Yesterday I published my financial analysis of 4 traditional system integrators: Accenture, Atos Origin, Capgemini and Logica.
In a conversation I got asked why IBM wasn’t on the list, and my answer was somewhere along the line of “it’s not a pure player”. Also, I hadn’t published my Indian friends yet, so here are another 3 “service providers” if you may: IBM, Tata and Wipro. Different worlds? Try universes
First, behold the Indian pure players up here (see top image): they make less than half the revenue of yesterday’s traditional SI’s (“the 4” from now on), yet more than double the profit. Of course that’s hard to see like this, so here’s the magic applied: revenue and profit divided by headcount: (by the way, click any picture to enlarge)
If you compare Tata and Wipro with the traditionals in my post, you’ll find that they make 120% of the profit with 45% of the revenue – that’s a huge difference and show that Tata and Wipro can run circles around Accenture, Atos, Logica and Capgemini. Can their markets and clients be compared? Probably not totally, but they are more than similar enough.
With 465k people working “for the West” and 320K “for the East”, the former growing by 77K (17%) last year and the latter by 52K (16%), one thing is for sure: Asia Pacific is hugely profiting from this battle in terms of employment. Both parties took a beating from the crisis yet Tata and Wipro are still not back to normal, let alone growth – but neither are Logica nor Capgemini
Anyway… and now for something completely different. My stats-buddy and IBM-er Vijay Asankarv challenged me to calculate the figures for “IBM as an SI” (my words) and I took up the glove. I managed to trace back revenue and pre-tax income up to 2007, so that will be it, unfortunately. Before that, Global Services gave away gross profit and such, but no neater figures. Anyway, I think 5 years is good enough, managed to nail them before the crisis so I’m satisfied-ish
IBM has a Global Technology Services division and a Global Business Services one. The first roughly does twice what the second does. GBS primarily provides professional services and application management services (consulting and technology services as we know it), GTS provides IT infrastructure services and business process services and I’ll label it outsourcing
An impressive new kid on the block with more revenue and profit than the 4 combined…
Worse, even, the profit is almost double. With an average of 0.719304 euro to a dollar for 2011, there’s a combined total of 55.6 billion dollar revenue for the 4, and a profit of 5.0.
That means that, were IBM’s figures to be taken as base, the profit of the 4 should be 8.5 billion – i.e. 2/3rds more (yes, 66%).
I hadn’t expected an outcome like that – and this is not even the entire story.
My favourite calculation is impossible for IBM, as I haven’t found any details on workforce per division – so I can’t calculate per-employee revenue and profit. However, there’s reason
Reason tells me that there are 433,362 employees within IBM. Let’s be rough and claim that there’s an equal division of people across the board, meaning that IBM’s “SI division” would have 243,000 employees – almost half of what the 4 have!
Slightly more revenue, almost double the profit, with almost half the workforce? Hang on. I used the average per-employee 2011 IBM revenue, being $ 247k, for this calculation, and my sources whisper that the average IBM consultant revenues 115K. But were I to use that figure, then it would turn out that there over half a million people working for IBM SI – more than the entire workforce?
I’ll turn it around, because it doesn’t make sense at all. Let’s just say there are 400,000 people working for IBM SI; that means they revenue 150k per person, and 23.25k operating profit. Yes that would mean that merely 33,362 work for Software and Systems divisions, doing around a million dollar revenue and 400k operating profit per person, but that wouldn’t be so very odd, given what Google, Microsoft and Apple do…
- Let’s take our imaginary combined company of the 4; they’d have a workforce of 465K doing a total of $ 55.6 billion revenue and 5.0 profit, resulting in 119K per-employee revenue and 10.8k operating profit.
- Let’s take our imaginary combined Indian company; they’d have a workforce of 320K doing a total of $ 9.4 billion revenue and 2.2 profit, resulting in 49K per-employee revenue and 11.6k operating profit.
- Let’s take our imaginary IBM SI; they’d have a workforce of 400K doing a total of $ 60.2 billion revenue and 9.3 profit, resulting in 150K per-employee revenue and 23.3k operating profit
So, welcome to IBM, our new SI: they’ll watch from the side while East (m)eats West, and have more than enough fat to battle the winner. Given these odds, they’ll probably even win the war .
(Cross-posted @ Business or Pleasure? – why not both)