The Soul of a New Consultancy

The name John L. Burns is not one commonly associated with the rise of IBM Corp. Nonetheless, Thomas Watson, Jr. – the man credited with propelling IBM into the computing age – felt compelled to mention Burns in his 1990 autobiography, a text penned some 35 years after the two men had worked together. Throwing one last elbow, the then 76-year-old Watson spelled out how, back in the mid-1950s, Burns – a senior partner at Booz Allen Hamilton – had accepted his invitation to help IBM's management team craft one of the company's most expansive reorganizations to date, only to become president of RCA, an "aspiring" IBM rival, a short time later.  Clearly, one could surmise that Watson intended to settle a score when he revealed what appeared to be something more than coincidental timing as far as the sudden upward trajectory of Burns' career. Given that consultant bashing has long been a favorite sport of CEOs, Watson's musings would hardly appear noteworthy, except for the fact that the company he's credited with having brought into the age of computing no longer fancies itself a computer maker as much as it does a consultancy. It's doubtful that Watson and the consultant he skewered would have predicted such a development. IBM's multipronged client relationships may have led some to imagine the company becoming an IT-friendly telco or a financing behemoth. No matter. Consulting services is where IBM has placed its bets. And unlike any consulting concern before it, IBM is poised to bring change to the consulting profession in both sweeping and complex ways, the most profound being the exposure it brings to its new line of work. One of the great untold stories of the last century was the critical role consultants played in America's post-World War II economic expansion. But that role has been all but obscured by a willingness on the part of consultants to yield the spotlight to their client leaders. More often than not, consultants and the management insights they sold seldom entered the public's purview – unless, of course, a CEO believed that his consultant was worthy of a comeuppance, ˆ la Burns. Now, at the start of a new century, Burns's one-time client is attempting to reveal to the world at large what it deems to be an entirely new market – a $500 billion opportunity to which IBM says strategy consultants now hold the key.

The Invention of New Spaces

It's a market that speaks to a consulting world far removed from the one Burns knew. Long gone are the days when MBAs were a rare breed among corporate managers and management routinely opened their doors to consultants touting business analytics. As the age of information technology took shape, the doors once again swung open, as management hungry for IT expertise tapped consultants touting IT acumen. However, in more recent years the value proposition for leveraging IT has lost some punch as productivity gains have lagged. Few would argue that no single company has come to represent the age of IT more than IBM, with its big iron, back-office offerings; then, its work groups and departments; and, finally, its individuals or "clients" with personal productivity solutions. Along the way, the IT industry grew into a $1.2 trillion market driven largely by tech buyers eager to gain a competitive advantage from a cost or productivity perspective. According to IBM management, the application of IT is now moving to an entirely new space where IT's competitive advantage is not cost cutting but the enablement of new business models, and where technology is embedded in industry-specific solutions. It's a space that will enlarge technology spending by $500 billion annually according to IBM, which has already christened the "new" market Business Performance Transformation Services (BPTS). "When the PC was announced in 1981, it was an invention that drove a marketplace or, in other words, a market came out of it, whereas this market will be a market driven by capability – a market that will grow because of capability – a capability that will make a client do something different," says Ginni Rometty, managing partner of IBM's Business Consulting Services (BCS) – the consulting unit IBM formed in 2002 when it merged PwC Consulting with IBM Business Innovation Services. "What we see happening today is that if companies aren't thinking explicitly about some leading-edge technology that could open up new business model possibilities or new product or service possibilities, then it's possible, maybe even likely, that they'll miss a business strategy opportunity," says Eric Pelander, Partner and Global Leader, Strategic Change Solutions, IBM Global Services. Today, the capability Rometty and Pelander speak of is dependent largely on the industry expertise that IBM now claims resides within its business consulting unit, as well as on the technology expertise of IBM Research. Together, IBM management would have us believe, these joint skills and expertise, along with IBM's vast scale, create a capability unmatched by that of any other consulting firm or technology company. However, the headlines IBM has captured as of late are more often about the company exiting markets rather than establishing them. Take recent press clippings, where the sale of IBM's PC unit to Chinese computer vendor Lenovo became a lead business article in most major dailies. In the end, IBM management conceded that it was not able to manufacturer PCs in a world-class manner with respect to cost and speed to market. It's a concession that begs the question, What obstacles exist that could potentially prevent IBM from becoming "world-class" in the business strategy space?

