1. June 13 2010 BUSINESS TODAY 103102 BUSINESS TODAY June 13 2010
T
wo weeks ago, Sam
Palmisano had a simple
message at an investor
meet: You ain’t seen noth-
ing yet. Well, those were
not the exact words used by the
Chairman and CEO of International
Business Machines, or IBM, but they
convey the essence of what he said.
IBM planstodoubleprofitsinfiveyears,
leaningheavilyonanalyticssoftware—
a suite of products, solutions and serv-
ices—that promise to extract never-
before value from the mountains of
dataeachofitsglobalclientsgenerate.
In doing so, Palmisano is steering
a company with some $96 billion, or
Rs 4,43,612 crore, in revenues (that’s
biggerthantheGDP ofallIndianstates,
exceptMaharashtra)intonewterritory
for the second time in a decade. A
year after he became CEO of IBM in
2001,withthecompanysetonapath
into technology services away from
hardware, Palmisano bought
PricewaterhouseCoopers’ consulting
business. In 2005, he sold IBM’s per-
sonal computer division to Lenovo.
And, in his next transformation,
the 53-year-old CEO of the biggest tech
andsoftwareservicesfirmintheworld
will need all the help from a little
known start-up he snapped up in
Gurgaon, a satellitecitysouth-westof
New Delhi, in April 2004: Daksh
eServices. A company which was
among the first movers in 1999 into
what would in later years be better
knownasbusinessprocessoutsourcing,
orBPO,services.Anoperationthathad
less than 6,000 employees and $60
million revenues when IBM was scout-
ing for an acquisition in that space.
Today called IBM Daksh globally (it
has 25 centres in India and the
Philippines), that 2004 buy has bec-
ome key to Big Blue’s—as IBM is called
from the days it sold blue-painted
mainframe computers—growth. Half
of the tech giant’s BPO operations are
grouped under IBM Daksh today; it is
some 30,000-people strong; and com-
petitorsreckonitturnsin$600million
in sales—a shade under half of IBM’s
India revenues—second only to its
biggest rival in India, Genpact.
Effectively, that means IBM Daksh
clocks in more revenues per employee
than at the rest of IBM, which employs
another 65,000 in tech services and
products, in India. (IBM does not dis-
close its revenues by services from
India.) “We had planned for success,
BPO—IBM DAKSH
IBM’s
Indian
Silver
BulletAftera2004buyout,IBMrefrainedfromintegratingDakshintoitsfoldletting
itbloomonitsown.Notonlyhasthebusinessgrownten-fold,BigBlueisnow
turningtotheIndianoutfitforitsnextbigbet:Analytics.JOSEY PULIYENTHURUTHEL
IIBBMM’’ssttoopplleeaarrnniinnggssffrroommDDaakksshh..
CUSTOMERISKING,TRULY
Upto one-sixth ofcall
centreagentsalarieslinked
tocustomersatisfaction,
othervariables.
HONESTYWORKS
Declinedalucrativeorderfor
locallanguagesupporttoan
Europeanairline:Itdidnot
havethepeople.
NIMBLENESSEQUALSSPEED
Canscaleupordown
agentsinaparticular
supportprocesswithnotice
aslessasafewweeks.
BEYONDPRODUCTIVITY
Tools,modelssuch
asSixSigmaorLean
implementedwithoverall
clientcontext,notjust
efficiencyofaparticular
process.
“Thereisarabidfocusoncustomercentricityandtrust.Therewasaclientthatcalledustosay
thatitwasmergingwithanothercompanyandwouldhavetorampupseatswithusrightaway
butwouldbeabletosignlegalcontractsonlylater.Wedidit” PPaavvaann VVaaiisshh,, CEO, IBM Daksh
Old Dog,
New Tricks
V I V A N M E H R A / w w w . i n d i a t o d a y i m a g e s . c o m
Pavan Vaish,
CEO, IBM Daksh

2. but got an even bigger success than
expected,”saysMoneshiaEltz,Director
(Corporate Development) for IBM in
the Central, Eastern Europe, Middle
East and Africa region. Eltz was one of
the key IBM executives tasked with
theDakshintegrationafterthebuyout.
The value that Daksh brings to
the IBM fold goes beyond just the size of
the business, say other IBM executives.
MostBPO firmshavesetuptheirIndian
operations with a labour-arbitrage
and talent-enhancement view. IBM,
says Randy Walker, General Manager
(Growth Markets, Services), from day
one treated Daksh as a profit centre
and not just a cost centre. This has led
to a “gainshare model” that IBM Daksh
has with most of its clients, where it
gets to share in financial upsides in
contractsor,moreoften,receiveshefty
bonuses when it meets targets.
CCuussttoommeerr CCeennttrraall
Daksh also helped IBM to move away
from its traditional stronghold of large
customers such as Procter & Gamble,
Dupont and Yahoo! to servicing
smaller clients like Indian online tick-
eting firm MakeMyTrip.com. Such
small and medium businesses (defined
as those with less than 1,000 emp-
loyees), Palmisano has predicted, will
make for IBM’s biggest customer seg-
ment. “Today, half of our customers
are from this segment; much more if
you take half the customers signed
on,” Walker says about IBM Daksh.
Ironically, for an acquirer some
1,600 times the size of Daksh by rev-
enues in 2004, IBM chose to play sec-
ond fiddle after the acquisition. Not
only did it not know the BPO business
(itsso-calledmanagedbusinessprocess
services, or MBPS, division was just a
year old), it had a rewarding experi-
ence from three years earlier when it
acquired PwC Consulting. That was
the first time IBM had chosen to move
itsbusinessintothatofanacquireden-
tity and it had been a game-changer,
giving IBM a big leg-up in high-value
software consulting. (See Don’t
Integrate Your Acquistions, Partner with
Them, Harvard Business Review
Exclusive, page 106.)
