IBM Consulting welcomed the analyst community to its Innovation Studio in London’s South Bank district to provide an update on its global strategy and business expansion in the Europe, Middle East and Africa (EMEA) region. Inviting clients and ecosystem partners to the event, such as the U.K.’s Ministry of Defence and Microsoft, to share experiences and success stories increased IBM Consulting’s credibility.
IBM Consulting Is on a Profitable Growth Trajectory, Utilizing Data and AI to Address Business Challenges and Building Hybrid and Multicloud Solutions
Neil McCormack, IBM Consulting managing partner, EMEA, opened the event by saying that the company, together with its strategic partners, helps clients transform at the intersection of business and technology. IBM Consulting utilizes its professional services and hybrid cloud and AI solutions, along with partner ecosystems, to deliver large-scale digital transformation projects that yield quick ROI and target cost takeout and productivity improvement. IBM Consulting has been on a positive trajectory, with revenue growing year-to-year since 1Q21 and reported operating margin improving year-to-year over the past three consecutive quarters. Moving security services from IBM Software into IBM Consulting reinforces IBM Consulting’s organizational structure and portfolio, enabling it to deliver services while securing clients’ hybrid cloud and AI models.
The buyer decision cycle is lengthening, especially for consulting services, which will challenge IBM Consulting’s revenue growth in 2023, despite the expansion of run-the-business managed services opportunities. However, TBR expects revenue growth year-to-year will remain positive — in the midsingle digits in U.S. dollars — driven by IBM Consulting’s ability to utilize data and AI to address complex business challenges and build hybrid and multicloud solutions and platforms. TBR expects IBM Consulting’s revenue growth will be driven by continued activities with clients around digital transformation, application modernization, workflow optimization and automation, and the creation of flexible and secure hybrid cloud environments.
The IT Services Industry Is Changing, Providing IBM Consulting With More Opportunities
According to McCormack, the IT services industry has been changing over the past 12 months and IBM Consulting is seeing a reemergence of large programs tied to the modernization of SAP (NYSE: SAP) solutions. IBM Consulting has a strong track record of working with SAP, including implementing more than 300 SAP S/4HANA projects in the past five years and working with more than 10,000 SAP customers over 50 years to deliver and run their SAP systems.
McCormack also shared that demand for hyperscaler skills is strong, which will create opportunities for IBM Consulting as the company has approximately 83,000 strategic partnership certifications across Amazon Web Services (AWS) (Nasdaq: AMZN), Microsoft, Google Cloud (Nasdaq: GOOGL), Adobe (Nasdaq: ADBE), Oracle (NYSE: ORCL), Salesforce (NYSE: CRM), SAP and Workday (Nasdaq: WDAY) (TBR includes IBM in the Digital Transformation: Cloud Ecosystems Market Landscape report). While digital transformation continues to drive clients’ investments, such as in the public sector, the return of big strategic outsourcing deals and business services is a notable shift in the industry.
IBM Consulting Is Augmenting Its Partner Ecosystem to Increase Solution Value
IBM continues to shift from being a historically closed company that largely relied on IBM technology products and solutions to being a company that is much more open to partnerships. IBM pursues strategic partnerships; furthers its engagement with existing partners, such as Microsoft and SAP; and proactively moves toward joint go-to-market models.
IBM Consulting invited Ralph Haupter, president, EMEA at Microsoft, to the analyst summit for a strategic partner fireside chat to provide insights into the two companies’ relationship. Microsoft and IBM Consulting work across multiple capability areas such as providing consulting services; building cloud-native, migration and modernization services for the Azure Kubernetes Service; collaborating with Microsoft and SAP to offer support and services to simplify clients’ move to S/4HANA; delivering Microsoft Dynamics 365 Industry Solutions across the banking, insurance, agriculture and public sectors; and supplying enterprise-grade cloud security services.
During the event Haupter highlighted notable traits of the partnership, including that IBM Consulting and Microsoft invest jointly in initiatives, show up together when working with clients, understand challenges, drive demand around value, and establish trust and commitment levels. Haupter also noted that IBM Consulting’s solid partnership skills and systems integration capabilities make a difference and that IBM Consulting’s user experience and industry knowledge benefit the partners’ symbiotic approach.
IBM Consulting has approximately 40,000 Microsoft Azure certifications, which enables it to address demand across areas such as security, data and AI, business applications, and infrastructure. In August IBM Consulting expanded its relationship with Microsoft to accelerate generative AI (GenAI) adoption. The new IBM Consulting Azure OpenAI Service is a managed AI service that is available on the Azure Marketplace and enables developers and data scientists to apply large language models, such as OpenAI’s GPT and Codex series, to their work.
Developing GenAI Capabilities and Utilizing a Client-first Approach Improve IBM Consulting’s Business Transformation Expertise
During the analyst summit, Chris Hay, an IBM distinguished engineer, showcased multiple GenAI use cases that highlight IBM Consulting’s activities and opportunities in the segment. For example, GenAI can be used to summarize large volumes of data, such as call center interactions, analyst articles and financial reports. It can also be used to provide conversational knowledge, such as by interacting with knowledge from data sets and gaining insights to drive market research and marketing activities; create content, such as in marketing and in collaboration with Adobe; and develop code for applications to improve speed and create efficiencies.
