's not just the fastest-growing piece of IBM; services have become the soul of IBM," said Laura Conigliaro, an analyst for Goldman, Sachs. …

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