IBM's Indian silver bullet

Two weeks ago, Sam Palmisano had a simple message at an investor meet: You ain't seen nothing yet. Well, those were not the exact words used by the Chairman and CEO of International Business Machines, or IBM, but they convey the essence of what he said. IBM plans to double profits in five years, leaning heavily on analytics software- a suite of products, solutions and services- that promise to extract neverbefore value from the mountains of data each of its global clients generate.

In doing so, Palmisano is steering a company with some $96 billion, or Rs 4,43,612 crore, in revenues (that's bigger than the GDP of all Indian states, except Maharashtra) into new territory for the second time in a decade. A year after he became CEO of IBM in 2001, with the company set on a path into technology services away from hardware, Palmisano bought PricewaterhouseCoopers' consulting business. In 2005, he sold IBM's personal computer division to Lenovo.

Old Dog, New Tricks IBM's top learnings from Daksh. CUSTOMER IS KING, TRULY Up to one-sixth of call centre agent salaries linked to customer satisfaction, other variables. HONESTY WORKS Declined a lucrative order for local language support to an European airline: It did not have the people. NIMBLENESS EQUALS SPEED Can scale up or down agents in a particular support process with notice as less as a few weeks. BEYOND PRODUCTIVITY Tools, models such as Six Sigma or Lean implemented with overall client context, not just efficiency of a particular process.

And, in his next transformation, the 53-year-old CEO of the biggest tech and software services firm in the world will need all the help from a little known start-up he snapped up in Gurgaon, a satellite city south-west of New Delhi, in April 2004: Daksh eServices. A company which was among the first movers in 1999 into what would in later years be better known as business process outsourcing, or BPO, services. An operation that had less than 6,000 employees and $60 million revenues when IBM was scouting for an acquisition in that space.

Today called IBM Daksh globally (it has 25 centres in India and the Philippines), that 2004 buy has become key to Big Blue's-as IBM is called from the days it sold blue-painted mainframe computers-growth. Half of the tech giant's BPO operations are grouped under IBM Daksh today; it is some 30,000-people strong; and competitors reckon it turns in $600 million in sales-a shade under half of IBM's India revenues-second only to its biggest rival in India, Genpact.

Effectively, that means IBM Daksh clocks in more revenues per employee than at the rest of IBM, which employs another 65,000 in tech services and products, in India. (IBM does not disclose its revenues by services from India.) "We had planned for success, but got an even bigger success than expected," says Moneshia Eltz, Director (Corporate Development) for IBM in the Central, Eastern Europe, Middle East and Africa region. Eltz was one of the key IBM executives tasked with the Daksh integration after the buyout.

The value that Daksh brings to the IBM fold goes beyond just the size of the business, say other IBM executives. Most BPO firms have set up their Indian operations with a labour-arbitrage and talent-enhancement view. IBM, says Randy Walker, General Manager (Growth Markets, Services), from day one treated Daksh as a profit centre and not just a cost centre. This has led to a "gainshare model" that IBM Daksh has with most of its clients, where it gets to share in financial upsides in contracts or, more often, receives hefty bonuses when it meets targets.

Customer Central
Daksh also helped IBM to move away from its traditional stronghold of large customers such as Procter & Gamble, Dupont and Yahoo! to servicing smaller clients like Indian online ticketing firm MakeMyTrip.com. Such small and medium businesses (defined as those with less than 1,000 employees), Palmisano has predicted, will make for IBM's biggest customer segment. "Today, half of our customers are from this segment; much more if you take half the customers signed on," Walker says about IBM Daksh.

Ironically, for an acquirer some 1,600 times the size of Daksh by revenues in 2004, IBM chose to play second fiddle after the acquisition. Not only did it not know the BPO business (its so-called managed business process services, or MBPS, division was just a year old), it had a rewarding experience from three years earlier when it acquired PwC Consulting. That was the first time IBM had chosen to move its business into that of an acquired entity and it had been a game-changer, giving IBM a big leg-up in high-value software consulting.