Not a PC Maker

The answer arguably lies where Wall Street is least likely to look for it: inside privately held partnerships. Today, the most revered and perhaps the best-paid strategic consultants continue to reside in top strategy firms such as McKinsey & Company, Boston Consulting Group, and Bain & Company, where consultants operate under the dictums of partnership – a culture based on collaboration but which at the same time offers senior consultants a good deal of autonomy. It was from just such a strategy culture – albeit a low-carb strategy – that 35,000 PwC consultants emerged to join IBM in 2002. The consulting unit IBM bought for the bargain price of $3.5 billion had been spawned by the audit business of Price Waterhouse, and maintained much of the cultural traditions and processes Big Five accounting houses were known for. Here partners held sway, as young consultants eagerly pursued opportunities that would permit them access to the experience and respect partners carried forth. Despite stark differences between the two businesses, IBM management is fond of comparing its leap into strategy consulting to its earlier leap into outsourcing. "BPTS, quite honestly, for me is deja vu," Sam Palmisano, IBM Corp. chairman and CEO, told a roomful of Wall Street analysts in New York last year, while seeking to build confidence in IBM's credentials for climbing ever higher in the services continuum. "If you go back 12 years to when I returned from Japan to go as the third employee into services … strategic outsourcing – it's a whole different category, a whole different value proposition." Not unlike other purchasers of "human assets," IBM has been routinely quizzed as to how many of PwC's 35,000 consultants are still with the company. While IBM management won't disclose such numbers, it remains adamant that the acquisition has been a success, and continues to cast doubt on reports that the company could suffer an exodus of PwC talent on October 1, when growing numbers of PwC partners become vested. Former PwC partners say that IBM has to date done a good job of holding on to partner-level PwC consultants, who, according to their PwC partner compensation packages, would have become vested at about age 50. IBM has not been as successful in holding on to below-partner-level talent, former PwC consultants say. What's more, as the consulting market rebounds, young partners will likely find greater incentives to move beyond IBM rather than wait for vesting, consultants said. Among those PwC consultants disenchanted with IBM's culture, the most common grumbles are perhaps the company's bureaucratic structure and a growing shortage of mentors – a role PwC partners actively played. PwC Consulting is only one of many companies IBM has recently devoured (since 1995, it has acquired more than 30 software companies). Still, no one acquisition has come to play a more central role in the company's future vision. It is just such a distinction that has put a spotlight on IBM strategy consulting capabilities, and obligated its leadership to articulate the value consulting brings industry. It's a platform unlike any the consulting profession has ever had, and one IBM now routinely uses to cultivate its vision as demonstrated by Palmisano's remarks at last year's analyst meeting: "In short, what we did is that we took some people out of IBM Research and some of the process experts in PricewaterhouseCoopers and we locked them in a room to study 15 industries, reconceptualize the business models, create it from scratch, create a new blueprint …"
No doubt Palmisano's shorthand description was intended for the ears of his Wall Street audience – one with a laser focus on operating numbers but known to be somewhat deaf when it comes to the fine points of culture. "I would say that the one thing Wall Street investors don't understand about these businesses – and it's what they sort of haven't quite figured out – is the value of culture in knowledge-based businesses," says Mel Bergstein, chairman and chief executive of DiamondCluster International, a firm he has led since it was a 20-person, privately held boutique. (Today, it is a $500 million publicly held consulting company.) "We haven't quite been able to explain it to them in a way that they get it yet, and that's probably our fault. At the end of the day, it's the culture of the people-based business that really is the big value piece, and the culture in these kinds of businesses has everything to do with institutional loyalty." David Maister, author of the highly acclaimed Managing the Professional Service Firm, says culture will ultimately determine the quality of services IBM offers its clients. "Every firm says that they are committed to client service, but the real question IBM needs to ask itself is how do they get their people to be great at client service, and in a business like consulting this is not achieved through fixed processes or control systems or resource allocation methods, it is achieved by turning your people on and by managing the culture and establishing real
values."

