As business technology products get more advanced, many become commoditized and the companies that make them have to find new ways to differentiate themselves.
IBM's approach has been to continue making products, but to ramp up its services wing so that its IT consulting, support and outsourcing services became a leading part of its business, rather than an add-on or afterthought -- which Big Blue is now trying to evangelize to
That's because the strategy has been successful to the point that its 2006 global services revenue -- $47.4 billion -- was more than its software ($16.8B) and hardware ($24.3B) sales combined.
Now IBM will help business partner sell more of the services offered by IBM's Global Technology Services (GTS), which brought $36 billion of IBM's total 2006 services revenue, according to Kevin Hooper, director of channel enablement and marketing worldwide at IBM GTS in Armonk, N.Y.
"About a year ago, we started to recognize that there were a number of limitations in the way we could go to market and service customers in the services area," Hooper said. "We were using the phrase 'it depends' in every engagement where there were services."
That uncertainty made sales hard not only for IBM, but for its partners as well.
Solution partners, meanwhile, are working to build on the service growth that IBM has developed.
"We started as a hardware relationship partner, and widened that as IBM added servers," said David Browning, chief executive officer of Advanced Systems Group in Irvine, Calif. "We realized the last piece as a big piece --IBM Global Services. Building a services mix is a risky and dangerous proposition. It made sense for us to use IBM's breadth and depth." Since its inception in 1994, ASG has partnered with IBM and now is a second-tier solution provider for the company.
Building a menu: IBM's service product lines
To give that conversation a new flavor, last year, IBM developed 10 service product lines through which to package and present its services.
"Within GTS, we provide a capability to sell from the same portfolio hardware and potentially software and also resell human beings to come out and provide the services, with attractive margins," said Hooper. "Solution providers can build up a book of business and profit that can help them get into services business."
Previously, services engagements were largely custom deals assembled from a laundry list of custom service offerings and then fulfilled by IBM and partners who could amass the proper skill sets in various areas, he said.
The new service offerings are consolidated into 10 different product lines, and 50 individual service offerings that complement them.
"The package offerings are a good articulation of ongoing demand model since they are sold as a subscription to the customers and then sourced from IBM," Browning said. "Also, it's one last thing for us to manage while we are managing our core competency."
The service categories are aligned with product portfolio and existing maintenance and upgrade services. "We focus very heavily on storage and data, maintenance and technical support, business continuity and resiliency and security and privacy," added Hopper.
Developing a recipe: IBM service success
Using IBM's service products, solution providers can more readily package high-level services for customers and preserve a good margin as well.
"Where the profit lies for both partners and us is in a repeatable solution and a consistent experience for the customer," Hooper said. "Those engagements where it is very custom and unknown tend to be higher revenue but lower profit. That profit number is about the health of the business."
Packages services will give more partners an entree into selling services. "For a solution provider with limited services capability that wants to change his business model, the biggest inhibitor is physical inventory," Hooper said. "They have to go out and hire human beings and hiring humans to perform a service is very different than selling something. It's an inhibitor to getting into the services business."
At least in some cases, these new offerings are helping solution providers look at the notion of selling services in new ways. "I would say that before we weren't even looking at services as an area where we could provide a solution," said Vince DeRose, president of PEAK Resources, a Denver, Col.-based solution provider. "Having these service solutions and products in our portfolio has changed the way we work in that we now look for opportunities to sell IBM Global Services. We are making it a part of our opportunity identification and qualification process."
Meanwhile, packaged services will also allow solution providers offering limited services to extend their offerings in new directions.
"If a service provider already has a service model and wants to get into a different area, they have a similar kind of problem," Hooper said. "They need to hire for the new skills or take someone and train them. With GTS, now, they can go out and fulfill fixed price and fixed scope of services as if it were a piece of hardware. An IBM human being will show up and perform the service."
Solution provider partners tout the philosophy as an opportunity to save on hiring costs -- and to provide better service to customers. "We cross lots of different products and integrated solutions so there are a lot of skill sets needed for any project," Browning said. "If we hire quality resources, we have to pay them whether we sell them or not. It was opportunistic for us to tie up with a top vendor and use their skills."
ASG uses IBM to expand its bench talent in basic infrastructure (e.g. database administrators); for application integration (e.g. SAP); for maintenance; and for packaged offerings, Hooper added. "IBM has got good ideas on the packaged services they've selected," Browning said. "Each one specifically addresses an issue, and that presents an easy way to sell a service product."
Learning to cook: Selling IBM services vs. selling products
Selling services is a different kind of business than selling products. In helping partners learn to integrate services into their businesses, IBM has worked to help partners learn about more than just its products and services.
"IBM has done some really unique things with their ISG," said Cyndi Privett, vice president, research at Viewpoint Research, a research firm in Scotts Valley, Calif.
"They have training and even offer training on how to deal with IGS. For some partners, dealing with IGS can be formidable -- they aren't sure about the rules of engagement. They've done a lot in helping these partners learn how to work with them."
In addition, IBM has been offering financial management workshops to solution providers to help them understand the intricacies of creating a service-based business.
The workshops -- each of which lasts two or three days and includes three or four people from an IBM channel partner -- are held at the channel partner's site at IBM's expense.
"Over a three-year period, we've done over 2,000 of them," Hooper said.
"We do hands-on working-through of the issues, and try to tie the material back to their real business data and real business issues," Hooper said.
The channel is receiving these and other efforts of the company to support them, favorably. "IBM'S channel enablement has been fairly good," DeRose said. "They've provided education opportunities, teaming opportunities and the ability to engage with IBMers in the territory in which we sell."
Finding new solutions provider ingredients
In the end, though, solution provider partners are the secret ingredient in IBM Global Services offerings -- and IBM knows it. "IBM is really looking to partner to sell their managed services and asset-based services, particularly to small and medium-sized business partners," said Privett.
Having defined its basic recipe, IBM will continue to build its portfolio of service offerings and help partners refine their way of selling services.
"We are going to be tying together the portfolio of things solution providers should be reselling, those that they should be building their solutions around and those that require collaboration," said Hooper.
IBM will also continue to tweak its services education program and get the word out to more partners.
"Our workshops now are very much on the generic side of services, answering what it means to be accredited or what it means to be certified," said Hooper. "Our next turn of the crank is how to turn these trainings into something we can get to more than 2,000 [channel partners.] We've got tens of thousands of business partners we are not really touching from GTS. It's incumbent on us to deal with some of the issues around that."