IBM reaps benefits of PwC purchase

IBM Corp.

Headquarters: Armonk, N.Y.

Chairman, president and CEO: Samuel Palmisano

2002 revenue: $81.2 billion

2002 net earnings: $3.6 billion

Employees: 315,889

"PwC brought the Department of Education relationship, IBM brought the technology." ? Roland Harris III of IBM, on how the company won a $65.6 million contract with the agency.

Henrik G. de Gyor

Just six months after acquiring the consulting arm of PricewaterhouseCoopers, IBM Corp. can already point to tangible gains in the federal marketplace.

In early April, for instance, IBM won the Education Department's Central Automated Processing System contract. The $65.6 million contract calls for the company to provide support for general ledger activities, funds management, receivables management, fixed assets, cost management, administrative processes and pre- and post-award grants processing. Veridian Corp previously held the contract.

"PwC brought the Department of Education relationship, IBM brought the technology," said Roland Harris III, managing partner of IBM's public-sector global and Americas business consulting services.

In late April, the company won a small task order -- less than $1 million -- from the U.S. Postal Service for intranet modernization. The project has great potential as future task orders are released, Harris said.

IBM will redesign the Postal Service's intranet home page and manage its content, something based on the company's experiences in remaking itself, he said. The PwC contribution is its consulting experience in developing intranets for Fortune 500 companies, such as Ford Motor Co.

Perhaps most significant is a May 1 award by the Navy Sea Systems Command for a five-year, $25 million contract for the Submarine Maintenance, Engineering, Planning and Procurement enterprise information system. IBM has not been known for its defense contracting, Harris said, but it beat out Planning Systems Inc., the incumbent, to win this ship readiness work.

Under terms of the Navy contract, IBM will manage systems to provide more accurate and detailed processes for maintenance, development and scheduling for 90 fast-attack, strategic and special purpose submarines. Again, Harris credited IBM's victory to the addition of PwC's capabilities.

IBM completed the $3.5 billion PwC Consulting acquisition in October 2002 after receiving regulatory clearances in the United States and European Union. The purchase brought more than 30,000 IBM employees and 30,000 transferring PwC Consulting professionals into one organization.

Based in Armonk, N.Y., IBM is one of the largest companies in the world with almost 316,000 employees, revenue of $81.2 billion and net earnings of $3.6 billion in 2002. The company is ranked No. 18 in Washington Technology's Top 100 list of federal prime IT contractors

Harris said the PwC consultants give IBM an opportunity to offer government customers a sweeping vision of business process transformation. "IBM called on midlevel employees at agencies. PwC was at higher levels, but at the same agencies," he said.

Many industry observers agree that adding PwC's consulting legacy has strengthened IBM in its pursuit of federal contracts.

"IBM has been moving in that direction under people such as Anne Altman [managing director of the U.S. federal government unit], but they weren't yet quite capable of going in and understanding the problem of the customer, and then putting together the best solution overall," said Ray Bjorklund, vice president of market intelligence with Federal Sources Inc., a McLean, Va., research and consulting firm.

Bill Loomis, managing director of the technology research group at Legg Mason Wood Walker Inc. in Baltimore, said, "IBM has been taking market share from other vendors [in the government space] over the past few years ... [This] allows them to compete against other high-powered government consulting companies, such as Accenture."

Rishi Sood, principal analyst with Gartner Dataquest, said PwC Consulting's capabilities has given IBM a reach it did not have before.

"PwC has a stable base of clients in the federal market that has augmented IBM's presence nicely," Sood said. The consulting company's services in areas such as enterprise resource planning and customer relationship management are important supplements to IBM's government capabilities, along with its experience with commercial best practices, he said.

"The acquisition of PwC solidifies IBM's transformation toward a services organization and helps underscore the depth [and] range of services the firm has to offer," Sood said.

But an experienced industry executive familiar with IBM said he did not think the company is getting as big an impact as it might have from the acquisition.

"IBM's been in this business before in different ways and has had varying levels of interest, so there is a perception question: Is this a beachhead to future growth in the government area, or is it just an ad hoc issue?" he said. "IBM is not necessarily making a bigger investment in the defense area, for instance, it just came along with the PwC business."

With the inclusion of PwC Consulting's expertise, IBM's goal is to provide business process transformation, Harris said. "We don't want to just do what you're doing cheaper. We want to do it better," he said.

As part of that transformation, IBM is looking to create more of an on-demand environment, Harris said, which would allow customers to adjust their applications and systems according to their needs, so they only pay for what they actually use.

In a broader sense, the pursuit of on-demand capabilities also means designing the whole of a system, even if the client cannot yet use all of it.

For instance, there might be some data the client will want to share in the future with other organizations, but the conditions are not yet in place; IBM would prefer to build in the sharing mechanisms at the beginning and leave them inactivated, he said.

"You overdesign it and shut down parts of it," Harris said.

One nagging question remains about IBM's performance -- is the company willing to recommend solutions that do not include IBM hardware and software.

Harris said the company is committed to providing the best solutions, not IBM-focused ones, but FSI's Bjorklund is skeptical.

"Thirty years ago, Big Blue was one of the only companies able to provide an overall IT solution, but they were biased toward [their own equipment]," he said. "The company has been saying for years that it's platform agnostic ... I don't sense there's anything new there."

Staff Writer Patience Wait can be reached at

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