The Unbearable Lightness of Values

Even if IBM succeeded in removing certain layers of bureaucracy and was able to offer senior consultants the autonomy partners enjoy within the top strategic partnerships, it would still be set apart by its shareholders. "When you're publicly traded, your priorities have to be your shareholders first, and then your customers and your employees. In the advice business, what's critical over time is to put your clients' interests first," explains John Donahoe, Worldwide Managing Director of Bain & Company. It's a quandary, but one IBM management appears sensitive to, having recently reworked its values – three finely crafted dictums that appear to echo the sentiments not of Wall Street, but of IBM's strategy firm rivals. First authored by Tom Watson, Jr.'s father Tom, Sr., IBM's Basic Beliefs stood untouched for nearly 60 years. The act of rewriting such codes should not be shrugged off given the role they played in establishing IBM's culture in the last century. Behind the formidable culture that for so many defined the post-World War II corporate world, were three core beliefs: excellence in everything we do, superior customer service, and respect for the individual. Given the fact that IBM was a product company, it's no surprise that its values differed from those of the top consulting firms of the day, such as McKinsey & Company, whose first value (authored about the same time as IBM's) remains unchanged – "To put client interests ahead of firm interests" – or the blunt admonition of James Allen (of Booz Allen Hamilton): "The best way to sell business is to do good work for our clients." The differences are no longer as apparent when compared to IBM's newly minted first value: "Dedication to every client's success." Followed by: "Innovation that matters for our company and the world," and "Trust and personal responsibility in all relationships." If IBM can be accused of cribbing somewhat from the consulting leaders of the last century, its approach to constructing and instilling values is unlike anything the consulting profession has seen before. While men like Marvin Bower and Edwin Booz have been described in the past as having taken a priestlike approach or a one-to-one approach to instilling values, Palmisano – given the maturity and scale of the IBM workforce – has a far more formidable challenge. In short, IBM's CEO is tasked with making IBM's workforce born again. "Given the realities of a smart, global, independent-minded, 21st-century workforce like ours, I don't believe that something as vital and personal as values can be dictated from the top," Palmisano wrote in a company wide message that announced IBM's newly minted values. According to his letter, those values surfaced and became affirmed across IBM's global intranet when, back in 2003, IBM management invited all of its 319,000 employees to engage in a 72-hour open discussion about IBM's values. The "Jam," as such online gabfests have become known within IBM, was one of several that IBM has held in recent years as it seeks to build grassroots consensus and validate ideas.

Between the Lines

Some 50 years earlier, when Thomas Watson, Jr., struggled to build similar consensus concerning the need of IBM to adopt a new organizational model, he convened what would become a momentous meeting within the annals of IBM history. Just what contribution consultant John L. Burns made to this gathering is not known, but according to a published history of Booz Allen Hamilton, Burns was one of the firm's top organizational consultants, having cultivated a r?sum? rich in client studies, including a number completed for RCA. To his credit, Watson does mention that Burns had revealed to him that he was a consultant to RCA. Moreover, the Booz Allen consultant informed Watson that he would need to get RCA's permission before accepting any assignment from IBM. To that end, Burns participated in one of IBM's historical reorganizations – a reshuffling of resources that facilitated the adoption of the computer maker's infamous staff and line structures. These are the same lines that today burden the workforce not of a computer maker, but of a consultancy. BOX START:
IBM Values: An Ongoing Story
Back in 1993, Gerstner authored eight of his own. In his book titled Who Says Elephants Can't Dance? (2002), IBM's then-chairman Lou Gerstner frequently emphasized how the company's strategic bet on consulting services subsequently raised the bar for the company's management performance. "I have worked in services companies (McKinsey and American Express) and product companies (RJR Nabisco and IBM). I will state unequivocally that services businesses are much more difficult to manage," Gerstner wrote.
Of the four companies that Gerstner mentions, there is little doubt that McKinsey & Company – arguably the most esteemed consulting firm of the 20th century – enlightened him most about the unique inner workings of knowledge-based companies. It was here where Gerstner worked beside Marvin Bower, McKinsey's modern founder and someone widely credited as a pioneer of corporate culture in professional services. "I learned from Marvin the importance of articulating a set of principles that drive people's behavior and actions. And that's a much more powerful leadership tool than a bunch of procedures and guidelines – particularly in a knowledge-based enterprise like consulting," Gerstner told Consulting Magazine during an interview about Bower's influence on the industry. He continued: "I learned this from Marvin, and I've carried it forward to every company I've operated in. IBM has been the most important place for me to follow that, because IBM in a sense is a knowledge company just as McKinsey is." Within six months of his arrival at IBM in April 1993, Gerstner says in his book, he authored the eight principles he describes as the underpinnings of IBM's new culture at that time. Not short on verbiage or elegant in composition, the eight wordy dictums were in stark contrast to the company's Basic Beliefs – three sparingly worded values handed down by the Watson tribe (IBM's founders).  The eight were intended to prescribe some strong medicine for an ailing workforce, and were arguably the correct prescription for IBM in 1993. A dozen years later, Gerstner's successor has sought to lessen his own professional services leadership burden by better defining those values that could help accomplish IBM's 21st-century mission.

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