Sunday, 19 October 2008

IBM results post-script - global delivery to ramp 25%

(By Anthony Miller) IBM CFO Mark Loughridge attributed the services margin expansion (see IBM services storm ahead in Q3) to a combination of discerning bid selection (i.e. only going after higher margin deals) and accelerated global delivery. True enough, services signings (actual rates) declined from $14.7bn in 2Q08 to $12.7bn last quarter bringing the backlog down from $117bn to $114bn, but this seems a fair trade-off for the higher margins. On the global delivery front, we estimate IBM has around 60K FTEs in its eight global delivery centres (actually, 23 separate sites), of which up to 50K are based in India (and to put this in perspective, that's about the same size as HCL's total headcount) and about 5,000 in China. Loughridge said IBM intends to ramp global delivery headcount 25% in '09 - though this was presented as a shift of resources, suggesting up to 15,000 onshore jobs may be on the line (now there's one for the 'shock-horror' headline writers!).

Post-post script. I had a great meeting with IBM's European global delivery heads in Bucharest last week. One of the interesting tit-bits I learned was that IBM tried to teach German to its Indian global delivery employees in order to provide offshore SAP support to German-speaking clients. This was apparently not an unqualified success. IBM is now hiring 'locals' for whom German is a first or second language. However, IBM has since set up a centre in India to automate the translation of proposals and similar documents into German, and this has been a far more successful exercise. I understand that 'nearshore' delivery costs from Bucharest are around 20% higher than equivalent services delivered from India. IBM has some 500 FTEs in its Bucharest nearshore centre (mostly working for non Romanian clients) and this will grow faster than the 25% Loughbridge alluded to.

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