Friday, February 06, 2004

IBM & Sprint

It is an open secret that most consulting projects fail -- if by fail you mean do not deliver the performance improvements or cost savings they initially promised. The reasons are legion: 1) the client did not implement, 2) the client implemented, but did it wrong, 3) one part of the organization stymied the other part of the organization from doing the right thing etc. Failure usually happens because of a failure in execution, not because the actual idea as bad.

In the IBM/Sprint deal, IBM has promised Sprint that it can improve its call center operations. The deal has been structured to increase the chance of successful implementation.

Firstly, IBM is taking over huge chunks of the call center operations. This means that IBM people are both planning and implementing--eliminating the excuse that the other guy failed to execute or executed wrong. IBM pitches its integrated services and delivery model as "one throat to choke", and it promises none of the fingerpointing you get when, say, Accenture implements a Siebel CRM system to execute a McKinsey marketing strategy, and the whole thing falls apart.

Secondly, because IBM is taking over so much of that business, it cannot really blame failure on other parts of the business being stubborn. The marketing guys cannot blame the IT guys because they are all from IBM. Of course, things like network performance impacts call centers, but you would need to be the entire company to be able to coordinate everything.

Thirdly, the deal gets incentives right. Generally, call centers are pretty low on the corporate totem pole, so they do not get much attention or resources. But this is a very large deal for IBM, and Sprint has contracted for very strict service level agreements that really hold IBM's feet to the fire. An unimportant line of business for Sprint has become an extremely important line of business for IBM, which means they have a very strong incentive to do a good job.

Coase wrote that a firm should decide to do something internally vs through a vendor depending on where the coordination costs were lowest. A major cost of doing work internally is supervision -- people work harder for a customer than they do for a boss, especially if the boss is not around much. I always felt that firms used external consultants instead of internal corporate strategy teams (who knew the company and industry much better) to avoid this issue--but it also meant nothing ever got done (not that internal strategy teams are known for their ability to execute). IBM's willingness and ability to take on a huge slice of business gives it both powerful levers and incentives to effect change for its clients. We'll see what happens.

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