IBM’s impressive Q3 numbers reveal unequivocally that its large and fast-growing consulting business is helping differentiate it significantly from major cloud providers including Microsoft, Amazon, Google, Oracle, and others.
While most of the companies in the Cloud Wars Top 10 maintain a relatively modest professional-services organization to work with particular clients in specific circumstances, IBM has decided to make consulting a growth engine within the company overall and in its cloud business in particular.
A major driver behind that decision has been the ubiquitous desire among customers to become digital businesses, and IBM Consulting has found that its clients and prospects are finding significant value in IBM’s ability to offer not only a full portfolio of modern technology — particularly in the cloud — but also deep industry expertise built over the decades.
For the quarter that ended Sept. 30, IBM Consulting grew 16% to $4.7 billion, which equates to an annualized run rate of $18.8 billion. And if we look at the trailing 12 months ended Sept. 30, IBM said hybrid cloud engagements generated revenue within IBM Consulting of $8.9 billion on a very strong growth rate of 28%.
On IBM’s Oct. 19 earnings call, CEO Arvind Krishna cited the growing demand for the company’s consulting services.
Referring to that 16% growth rate for Q3, Krishna said, “This is the fifth consecutive quarter of double-digit growth [for IBM Consulting]. This strong performance was again broad-based with revenue growing at double-digit rates across all business lines and geographies. . . . Clients trust IBM’s deep industry expertise and co-creation approach throughout their hybrid cloud and digital transformation journeys.”
Later in the call, IBM CFO Jim Kavanaugh noted that “growth in business transformation was pervasive,” particularly in engagements focused on supply chain, finance, data, and client experiences.
Kavanaugh also cited close partnerships with other major cloud vendors as essential to IBM Consulting’s growth.
“Working with our partners like SAP, Salesforce, and Adobe, we help our clients optimize their operations and improve the way they engage with their customers,” Kavanaugh said on the call.
The consulting business within IBM is broken into three categories: business transformation, which grew 14% to the quarter to $2.2 billion; application operations, up 17% to $1.6 billion; and technology consulting, which grew 17% to $900 million.
Krishna described the strong performance of IBM Consulting as part of the long-term plan for IBM.
Referring to the beginning of this year, Krishna said, “We were talking about what we were seeing in the marketplace about accelerating demand for our clients’ digital-transformation journey to cloud and that we were going to invest upfront and get ahead of that demand in skills, capabilities, ecosystems, and acquisitions.
“That’s because consulting plays an integral part to our hybrid cloud thesis. It is that tip of the spear, and it drives a multiplier effect: it takes with it the scale and adoption to our hybrid cloud platform, and it pulls our IBM technology through,” Krishna said.
But the financial analysts, clearly intrigued by the impact IBM Consulting is having and its potential for continued growth, wanted to know more about why and how that part of the business has been a growth accelerator for IBM.
“I think Consulting, to the point of what many of you are asking about, the nature of our consulting business is very different than some others. The bulk of our consulting business is in digital transformation, helping our clients move to cloud, not just our cloud, but AWS and Azure and others,” Krishna said.
“SAP and Salesforce and Adobe are great examples. As you begin to help those customers move to the cloud, both public and hybrid, help them do digital transformation, help them take advantage of these massive productivity SaaS properties that I just named, then even in an inflationary environment, even when the economy is not doing well, these tend to be the projects that stay the course.
“Maybe the signings come in smaller chunks, and as long as we deliver well, then people tend to sign up more and more going forward.”
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