Consulting born of technology

Out of the havoc of recession, companies often discover new directions and develop new practices. One of those firms is IBM. In October 1992, it unveiled plans to set up a new consulting practice from scratch. By the end of 1992 IBM Consulting Group had 500 people worldwide. Today it has some 4,000 consultants, 280 in the UK and Netherlands. And consultancy contributes 1 per cent of the $850bn corporate firm’s revenue.

“We operate in 45 countries, and consultancy is a business that is growing at a tremendous rate,” says Steve Parrish, managing principal of IBM Consulting Group.

Throughout the late ’80s and early ’90s IBM’s revenues and share prices took a bashing, and at the end of the fourth quarter of 1992, it made a loss of around $5bn. The years of restructuring had cost it $11bn, and its businesses worldwide were suffering. Between 1990 and 1992 it reduced its sales force from 10,000 to under 7,000 in the UK. Worldwide IBM employs 200,000 people; before restructuring it had 400,000.

While management gurus such as Tom Peters advised breaking the then $65bn firm into six or more pieces, IBM was focused on downsizing and restructuring different parts of the business; it also had other ideas up its sleeves.

It began to shift its business from hardware to software, and persuaded its clients to follow suit. That was after about six long years of reorganisation; redundancies and changes to its product range, particularly its long-suffering mainframe business, then known within IBM as “Big Iron”.

Clients already received some consultancy advice on the products IBM installed, but it did not charge separately for the service and was never considered a recognised provider of consultancy services.

“When we started we had a heritage of doing some consulting work, but it tended to be as part of our value-added service to clients. And where we did that kind of consultancy we were typically in a ‘problems are us’ type of mode,” he says.

Unlike the Big Six accountancy-based consultancies IBM did not have 25 years-plus trading experience, but what it believed it had to offer was the technology, and the knowledge gained from its own internal change programme.

The IBM logo was associated by the firm’s clients with its technology practice, but behind this was the might of its operating company, the manufacturing base, its marketing and human resource capability. In these areas IBM saw potential for expansion and of course income. The aim was to sell its consultancy offerings on the strength of the logo and on the back of its technology practice. This move helped lift its business out of the loss-making rut it was in.

“The consultancy was not just an IT sell, it was an unleashing of all the skill at IBM. But the difference between us and other consulting firms is that we didn’t have to remove any old processes and we could just use IBM’s best technology,” says Parrish. “From day one we established our consulting practice as a global consulting group. We worked in four geographic markets: the US, Europe and East Africa, the Far East and Latin America.”

A new framework was needed to show clients that this was a plausible business. So IBM aimed to create credibility by bringing in senior consultants from well-established consultancy firms, to manage and run the firm’s consultancy service lines.

Rob Howe, formerly head of Booz.Allen & Hamilton’s worldwide financial services practice, became general manager of IBM’s Consulting Group and started up the global practice from scratch.

He brought in senior consultants from Coopers & Lybrand and Ernst & Young to give the business credibility. It was their job to imbue IBM staff with the mind-set needed for consultancy, so they could unleash their technology and business expertise on the Fortune 1,000, the technology firm’s established clients.

The new consulting practice was divided into 12 areas of expertise under the functions of: management consulting, functional consulting and industrial sector consulting. The management consulting function included business transformation, information technology, strategy and planning. Functional consulting included: application development, end-user systems, networking and information systems management.

Industrial sector consulting included engineering and quality management, continuous flow management, manufacturing logistics, international trade management, management technologies and image technology.

By mid 1993, IBM saw a 30 per cent increase in revenue from its services business, so something in its restructuring programme had made a difference.

“We sold ourselves though our personal relations with existing clients.

Clients would mainly be attracted to the IBM logo and the IT it stood for,” says Parrish.

But clients still did not use IBM Consulting as much as it might have wished. So in 1995 it restructured the practice. Instead of selling through its service offerings, it put the emphasis on industry sectors.

“IBM already had a presence in the manufacturing industry and was a very strategic player in the banking field. But when it came to the consulting process, clients were saying: ‘you don’t really know much about my industry’,” he says. ” So in 1995 we decided to reorganise ourselves and develop our consulting practices on an industry basis as well as along service lines.”

Today banking, insurance and manufacturing are its main industry focuses.

IT strategy, business transformation and integration services make up its main service lines. Within these service lines are a whole host of consultancy offerings from business process reengineering to organisational design and development.

“We started with our traditional IBM client list. Since then we have grown into retail and distribution, and process and petroleum, the latter headed by Dr Eric Lean from Arthur D Little,” he says. “Now we’ve established all but the Telcos, and we’re setting up telecoms and media this year.”

From 1995, the consulting group embarked on an acquisition and recruitment drive. It acquired two consultancy firms: Walkerson, a pharmaceuticals consultancy, and K3 an insurance specialist. Parrish says: “We are growing roughly by 50 per cent, year on year in terms of head count. Part of our growth programme has focused very heavily on acquisition. We’ve also been hiring consultants with very specific industry skills.”

