IBM’s purchase of IT consultancy Monday completes its coverage of the IT services value stack, reinforcing its position as top provider to the financial services industry. The deal will let IBM overtake its key rivals in the professional services market, and also places the company in a strong position to move into business process outsourcing.
IBM has agreed to buy Monday, the consulting arm of PwC.
IBM will purchase PwC’s consulting arm, Monday, for $3.5 billion; the IT giant predicts this will add around $4.9 billion of revenue. Monday’s decision to sell up rather than launch an IPO is hardly surprising, but some were surprised by IBM’s move.
The decision is not a new one, however: IBM’s strategy to move towards consulting services originated back in the mid-1990s. The reason for the delay before making a major acquisition has been price, rather than strategy.
It also comes at an ideal point in IBM’s evolution. The company has migrated its Global Services unit into an end-user focused consultancy. But despite also building a significant management consultant team, it has not been so strong at building mindshare on the strategic side. This acquisition puts IBM alongside Accenture and EDS at the top of the value chain.
The challenges faced by similar acquisitions such as Cap Gemini/Ernst & Young illustrate that companies cannot take integration for granted. But ironically, the market downturn that has blighted IT consultancy may favor this merger: the poor job market will make employee retention less of a problem.
IBM’s competitors in IT services should be worried about this acquisition – especially in financial services. The company has over 20% of the global external IT market, is top placed in hardware, infrastructure software, systems integration, outsourcing and now professional services.
It’s also now in a position to enter the business process outsourcing market, one of the fastest growing segments of financial services outsourcing. Monday will give IBM expertise in process/operations side to complement its leadership in technology.
The key challenge will be in the execution, as the deal raises IBM’s workforce by around 20%, and the company has not historically been a large acquirer. The determining success factor may well be the market environment in 2003; there are signs it will be another tough year.
Related research: Datamonitor, IT efficiency in Financial Services (DMTC0847)
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