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Business Performance Transformation Services

The future of services - understanding BPTS

The business-process revolution

The spread of computer networks built on the Internet's open standards has far-reaching effects on the way companies must organize economic activity. Externally, businesses are integrating themselves more tightly with partners and customers. Internally, meanwhile, Internet technology has the opposite effect. Discreet business units and functions of production become more loosely coupled, as firms replace the sticky, proprietary technologies that connect their component pieces with standard, Internet-based interfaces.

These internal changes encourage radical innovation in business design. Looser internal coupling lets businesses dismantle and reassemble their component pieces in ways that make better use of available economics. Companies are pooling business functions internally and outsourcing more of their component parts to specialized partners with superior capability and economics. This outsourcing is combining with the spread of globalization to create networked chains of production that span the world. This reorganization into configurable and responsive systems of production supported by an equally responsive IT infrastructure is what IBM calls moving to an On Demand mode of operation.

The move to On Demand has led IBM to identify what it sees as a big new growth opportunity. This opportunity is a market that lies outside the traditional IT industry. It is taking shape as companies tap specialized expertise for help optimizing, transforming and managing business-support functions such as human resources, finance and accounting, supply chain, risk management and new product development. IBM calls this market in business expertise Business Performance Transformation Services (BPTS).

IBM believes that, as the BPTS market develops, it will drive a business-process revolution whose effects on economic activity will be comparable to the Industrial Revolution of the late eighteenth and early nineteenth centuries.

Business Performance Transformation Services

Because BPTS work falls outside the traditional IT market, its emergence is expanding IBM's opportunities for growth. Conventionally measured, the 2005 enterprise IT market is worth $1.3 trillion and is growing at about 6% a year. IBM calculates that the 2005 BPTS market is worth $1.6 trillion and is growing at more than 9% a year.

Until recently, traditional IT providers have not played a big part in the BPTS marketplace. For most IT companies, this is unlikely to change. The skills needed to succeed in this market – either within the inner workings of industries, or inside specific domains such as customer relationship management or human resources – fall outside their core expertise.

For those willing to invest in the skills and capabilities that move them beyond providing traditional hardware, software and services, the opportunities are rich and compelling. Business automation has blurred the customary demarcation between business and IT, put IT at the heart of corporate strategy and elevated the understanding of the possibilities. As a result, companies increasingly look for partners who can skillfully combine business insight with technology expertise.

IBM is approaching this market opportunity with discipline and focus. The $1.6 trillion BPTS marketplace spans many different market segments. These industry and domain segments have different economics and diverse profit opportunities. IBM has targeted about $500 billion-worth of BPTS spending as its opportunity. This spending covers a limited range of market segments. IBM has selected these segments for the opportunity to apply high-value work and create new and innovative market solutions.

Source: IBM


pie chart : BPTS Market Opportunity

pie chart : BPTS Market Opportunity

Building the portfolio

The capabilities required to address this $500 billion BPTS opportunity draw on the full IBM portfolio. IBM tailored these offerings (see chart below) to meet market demand for combining business insight with applied IT.

Successful transformation begins with intelligent business design. IBM's Strategy & Change consultants apply the engineering disciplines of IBM's component business model (see resources) to business design, breaking the firm into its component pieces for optimal reassembly.

Properly isolated, each business component is more readily improved. Engineering and Technology Services' (E&TS) technologists and engineers are applying IBM's technology skills and IP assets to transform business processes and the underlying IT that supports them.

Sometimes, improvement is best achieved by handing the process over to a specialized partner. During BTO engagements, IBM works with clients to transform their processes, applications and IT infrastructure and then operate these processes on behalf of the client.

Continuous business-process improvement requires accurate and timely information from across the enterprise. BIO provides advanced data-integration software that lets clients see and understand how infrastructure, assets, people and processes combine to affect business performance.

BPTS revenue grew by 45% year over year in 2004 and by more than 30% year over year in the first half of 2005. As the market evolves, IBM will launch new BPTS practices to target emerging opportunities. In June, for instance, IBM announced the launch of its supply-chain management BTO practice.

Source: IBM 


chart : IBM's Core BPTS Capabilities

chart : IBM's Core BPTS Capabilities

Results

IBM continues to add to its skills to address targeted BPTS segments. IBM's acquisition of PwC Consulting in 2002 added bedrock business and industry expertise to IBM's portfolio of technology skills. The acquisitions of Equitant (order-to-cash financial processes), Maersk Data (transport and logistics services), Healthlink (Healthcare) and Liberty Insurance have each addressed specific target-market opportunities.

IBM has also made several acquisitions to build out its software capabilities in support of the BPTS opportunity. These include Alphablox, which extends IBM's leadership in business intelligence with component software that enhances the reach and use of analytics; and SRD, whose identity-resolution software will be integrated into IBM's analytics and business-intelligence solutions portfolio. 

                                       Key acquisitions in support of BPTS
PwC Consulting Bedrock consulting and business-services expertise
KeyMRO Procurement services and strategic sourcing
Equitant Asset-based management and order-to-cash cycle optimization
Maersk Data Transport and Logistics services
SRD Identity resolution software
Alphablox Business intelligence software
Liberty Insurance Insurance contract administration, risk management, customer service and data analytics
Daksh Indian business-process outsourcing
Healthlink Healthcare IT services

Source: IBM

Clients from many industries share IBM's vision of a powerful new combination of business services delivered in tandem with advanced information technology, and are using it to transform their business. Importantly, these client engagements also drive IBM's business downstream.

For example, E&TS technologists are partnering with Mercury Computer to integrate Cell microprocessor technology (which IBM developed jointly with Sony and Toshiba) to build breakthrough computer systems for data-intensive applications. Mercury intends to apply Cell technology to applications such as radar, sonar, MRI, digital X-ray and others. IBM licenses Cell technology and manufactures the Cell chip.

As part of a $320 million engagement with Williams, a natural-gas producer, IBM consultants are working to transform areas of the company's finance, accounting and human-resources processes. Meanwhile, IBM technology teams operate Williams' IT infrastructure and applications, promoting the company's ongoing business transformation.

Our work with BP, Pioneer, NiSource, Honeywell, Dun & Bradstreet, Norwich Union, Metro Group, P&G, Mitsui Life, Nortel, the New York Stock Exchange, Boeing and many other leading companies are examples of how IBM is unlocking the BPTS marketplace, as we work with them to exploit On Demand modes of operation. As the business-process revolution spreads, many more companies are likely to follow.