Bangalore: International Business Machines Corp., the biggest information technology services provider in the world, made about half of its $48.3 billion (over Rs1.9 trillion) revenues from what is broadly called information technology infrastructure management services. Such services involve taking over a customer’s tech assets, including computers, servers, data banks, communication gear and, in some instances, even staff. Increasingly, IBM is shipping more of such work to its offices in Delhi where tech workers remotely manage servers and desktops of hundreds of key customers in the US, the UK and Europe.The man spearheading this is Peter C. Lorenzen, vice-president of IBM’s India delivery centre in Bangalore. Lorenzen, 53, relocated to Bangalore about seven months ago to establish what is slowly becoming IBM’s biggest bet out of India. In his office, about 3km from the crowded Bangalore airport, Lorenzen shows off the ‘dashboard’ that diagnoses performance of IT systems in real time for customers across time zones. The India story, Lorenzen says in an interview with Mint, has just begun. Edited exceprts:
Most of the mega outsourcing deals won by IBM recently involved taking over tech operation of organizations. Why is it so compelling to do that? Doesn’t that erode operating margins?
Let’s admit this: if you are unwilling to take over IT assets of a customer, you are only addressing a portion of potential need that a customer may have. More often than not, these deals also involve transfer of staff from customer organization, but that is more because of the fact that customers want to transfer knowledge for ensuring that vendors understand their business requirements.
Companies such as Wipro and Infosys will have to do this if they want to be a part of larger deals. In fact, one of the reasons why Infosys could not have got a bigger size of ABN Amro deal is because of this. (In a late-2005 outsourcing contract, Dutch financial group ABN Amro NV farmed out $1.8 billion worth of infrastructure management work to IBM and Accenture Ltd, and application development work of just $400 million to Tata Consultancy?Services?Ltd (TCS), Infosys Technologies Ltd and Patni Computers Systems Ltd.)
Apart from taking over the assets, we also work on helping customers buy new servers and desktops through our finance arm called IBM Global Finance, which procures and leases out the hardware systems to customers.
All costs are calculated as part of the multiyear deals, wherein they could be paying a monthly fee as well.
Companies such as HP (Hewlett-Packard Inc.) and Dell help finance customers buy these assets (too); some day, Indian companies may have to do this either through an alliance or on their own.
The global landscape for outsourcing is becoming too crowded with large Indian players such as TCS and Wipro joining the battle. How would you sustain your edge over others?
There are several differentiators. We offer full scope of services including software, services, hardware, maintenance and even finance, which means customers do not have to go elsewhere. If you want to stay in this game, you better be a broad-based player.
Also, large engagements demand re-engineering of business processes, meaning you need to engage with them with a consulting offering. Our PwC (PricewaterhouseCoopers consulting) acquisition (in 2002) has allowed us to get into that market, and it’s definitely a silver bullet for us.
Consulting played an important role in the AstraZeneca deal bagged by IBM recently. (Drug maker AstraZeneca Plc. early in July awarded IBM its information technology infrastructure management business in a $1.4 billion, seven-year contract.)
Many Indian companies are now getting into the consulting space. How difficult is it to build a new business around consulting for these companies?
You just can’t grow consulting like you do a typical application development business. It takes years to build capabilities across domains and industries to be able to help your customers with insights about how do they become profitable and in turn serve customers better.
What has been the progress with your Indian delivery centre?
Well, when we started almost three years and three months ago, we did not have a single customer. Now, we are serving around 170 customers based in the US, the UK and Europe from our centres in Bangalore, Hyderabad and Chennai. India is growing fast and is already one of the largest centres we have globally.