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Whilst Transforming Clients, IBM India Must Also Transform Within

On January 4, 2017, IBM India named Karan Bajwa as the new Managing Director. He takes over the reigns from Vanitha Narayanan, who has now been appointed as the Chairman. Per the announcement, this change is effective immediately; both Karan and Vanitha will report to Randy Walker, Chairman, IBM Asia Pacific.

At Greyhound Research we believe while the company is in great hands with both Karan and Vanitha at the helm, significant challenges lie ahead for them and the broader management team at IBM India. Here’s why.

Greyhound Standpoint : IBM India’s woes with its current Domestic IT Services business mix can only be expected to multiply in FY 17-18.

  • Per Greyhound Research estimates, approximately 70% (i.e. USD 500 million) of IBM India’s Domestic IT Services business (USD 731 million in FY 15-16) currently comes from traditional services like Data Centre Infrastructure, Server, Network Management, Application Management Services and other maintenance support services.
  • Greyhound Research estimates also indicate that in FY 16-17 the company will carry forward a similar growth momentum. However, this growth is largely expected to be led on the back of the recent deal with Vodafone India. We believe this growth in the current FY is a one-off and does not take away the broader underlying issue of IBM India being highly dependent on traditional deal mix plagued with shrinking margins. Greyhound Research believes replicating a similar success story in FY 17-18 will be a lofty (not impossible) task for the newly announced management at IBM India.
  • A close scrutiny of deals (including those signed by IBM India) eloquently tells a tale of how the erstwhile largish (and longish term) Strategic Outsourcing deals are quickly getting broken into multiple smaller (and shorter term) Managed Services deals with components of Cloud delivery. Furthermore, we at Greyhound Research have also observed IBM India’s increasing unwillingness to participate in outcome-based deals.
  • In addition, per Greyhound Research estimates, IBM India’s security business continues to struggle with revenues barely in lower double-digit million dollars. This is contrary to the market trend of strong uptake in cyber security and broader security services and is indicative of the company’s struggles in scaling this business.
  • With Strategic Outsourcing deals (both new and refresh of existing) fast becoming few and far between, margin pressures touching an all-time high and business outcomes increasingly becoming a de facto standard, ensuring growth, avoiding a flattish revenue, increasing deal margin and changing the broader deal mix can well be expected to be the focus of the new leadership.

Greyhound Standpoint : IBM India’s over-bet on the Public Cloud, Cloud Platform & Cognitive opportunity is steering it away from current client needs.

  • Per the findings of a recent Greyhound Research study titled, Global Cloud Adoption Index 2017, 68% CIOs across the globe are finding it a challenge to keep costs in control when moving to Public Cloud. In most instances, organisations have experienced 2 to 3 fold increase in spend (from the originally budgeted amount) over a period of 12-24 months. Of these, nearly 50% are already exploring Hybrid Cloud for better control, security, financial outcomes among other reasons. These findings are closely mirrored across emerging markets including Asia Pacific Japan and India.
  • We at Greyhound Research believe IBM India has spent considerable energies on the need and importance of its Public Cloud offering SoftLayer. The company has also gone to lengths to compete against the likes of Amazon Web Services (AWS), Microsoft Azure and other pure-play Public Cloud providers who either are not focussed on the Hybrid Cloud opportunity or else don’t have the requisite skills to compete in that space. We believe the lack of IBM India’s focus on Hybrid Cloud is the weakest link in its strategy.
  • Even in the Public Cloud space, the company is taking a beating from both local and global competition including AWS which is known for its many firsts including its home-grown technologies like Lambda, Aurora and other global ecosystem initiatives. At Greyhound Research, we have received and addressed similar feedback and comparatives from over 10,000 yearly end-user enquiries from across the globe.
  • A similar theme can be observed for IBM India’s Cloud Platform Bluemix business. While the company has spent considerable resources in building an ecosystem of developers, it has tasted negligible success from this initiative. This is a far comparison from the success achieved by the likes of AWS and Microsoft Azure. At Greyhound Research we believe while it is a well-understood fact that developers seldom pay for access to such resources, it is upon companies like AWS, Microsoft and IBM to give its ecosystem sufficient opportunities to monetise and thereby earn from.
  • Last but not the least, Greyhound Research’s ongoing tracking of the market shows that IBM India’s efforts to introduce Watson and promote cognitive computing has received a lukewarm response in the India market. More specifically, our ongoing conversations with CIOs and other IT Decision Makers tell us that IBM India has made no significant efforts to tailor cognitive offerings for the country – a critical factor to ensure success.

Greyhound Standpoint : IBM India continues to struggle in monetising its alliances and has lost critical human assets in the past year.

  • Greyhound Research’s ongoing tracking of the market shows IBM India’s alliances with VMware and SAP have not borne significant outcomes – this is contrary to the success that the company has had globally with these partners. In addition, there are areas of competition which IBM continues to face with both VMware (in Enterprise Mobile Management) and SAP (in Database and Analytics). Furthermore, the company is also facing intense competition in Enterprise Mobile Management from players like MobileIron.
  • Separately, per latest news, IBM India has seen a spate of senior and mid-level exits resulting in loss of critical talent. At Greyhound Research we believe at a time when IBM India is at a critical juncture of trying to move away from it’s traditional IT Services business and increase revenues from newer business models like Cloud, Mobile and Cognitive, it needs its experienced soldiers to man the frontline.

In a nutshell, at Greyhound Research we believe the new IBM India leadership needs to address critical moving parts that span dealing with the legacy which is ailing its systems and in many ways stopping it to achieve hyper-growth like many of its competitors; finding ways to move up the value chain in traditional IT services deals and thereby increasing deal margins. 


Analyst(s):

Sanchit Vir Gogia: Sanchit is the Chief Futurist, Founder & CEO of Greyhound Knowledge Group, a Global, Award-Winning, Digital Transformation Research & Advisory Group. He also serves as Chief Analyst & CEO of Greyhound Research, an Award-Winning, Global, Independent Technology Transformation Research & Advisory firm. To read more about him, click here.

Anshoo Nandwaani:  Anshoo serves as a VP and Principal Analyst with Greyhound Research, an Award-Winning, Global, Independent Technology Transformation Research & Advisory firm. She also serves as Chief Human Resources Officer (CHRO) of Greyhound Knowledge Group, a Global, Award-Winning, Digital Transformation Research & Advisory Group. To read more about her, click here.


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