IBM is intensifying its campaign to win a greater share of the systems integration market in the US. According to Computer Systems News, the recently created Systems Services Division will handle facilities management contracts, and competitive pricing is key to its new approach (CI No 1,547). As usual, IBM is accused of capitalising on its […]
IBM is intensifying its campaign to win a greater share of the systems integration market in the US. According to Computer Systems News, the recently created Systems Services Division will handle facilities management contracts, and competitive pricing is key to its new approach (CI No 1,547). As usual, IBM is accused of capitalising on its position as manufacturer of hardware by bundling discounted services and products into its proposals. Reports suggest that First Boston Corp has been offered a multi-million dollar discount in a bid to win the upgrade contract of the bank’s data centre and to provide facilities management services. Also, Pacific Telesys Group’s Pacific Bell unit is seeking an integrator for its distributed system, and IBM is rumoured to have included a steep discount in its bid. Responsibility for professional services has devolved to the branch offices and this makes the company more able to respond to specific local contracts and customer demands. Other reports in the US trade weekly suggest that IBM is not only using its financial muscle to discount, but also exploiting IBM Credit Corp’s clout to spoil systems integration and facilities management deals that have gone to competitors. The most notable of these is the abortive agreement between Continental Airlines Holdings Inc and Electronic Data Systems in which the latter was to provide computer services to Continental and Eastern Airlines over a 10-year period, and the EDS-SystemOne Partnership was to provide reservation services to 8,000 travel agents (CI No 1,371). However, once IBM Credit Corp has a foothold in a customer’s site, it is a difficult force to dislodge, and if a company cannot negotiate to buy out the client’s lease – often at a book value above the market rate – then lucrative deals can fall apart. IBM, EDS and Andersen Consulting are bidding for a facilities management contract with Campeau Corp, and observers are waiting to see if IBM takes legal action in the event that it doesn’t win the contract. In the EDS-Continental case, IBM Credit Corp filed for an injunction three days before the deal was scheduled to close, complaining that if the deal went ahead, the computer property securing its financing to Continental’s SystemOne Corp subsidiary would be transferred to EDS without the consent of IBM. EDS has cited the lawsuit and bankruptcy scare at Continental as reasons for the eventual collapse of negotiations, and the situation bears striking similarities to any possible contract with Campeau Corp. Campeau’s Allied Stores Corp and Federated Department Stores are both operating under Chapter 11 proceedings, and it is conceivable that IBM Credit Corp could seek to bar the transfer of assets to another company. More common however is the imposition of onerous leasing conditions that make it expensive, if not downright prohibitive, to buy out a lease.
Apart from the aggressive discounting policy and attempts at spoiling, IBM is attacking systems integration and facilities management from a third front by building up alliances with a number of companies that can provide certain services more cheaply. Commentators suggest that IBM’s previous policy of running projects from the centralised Systems Integration Division was unsuccessful partly because it didn’t have enough specialised knowledge, and partly because the high cost structure restricted it to large expensive contracts. IBM acknowledges that relationships with business partners have increased threefold over the past year, and estimates that there are around 100 excluding those companies in which IBM has acquired an equity stake. CSC Consulting, the commercial arm of Computer Sciences Corp, is one of the third parties working with IBM, and Computer Systems News quotes the company as saying that if it can help IBM get more hardware installed, then IBM is interested in collaboration. The Gartner Group believes that in the past year, IBM has increased its bids on systems integration contracts by up to 300%, and derived some $2,400m in revenue from the activity.