GenAI, which IBM sees as a solution that augments but does not replace human intelligence, provides IBM Consulting with opportunities such as helping clients transform business models, improve productivity, create new experiences and connect service delivery; however, these efforts must be aligned internally to drive change. With approximately 21,000 skilled data and AI practitioners, IBM Consulting can support clients by taking a client-first approach in consulting and driving collaborative transformations, utilizing the IBM Garage for GenAI methods that involve use case ideation as well as open, domain-specific and multimodal approaches to architecture selection and training.
In addition to utilizing the IBM watsonx solution, IBM partners with Adobe, AWS, Microsoft, Salesforce and SAP to transform businesses across industries through GenAI solutions. In May IBM Consulting opened a Center of Excellence (CoE) for generative AI that is part of IBM’s existing global AI and Automation practice. The CoE houses more than 1,000 consultants specialized in GenAI who will help clients adopt the technology along with IBM watsonx, IBM’s AI and data platform, as well as technology from Microsoft and other ecosystem partners.
Delivering Business Value Through Industry Expertise Strengthens IBM Consulting’s Competitive Position
During the event IBM Consulting shared that it is making its industry expertise central to its go-to-market approach. Approximately 50% of IBM Consulting’s employees are industry specialists and interact with skilled professionals such as in data and AI, enterprise strategy and business design, process change, cloud, and enterprise application, as well as with strategic partners to deliver business value through digital transformations.
IBM Consulting showcased its industry transformation capabilities through examples from multiple clients, including the U.K.’s Ministry of Defence (MoD). In 2018 IBM Consulting won an £80 million (or $103 million in U.S. dollars) deal with the ministry to develop and implement a scalable Air Command and Control System called Guardian. The system, which is now operational, securely integrates radar devices, radios and tactical data links from across the U.K. with NATO data to defend the U.K.’s and NATO’s airspace from air threats.
According to the MoD’s representative, Group Captain John “JB” Booth, Commander Battlespace Management Operations, IBM’s relationship with the Royal Air Force dates back 25 years, underscoring the company’s ability to develop strong ties with clients and offer technology solutions from multiple partners, avoiding vendor lock-in, which the MoD sees as a challenge when collaborating with defense prime contractors.
For example, Guardian’s core computer systems, voice computer systems and data tracker systems were provided by three vendors, including IBM. IBM utilized design thinking during the development of the system, taking into consideration requirements from public procurement and fine-tuning the system in consultation with the client to address specific needs.
Notably, the MoD representative commented on IBM’s openness to being challenged, saying the ministry and IBM have a “consensus-based relationship where we challenge them and they challenge us, and others [defense prime contractors] are less open to such relationships.” Showcasing capabilities, such as by inviting representatives from the militaries of NATO member countries Australia and Ireland to see the Guardian system in action and discuss pros and cons of the system, solidifies IBM’s industry and transformational expertise.
IT modernization in the public sector is prevalent across Europe and North America, and IBM can capture opportunities utilizing its technology and industry expertise and history of working with clients across the two continents. According to TBR’s 1Q23 Federal IT Services Benchmark, “Defense agencies are increasingly integrating open-architecture edge and cloud-based platforms, built using DevSecOps principles … into new mission-critical operations systems …. Scaling IT modernization and security (specifically using zero-trust data protection frameworks) agencywide remains the core of technology investment priorities at civilian, defense and intelligence agencies alike and the foundation for the eventual operationalization of analytics, AI and other emerging technologies that will digitally transform agency operations, citizen services, intelligence gathering and analysis, and warfighting operations.”
IBM Consulting’s high-value hybrid cloud and AI services resonate with price-sensitive clients, opening new opportunities and offsetting the negative effects of tightened discretionary spending in areas like the U.S. Continued investments in hybrid cloud, industry specialization and ecosystem expansion will enable IBM Consulting to achieve revenue growth in the midsingle digits in 2023, despite unfavorable macroeconomic trends.
IBM had a productive summer, announcing the acquisition of Agyla SAS, a France-based cloud professional services company. The acquisition expands IBM Consulting’s hybrid multicloud services and local expertise for clients in France around building, deploying and running mission-critical infrastructure and applications on hybrid cloud.
Also in June, IBM announced the acquisition of Apptio, a provider of financial and operational IT management and optimization software, for $4.6 billion. The acquisition, which is fully software-related, will drive synergies across IBM’s businesses, including IBM Consulting, and IBM’s partnerships with systems integrators such as Accenture (NYSE: ACN), Deloitte, KPMG and EY, which are also members of Apptio’s ecosystem.
TBR will continue to analyze IBM Consulting’s performance, and our next IBM earnings report, publishing in October, will review the company’s 3Q23 financials.