IBM Corp. president and CEO Samuel J. Palmisano proclaimed, "the client is the driving force" behind his giant company's US$3.5 billion acquisition of New York City-based PWC Consulting, a deal that was approved by the PWC partners on Oct. 2. But analysts watching the deal say CIOs who are customers of IBM Global Services and PWC Consulting would do well to approach the combined IT services superpower with caution during the next year.
"Establishing close relationships and dealing with an IT services giant is always a challenge," says Lisa Maio Ross, principal at Ross Research, a Cambridge, Mass.-based outsourcing market research company. "The IBM Global Services/PWC merger is still in its infancy, and frustrations are likely to result."
Mega-mergers in the services industry have been notoriously difficult because of the complex task of integrating people, processes, partnerships, cultures and technology. Fran Karamouzis, a New York City-based analyst at Gartner, says the industry's three big mergers so far--Paris-based Cap Gemini's purchase of Ernst & Young (2000), the Price Waterhouse marriage with Coopers & Lybrand (1998) and EDS's takeover of A.T. Kearney (1995)--are still working to reach their potential. There are still some workers at PricewaterhouseCoopers who refer to themselves as "legacy Price Waterhouse" or "legacy Coopers," Karamouzis says. (Other factors don't help, of course, like in September when EDS cited an IT services spending slowdown for lowering its earnings estimate for 2002.)
Although there should be no significant changes to existing engagements with IBM or PWC Consulting before January 2003, when an integration plan is expected, the smart customer will take a proactive approach, says Karamouzis. Here are some steps CIOs can take now.
Mitigate the effects of changes to your project team. Any disruption to a team slows things down, Karamouzis says. Will partners' roles change? Will anyone assigned to your company be reassigned or laid off? Will someone leave to work on the merger integration? If so, CIOs should ask what recompense they will get for the lost time, money and work, Ross says.
Be diligent about evaluating your new options. PWC Consulting customers that send IT services work to Electronic Data Systems Corp., for example, can expect sales pitches from IBM Global Services. CIOs should embrace these talks with IBM rather than taking a wait-and-see approach, says Mark Hodges, managing partner with TPI, an outsourcing consultancy in The Woodlands, Texas. Now can be a good time to renegotiate current contracts with IBM or PWC to add bundled products (hardware and software) and services (IT and business process outsourcing). If you've worked with both companies, you can ask about volume discounts, Hodges says.
Ask about your technology options. Clients that have relied on PWC Consulting's alliances with certain technology vendors that compete with IBM may see those partnerships weaken or disappear altogether. HP plans to phase out its relationship with PWC, while Sun has said it may continue to work with some parts of the old PWC. Customers should find out if their technology and service provider choices will narrow going forward. For its part, IBM says IBM Global Services and PWC consultants will continue to offer objective advice about technology choices.
Put IBM/PWC to the test. "Ask the newly merged company for a solution that forces the two companies to work together," Hodges suggests. CIOs may find that the service offerings that the combined company brings to the table--PWC's business strategy, business process outsourcing, and expertise in ERP, CRM and supply chain experience along with IBM Global Services' integrated IT services and IT outsourcing expertise--are a boon. Companies looking beyond IT, to HR or finance, may see big advantages here. "CIOs need to dig deep and learn more about the business implications of the merger," says Hodges, "not just the IT implications."
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