Inside Sam’s $100 billion growth machine (IBM’s outsourcing strategy)

Sam
Palmisano became chief executive of IBM in 2000 when revenues were down $5
billion and in the midst of the IT downturn. Last year the company grew for the
first time since he took over, with a 10 per cent increase in revenue, while
improving market share against its major competitors. Palmisano is committed to
growing the company 5 per cent a year, equivalent to generating one Fortune 500
company each year.

His
strategy is to push IT users, and entire industries, towards different business
models, and to claim new revenues for the IT industry from internal human
resources, marketing, customer service and product design departments by
persuading businesses to outsource these functions to IBM. Already IBM has
taken over the entire finance and accounting function worldwide of BT, for
example. He will attempt this primarily through IBM’s ties with the world’s
biggest companies.

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The
drive to increase revenue will be through services rather than products and IBM
is bringing together sales, product development and engineers. Palmisano has
combined 25,000 more IT consultants in IBM’s Global Services arm with about the
same number from PwCC to create IBM Business Consulting Services. An example of
IBM’s commitment to outsourcing is the purchase in April 2004 of Daksh, India’s
third largest call centre operator.

By
David Kirkpatrick
Fortune, 21 June 2004