IBM saw such silver-bullet attrib-
utes in Daksh, too. The Indian firm’s
founders were outliers in a business
with roots in technology services that
was driven hard by measured
processes and watertight service level
agreements (SLAs). “This business,”
says John Lutz, General Manager,
MBPS, “is about hygiene versus delight.
Delivering customer value was a reli-
gion at Daksh.” Some 15 per cent of a
call centre executive’s salary, for ins-
tance, depends on variables such as
customer satisfaction.
Pavan Vaish, CEO, IBM Daksh, puts
that focus on customer and the ability
to take risks at the core of what his
operation does. “There is a rabid focus
on customer centricity and trust.
There was a client that called us to
say that it was merging with another
company and would have to ramp
up seats with us right away but would
be able to sign legal contracts only
later. We did it,” he said, declining to
name the client.
Vaish, one of the four co-founders
of Daksh, admits Daksh made several
mistakes along the way, but learnt
from each. For example, it had to sack
half of some 500 hires it had made
for Amazon (he won’t confirm the
name) when it was clear they could
not be trained up to speed.
Customer attentiveness and fleet-
footedness has helped IBM sign on
largecustomerssuchasUnilever,abig
chunk of whose work is handled by
IBM Daksh centres in India, to smaller
engagements such as financial soft-
ware firm Intuit (a less-than $1 billion
company when Daksh signed on as a
104 BUSINESS TODAY June 13 2010
“Wehadplannedforsuccess,butgotanevenbiggersuccess
thanexpected” MMoonneesshhiiaa EEllttzz,, Director (Corporate Development), IBM
BPO—IBM DAKSH
SHEKARGHOSH/www.indiatodayimages.com

3. service provider in January 2001).
Larry Wood, Director (Procurement)
at Intuit, recalls the time when sea-
sonal demand was putting inordinate
stress on support teams provided by
IBM Daksh. “Tax day in America is on
April 15 and our support shifts into
high gear in that period. One year,
IBM came with the idea of specialised
agents and trained them up to meet
immediate demand peaks in a matter
of weeks,” he told BT.
AAnnaallyyssee TThhiiss
IBM Daksh today has dozens of clients
and is helping other IBM BPO centres in
Egypt, Costa Rica, China, Korea, and
Australia, grow with its India-honed
advantages. In that expanding out-
reach, “it is the Daksh ‘solutioning’
mentality that is helping scale up or
down with nimbleness,” says Lutz,
who heads BPO work globally for IBM.
So, in Dalian, China, for instance,
saysPradeepK.Agrawal,ChiefQuality
Officer, MBPS, work for a Fortune 500
electronics retailer—IBM doesn’t name
clients—was meeting all SLA, revenue
andprofitabilitytargets.But“whenwe
looked closely, we realised we could
make significant savings on time by
changing a bit at the client end and a
bitatourend.Wedidjustthatwithout
beingaskedtodothat,”addsAgrawal,
who last year returned to India after a
18-month assignment in China.
The shift towards analytics—the
new business that Chairman
Palmisano is betting big stakes on—
hinges on IBM Daksh, in fact. IBM aims
to combine its research and product
capabilities with support services to
derivevalueforitscustomersbysifting
through data to increase revenues or
reduce costs or both. IBM points to itself
as the best demonstrable test case:
Over the last several years, it has red-
uced the number of CIOs (chief infor-
mation officers) from 128 to one, and
applications running internally and
with clients to 4,500 from 16,000; it
today runs shared services across
human resources, information tech-
nology, supply chain, realty man-
agement and other functions. “We
have saved $4 billion in four years
alone,” says Linda Sanford, Senior
Vice President (Enterprise
Transformation), and a direct report
to Palmisano. For customers who are
ready for transformation, analytics
is the way, she insists.
Suchanalyticsarealreadyatwork
at IBM Daksh’s Bangalore centre,
which is serving customers such as
Unilever. The consumer products
giant is targeting savings of some
m700 million (Rs 3,235 crore) under
an ambitious ‘One Unilever’ pro-
gramme to transform financial trans-
actions such as purchases and pay-
ments, general accounting, invoic-
ing and cash functions. “We devel-
oped tools to look into payment pat-
terns and do analytics for insights
such as predictive capabilities to spot
problem customers,” says Lutz.
That ability has IBM planning to
integrate a September 2009 acqui-
sition of RedPill Solutions, a
Singapore provider of high-end ana-
lytics services to banks, phone and
tech firms, and hotels, into IBM
Daksh. “RedPill is a major growth
item for us... we will sell it to our
existing client base and focus on
operations excellence and detail,”
says Walker, who, as head of BPO
services for Asia since February
2005, has overseen IBM Daksh from
its early days. “Daksh will ensure
that its wheels don’t come off as they
expand.” Palmisano would then
continue to feel smug about his
2004 purchase in Gurgaon.
June 13 2010 BUSINESS TODAY 105
IBMDakshtodayhasdozensofclientsand
ishelpingotherBPOcentresofIBMgrow
bytransplantingsomeofitsdifferentiators.
“TheBPObusinessisabouthygieneversusdelight.
DeliveringcustomervaluewasareligionatDaksh”
JJoohhnn LLuuttzz,, General Manager, MBPS