IBM Consulting recently held its first analyst and advisor event in Europe since IBM’s spin-off of its Global Technology Services infrastructure business (now Kyndryl) and the renaming of the former IBM Global Business Services division to IBM Consulting just over a year ago.

When IBM had announced its intended spin-off of the GTS division in October 2020, new CEO Arvind Krishna declared this would free up the rest of IBM to focus on the higher margin, higher growth hybrid cloud market (notably the RedHat OpenShift business) and its cognitive computing businesses. IBM Consulting has also benefited from other recent developments, and the business now looks more relevant as a major IT services business, and less of an add-on to IBM Technology businesses.

Partnership Ecosystem

A key priority across the group has been expanding IBM’s partnership ecosystem. An example of this is Infosys BPM’s recent opening of a Center of AI and Automation in Poland, in collaboration with IBM, following several years of joint work in identifying new use cases and building solutions to enable clients to innovate in hybrid cloud environments.

For IBM Consulting, this increased emphasis on developing the partnership ecosystem includes a particular focus on AWS and Microsoft Azure and increasing the number of certifications (reaching 17k certifications in AWS, 33k in Azure by end FY22); and of course, IBM Cloud (7k certifications). The Kyndryl split and the ecosystem play have broadened opportunities for IBM Consulting to work with the likes of AWS: that is now a $1bn business, and IBM Consulting’s alliance program is aiming to make each of its strategic partnerships $1bn businesses like AWS. IBM Consulting emphasizes that it no longer promotes IBM Technology as a priority. Nevertheless, Red Hat remains an important revenue driver, with IBM Consulting claiming the #1 Red Hat service partner position.

As well as partnerships with hyperscalers and the major ISVs, IBM Consulting’s relationship with KPMG is notable: this has been important in providing access to line of business heads such as CFOs for business transformation discussions; expect to hear more about this relationship.

IBM Consulting claims its partnership relationships have evolved from 1:1 deal-specific relationships that was the norm just 18 months ago and that today, 60% of its engagements involve technology solutions from several partners. In a somewhat ambitious claim, IBM Consulting says that moving into 2023 it is aiming to develop its role as a partnership ‘orchestrator’ in deals involving multi-vendor solutions, responsible for managing T&C complexities.

Managing Recent Growth, including Increased Acquisition Activity

IBM Consulting has been a growth vector for IBM, delivering topline growth of around 16% in the last four quarters, of which around 14% is organic. Hybrid cloud is clearly the growth vector, delivering 28% topline growth, led by activity in Technology Consulting around application modernization on the hybrid cloud with Red Hat OpenShift.

IBM Consulting is benefiting from a dramatic expansion in acquisition activity since the arrival of Arvind Krishna as CEO. Notably:  

• Some transactions have brought in specific skills such as Microsoft Azure specialist NeuDesic (1500+ personnel) and Nordcloud (cloud advisory and cloud management with 430+ certifications across AWS and Azure)
• Others have increased IBM Consulting’s scale in geographies where it is light, including France and Spain in Europe; for example, Bluetab Solutions Group, which has brought in ~700 employees, many of them based in Spain.

Expect to see more acquisition activity of both types. While the recent downturn in company valuations is likely to spur inorganic growth, IBM Consulting is unlikely to pursue any very large transactions but continue to focus on companies with a few hundred rather than thousands of employees.

In terms of the underlying organic growth, the change of name from GBS to IBM Consulting has been helpful with recruitment, making the company a more attractive prospect for personnel attracted by the notion of ‘consulting’ and working with clients.

IBM Consulting has grown from 120k to 160k employees over the last 18 months. Across the workforce, there is a strong focus on skills development with an emphasis on badging/certifications. We heard of 40k cloud certifications recently, 23k Microsoft Azure badges, 15k AWS and 30k SAP. In support of this drive, compensation is now linked to skills rather than to performance – which of course demands accurate workforce planning. We are seeing a growing trend by IT services providers to increase the level of bonus attached to skills competencies: IBM Consulting appears to be pushing this hard.

Looking for More $50m+ Deals

IBM Consulting is taking a vertical, rather than geography-based GTM approach, and is looking for larger deals ($50m+). In support of this, there is a strong emphasis on assets such as:

• IBM Garage: IBM Consulting claims it is now being used in two-thirds of engagements. While there are broad similarities to approaches that have been developed by other leading large systems integrators in recent years, IBM Consulting is finding its Garage methodology a differentiator in its pursuit of larger deals

• IBM Consulting Cloud Accelerator, which it describes as a ‘cloud acceleration platform designed to orchestrate a collection of expert rules, tools, technical assets and industry solution starter kits to drive rapid planning and low-touch execution for hybrid cloud journeys’. The platform houses a repository of assets and tools across home-grown catalogs and IBM products, open-source and third-party vendors. Expect to hear more about how IBM Consulting has used this with clients.

IBM Consulting’s emphases on consulting-led, garage-style engagements, its partnership ecosystem, and industry knowledge in support of verticalized offerings are not massively dissimilar from other large leading services providers. There are obvious advantages in being part of the IBM group, including having access to a client base of large enterprises who are incumbents in their markets (and thus pushing for digital transformation), and of course the ease of collaborating with IBM Technology for its cloud and AI assets.

But overall, IBM Consulting was at pains to emphasize how much it has changed its technology ecosystem priorities in the past two years. We welcome this: the past few decades show that IBM’s conglomerate approach to IT has not particularly led the growth of its services activities, whereas now IBM Consulting is able to benefit from the momentum in AWS and Microsoft Azure. Kyndryl of course remains an important partner, not least because of the shared client base and its status as a tier-one managed mainframe service vendor. However, the Kyndryl partnership will possibly become more transactional as IBM Consulting relies more heavily on its own investments in AIOps.

We believe that IBM Consulting is beginning to distinguish itself more clearly from IBM Software and Infrastructure. Its expanded partnership ecosystem, assets such as IBM Consulting Cloud Accelerator, the development of more industry-specific playbooks, and a more organized approach to winning large deals will all help fuel future growth. That is not to say there are pockets of the portfolio that are in the shadows. With the exception of Talent and Transformation, there is perhaps more work to be done in messaging around some of the ‘Business Transformation’ offerings.