IBM’s Challenges

The New York Times assesses the future after IBM’s disappointing results:

I.B.M. is making an ambitious shift in its services business to move beyond helping corporate customers run their data centers to using information technology to make their business operations more efficient. It means putting I.B.M. researchers and software programmers to work for customers to redesign and automate business tasks like procurement, human resources management, accounting and customer service. Customers often hand these tasks over to I.B.M.

The logic is to move up the economic ladder to more complex and more profitable tiers of the services industry, thus staying ahead of rivals offering less expensive services – Indian outsourcing companies like Infosys, for example, and Dell, which is expanding rapidly in technology services.

The risk, however, is that competition in its traditional technology services will erode I.B.M.’s business faster than the company can replace it with more lucrative work.

I.B.M., analysts note, is trying to navigate a strategic shift in its services business at a time when the technology industry is growing slowly and erratically, making its task more difficult. Besides lower-cost rivals like the Indian outsourcing companies, it faces competition from companies like Accenture, which had a strong first quarter. Still, even though the ride may be bumpier than expected, the strategic path I.B.M. has chosen seems to be the right one, most analysts say.

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Rajesh Jain

An Entrepreneur based in Mumbai, India.