Ian Major came over from Deloitte & Touche two years ago to head the banking, finance and securities section of the consulting group. When he started it only had 28 consultants, at the end of this year there will be 75.

“Banking is arguably the largest industry in IBM worldwide, it’s probably closer to 30 per cent of the business now,” says Major. “Bankers are huge buyers of information and technology, and because of the mergers in banking, it means there are big organisational, process and technology changes going on.”

The consultants he is recruiting are those that have experienced change over the last 10 to 20 years: “the grey beards of the industry”, who can say that they were in the banking industry when it changed over from mainframes to mini systems. Major employs those consultants who understand the processes that can be affected by the introduction of a new exchange rate mechanism, such as Economic and Monetary Union, because they experienced the chaos that new exchange controls created when they were brought into banking in the ’70s.

Besides IBM Consulting’s focus on target clients and markets, it has moved nearly full circle in its own change programme: from manufacturing IT products to identifying and analysing the key issues facing clients before it implements new technology.

“The methodology is the glue that underpins the whole consultancy practice: classic business transformation, IT strategy and activity based consulting binds us together,” says Major.

Within its banking sector the firm has recruited people with skills in collateral management and knowledge management. It has built up a range of competencies that it can now apply to other industry sectors.

“We did a lot of work in investment banking and suddenly found that we were spinning off specific skills in collateral and knowledge management.

The way that we have changed in the last two years is that we have discovered what we were good at, and what clients want,” adds Major.

Organisational consultancy is what IBM found that its clients had been asking for. So in September 1996 it started up an organisational change practice with three people. It brought in Peter O’Sullivan, formerly in IT strategy consulting at KPMG. The practice, which works cross-industry within IBM, now has 18 consultants in the UK and 50 globally. It aims to double that number within a year.

“We recognised that most BPR programmes have been failing even though firms have been throwing a lot of money at them. There is often a big gap in the achievement of benefits because organisations still do things in the old way,” says O’Sullivan. “We saw a gap in the market and the increasing demand from our clients for a solution.”

The organisational development practice expands its business and the number of consultants versed in its language and mind-set, by creating internal alliances. The aim is that more technology-oriented departments will ask for help on the strategy front. The firm’s internal leadership programme was set up to ensure that this happens, and that WSSDM, the methodology behind organisational consultancy, filters through each division.

“One or two years ago there was a reluctance to talk about the S (strategy) word, but today we are at last working at that level to influence firms’ strategic decisions,” says Major.

IBM Consulting set out a training plan for recruits, opening two centres, in Brussels and New York, where consultants are taught a standard vocabulary and values for tackling client issues, and a standard methodology.

A six-week training programme covers everything from common problem analysis to business process modelling, basic client relations, activity based consulting to strategic agility, IT strategy and planning. Consultants are assessed after each assignment and are encouraged to gain basic consultancy certification, or go on to take an MBA. Clients are also involved.

“We ask clients to rate consultants on a scale of one to five. And irrespective of the country of operation, at a worldwide level, our quality of implementation has been over 90 per cent consistently,” says Parrish.

The technology is a fundamental, needed to run the firm’s internal communications and its external business. Parrish believes none of this would have been possible without a global communication database: LotusNotes and its intranets.

The firm introduced these in 1994 to store its intellectual capital and research, which it uses in business modelling and does in partnership with clients.

“Every piece of work and research is put onto the database and consultants worldwide have access to it,” he says. “IBM has given us the advantage of being truly global because we could use modern technology from the start, and not all our competitors have the opportunity to do that. That means we have a communications network established, wherever IBM is located.” The consultancy can use any of IBM’s 150 locations of work or offices.

Client demand for a firm with a global technology practice and consultancy offering has pushed IBM into filling its knowledge gap, and growing its consultancy practice organically and by acquisition.

O’Sullivan says: “Clients were saying, we don’t just want you to provide the technology, we want you to make sure this happens.”

All three consultants emphasise “IBM is not in consultancy for consultancy’s sake” but that its consultancy has become an integral part of its operation.

“Technology has become more integrated into the business plan, rather than an adjunct to the business case,” says Parrish.

Like other large global technology houses, IBM has moved up into the consultancy bracket. It can now combine technology and analysis to provide a wall-to-wall service, and provide a long-term backdrop against which to do the projects.

“One of the things we are seeing is that clients want to deal with a major global operation,” adds Major. “In the business transformation projects, where the softer issues are the more difficult to solve: how do you motivate and retain your staff, clients want a continuity of vision.

In industries where people move every two to three years, firms want to stay with organisations that will outlive their staff and carry on to complete that project. IBM provides that and there are not many firms that have IBM’s span.”