IBM saw such silver-bullet attributes in Daksh, too. The Indian firm's founders were outliers in a business with roots in technology services that was driven hard by measured processes and watertight service level agreements (SLAs). "This business," says John Lutz, General Manager, MBPS, "is about hygiene versus delight. Delivering customer value was a religion at Daksh." Some 15 per cent of a call centre executive's salary, for instance, depends on variables such as customer satisfaction.

Pavan Vaish, CEO, IBM Daksh, puts that focus on customer and the ability to take risks at the core of what his operation does. "There is a rabid focus on customer centricity and trust. There was a client that called us to say that it was merging with another company and would have to ramp up seats with us right away but would be able to sign legal contracts only later. We did it," he said, declining to name the client.

Vaish, one of the four co-founders of Daksh, admits Daksh made several mistakes along the way, but learnt from each. For example, it had to sack half of some 500 hires it had made for Amazon (he won't confirm the name) when it was clear they could not be trained up to speed. Customer attentiveness and fleetfootedness has helped IBM sign on large customers such as Unilever, a big chunk of whose work is handled by IBM Daksh centres in India, to smaller engagements such as financial software firm Intuit (a less-than $1 billion company when Daksh signed on as a service provider in January 2001).

Larry Wood, Director (Procurement) at Intuit, recalls the time when seasonal demand was putting inordinate stress on support teams provided by IBM Daksh. "Tax day in America is on April 15 and our support shifts into high gear in that period. One year, IBM came with the idea of specialised agents and trained them up to meet immediate demand peaks in a matter of weeks," he told BT.

Analyse This
IBM Daksh today has dozens of clients and is helping other IBM BPO centres in Egypt, Costa Rica, China, Korea, and Australia, grow with its India-honed advantages. In that expanding outreach, "it is the Daksh 'solutioning' mentality that is helping scale up or down with nimbleness," says Lutz, who heads BPO work globally for IBM.

So, in Dalian, China, for instance, says Pradeep K. Agrawal, Chief Quality Officer, MBPS, work for a Fortune 500 electronics retailer-IBM doesn't name clients-was meeting all SLA, revenue and profitability targets. But "when we looked closely, we realised we could make significant savings on time by changing a bit at the client end and a bit at our end. We did just that without being asked to do that," adds Agrawal, who last year returned to India after a 18-month assignment in China.

The shift towards analytics-the new business that Chairman Palmisano is betting big stakes on - hinges on IBM Daksh, in fact. IBM aims to combine its research and product capabilities with support services to derive value for its customers by sifting through data to increase revenues or reduce costs or both. IBM points to itself as the best demonstrable test case: Over the last several years, it has reduced the number of CIOs (chief information officers) from 128 to one, and applications running internally and with clients to 4,500 from 16,000; it today runs shared services across human resources, information technology, supply chain, realty management and other functions.

"We have saved $4 billion in four years alone," says Linda Sanford, Senior Vice President (Enterprise Transformation), and a direct report to Palmisano. For customers who are ready for transformation, analytics is the way, she insists.

Such analytics are already at work at IBM Daksh's Bangalore centre, which is serving customers such as Unilever. The consumer products giant is targeting savings of some m700 million (Rs 3,235 crore) under an ambitious 'One Unilever' programme to transform financial transactions such as purchases and payments, general accounting, invoicing and cash functions. "We developed tools to look into payment patterns and do analytics for insights such as predictive capabilities to spot problem customers," says Lutz.

That ability has IBM planning to integrate a September 2009 acquisition of RedPill Solutions, a Singapore provider of high-end analytics services to banks, phone and tech firms, and hotels, into IBM Daksh.

"RedPill is a major growth item for us... we will sell it to our existing client base and focus on operations excellence and detail," says Walker, who, as head of BPO services for Asia since February 2005, has overseen IBM Daksh from its early days. "Daksh will ensure that its wheels don't come off as they expand." Palmisano would then continue to feel smug about his 2004 purchase in Gurgaon.