IBM spurs concern with bid for PwC

IBM Corp.'s pending $3.5 billion acquisition of PwC Consulting, PricewaterhouseCooper's business consulting and technology services unit, has business partners on government contracts and agencies concerned about the consulting giant's ability to remain objective.

The proposed cash-and-stock deal, disclosed last week, is expected to close by the end of September. If the deal goes through, PwC Consulting would be folded into IBM Global Services, IBM's integration and outsourcing arm.

A PwC spokesman said that combining the two companies will provide customers with access to an expanded set of solutions.

PwC, like Accenture and other consulting firms, is frequently brought in by federal agencies to provide an outsider's perspective on information technology problems. Because they have no stake in the products or services that make up the eventual solution, consulting firms are valued for their objectivity.

As a result, PwC's merger into IBM raises some questions, observers say.

Sun Microsystems Inc. is among those IT companies eyeing developments. Sun is interested in the outcome of the acquisition because of its work with PwC Consulting on an airport security system. EDS, along with Sun and PwC Consulting, debuted the National Integrated Security Suite in March, targeting the government's transportation security efforts.

A Sun spokeswoman said the acquisition would "absolutely not" alter its relationship with PwC Consulting in the near term, but added that Sun would monitor the situation. "It's our hope that PwC will be able to maintain objectivity."

Hewlett-Packard Co., which works with PwC Consulting in the aviation sector, is reviewing the acquisition as well. PwC Consulting has been among five large integrators teaming with HP Services. An HP spokeswoman says the company is re-evaluating its relationship with PwC Consulting.

HP had an opportunity to purchase PwC Consulting in recent weeks but decided against such a move. HP officials now believe the IBM/PwC Consulting integration will be "hard to do," according to a statement from HP. "We understand how hard it will be to integrate these two businesses because of the PwC partnership model and that some customers will perceive this as a loss of independence."

Indeed, the vendor-independence issue has surfaced repeatedly over the years as consulting firms have developed closer ties with product vendors. Independence advocates argue that a consultancy loses objectivity when it is tightly allied with or owned by a company with a substantial product offering.

Robert Otto, vice president of IT for the U.S. Postal Service, said that IT executives are concerned about this issue. "One of the biggest challenges facing any [chief information officer] is the need to get accurate, unbiased assessments relative to technology. It is important that when we seek consulting advice that it reflects the best answer for our needs, relative to our requirements and business objectives."

But Otto expects consultants to cultivate relationships with key technology vendors. "This is critical if they are going to be allowed inside to see where they are going and what their strengths and weaknesses are," he said. "However, they need to ensure [that] they do not let this relationship unduly influence their objectivity and advice to their clients."

Ralph Martino, vice president of strategy and marketing for IBM Global Services, said IBM frequently works in multivendor environments. He notes that many of IBM's outsourcing customers ask the company to run non-IBM servers. "The point is we have to provide what the customer wants."

Moreover, some executives said that the bundling of consulting and technology solutions is an approach consistent with the way many customers prefer to buy. Martino said customers were "clearly more interested in solutions."

James Kane, president and chief executive officer of market research firm Federal Sources Inc., said that the firm's evaluation of government statements of work shows that more customers are pursuing an end-to-end approach that includes consulting, systems design and integration. "The whole set of life cycle skills are included in one statement of work," he said. "We think that is strong evidence that government customers are looking for solutions."

Moore is a freelance writer based in Syracuse, N.Y.

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At your service

IBM Global Services

* Revenue: $35 billion (2001)

* Employees: 150,000

* Contribution: Outsourcing, integration

PwC Consulting

* Revenue: $4.9 billion (fiscal 2002)

* Employees: 30,000

* Contribution: Consulting, federal financial systems integration