IBM's 'transformation' speeds up

Just as the sale of its PC business was meant to get IBM out of a "commoditizing" business, IBM's reorganization announcement is step toward reinventing IBM Global Services, the company's mammoth computing services division.

The traditional computing services market is seeing price competition, much like every other sector in the IT industry, increasingly from Indian outsourcers, such as Wipro or Tata Consulting.

As a result, the company's restructuring will hit IBM Global Services hardest. The bulk of up to 13,000 job cuts will be in Global Services' western Europe operations. The company will also streamline its management structure in Europe to "lower its center of gravity" to be closer to clients, according to IBM's Chief Financial Officer Mark Loughridge.

The vaunted Global Services organization is what brought Big Blue back from the brink in the mid-1980s as it tried to wean itself from the slumping mainframe business. Now IBM needs to shake up Global Services to get it out of low-margin services businesses.

IBM is pursuing contracts that involve more than simply building or maintaining a custom application. With IBM's Business Performance Transformation Services (BPTS), the company is seeking to deploy its business consultants in engagements that involve major new business opportunities driven by technology.

These "transformations" can involve designing medical devices that can communicate a person's health while they're at home back to a health care provider automatically. There's technology involved but IBM's vertical industry-savvy consultants helped define a potential new source of revenue.

Other contracts involve taking over an entire business process, such as human resources or accounting. The idea is that IBM can use its business smarts and technology to run a company department more efficiently than the customer was.

With these high-margin BPTS services, CEO Samuel Palmisano is trying to redefine the available market for IBM. Rather than only chase dollars earmarked for IT, it can be a provider of other business services, from accounting to product design.

It's a bold vision, one that take years to take shape. And as the latest restructuring shows, IBM's journey to "transform" itself and its customers will have some speed bumps.