The Bloor Perspective: IBM and PwC, Vodafone churn and stress costs

Where HP tried and failed, IBM has succeeded. In July 2000 HP CEO Carly Fiorina made an offer of $18bn for PwC Consulting in an attempt to build up HP's services capability. The reaction from the marketplace and analysts was negative and in November that year the offer was withdrawn. Carly's eye was eventually caught by Compaq and the rest, as they say, is history.

Word has it IBM was considering an acquisition at the same time but felt the price tag unrealistic. Time has moved forward and two years later Big Blue has snapped up PwC for the bargain price of $3.5bn in cash and stock. It is still subject to passing through the relevant regulator bodies.

The move will add 30,000 bodies to IBM's Global Services operation, which currently employs 150,000. Revenue-wise, PwC will add $5bn to IBM Global Service's $35bn take. It is hoped the deal will be accretive by the fourth quarter 2003 and will be delivering double-digit revenue growth by 2004.

Although PwC will move into the IBM Global Services organisation, it will be run as a separate brand. It is hoped PwC will bring with it deep client relationships, a strong management team and expertise in areas such as ERP, CRM and supply chain.

So, the $3.5bn question is what does this mean to the market. As many companies have seen, two years can make one hell of a difference to your value and based on this transaction PwC has fallen into the 80 per cent club, rather than the infamous 90 per cent club.

One of the biggest challenges will be that of integration. This was supposed to be one of the failings of the HP-Compaq merger and so far has been a completely unfounded fear. Just how well a partnership-based 'firm' will fit into Big Blue's structure has yet to be seen.

Another potential issue is how well PwC's partnership relationships will stand up to the announcement. Being a pure-play services organisation means PwC relies on partners to be able to offer the one-stop shop companies such as IBM can offer. It's more than likely there will be some conflict of interest that will need to be resolved quickly.

At the moment it's early days. The move puts IBM ahead of the rest of the pack by a considerable amount - EDS has circa 140,000 employees, while Accenture, CSC and the new HP have circa 60,000 - 75,000 employees.

One thing is for sure: the deal is the first sign that Sam Palmisano is putting his head on the block. Will he follow in Lou's footsteps and turn around the Big Blue machine? We'll see.

*Churn baby, churn*

Vodafone last week spread the word it had chalked a new first for itself. It's losing customers. Not just one or two either - 200,000 over a quarter.

Vodafone was braced for the reaction from the markets and helped counter the problem with the fact that, despite losing customers, its user base is spending more money.

Vodafone isn't expecting numbers to be any rosier in the next quarter either. It says it will see more customers leaving. Many of them are unprofitable pay-as-you-go customers who have not renewed their phones since prices were hiked.

This is a bit of a grey area for wireless companies. Vodafone et al have a huge chunk of pre-paid customers - they're a conversion programme waiting to happen. Money will be made by getting them onto long-term contracts. That's where the money is.

Does that mean Vodafone losing customers is bad? It is but the caveat is that making more money out of the existing customer base is great news. All mobile operators are keen to cut out the incredibly high customer acquisition costs - keeping them happy and squeezing more revenue from them instead.

The other problem companies like Vodafone are suffering from is a mobile market that has recently been very flat in the UK. There's little to tempt people anymore, except colour screens. And they'll really arrive with 3G. Hutchison3G, a UK 3G licence holder, is launching its long awaited service soon - in Italy, incidentally.

There are some people still making money out of the turmoil, however. Carphone Warehouse, the large high street retailer, has started to see an upturn. In May and June this year it reported a 10 per cent sales increase - after months of flat market.

Carphone Warehouse, incidentally, is now chaired by Hans Snook, ex-boss of Orange. Perhaps it's time Vodafone did a poaching job.

*Stressed, ill and costly*

The latest study from the Chartered Institute of Personnel and Development (CIPD) states the number of days taken off sick by individuals on average has risen slightly since last year to 10, up from 9.3.

Having questioned more than 1,300 organisations, representing in excess of 1.5 million people, the CIPD has come to the conclusion the average day off sick costs businesses £522 per person, per year. That's a lot of money for a sizeable organisation and one, it seems, not being tackled as well as it could be.

The main reason for long-term sickness is that great salesman killer, stress. It can affect anybody but in the case of non-manual workers 44 per cent said stress had accounted for more than four weeks of absence by employees. Twenty-eight per cent of respondents said acute medical conditions had also accounted for more than four weeks of absence by individual employees. In the case of manual workers this is typically back pain, cited by 30 per cent of respondents.

The most common cause of sickness for both types of worker, manual and non-manual, is the common cold, along with the flu and other relatively minor ailments. Worryingly, long-term sickness now accounts for as much as 20 per cent of all sickness - and that equates to a staggering amount of money.

Many companies do have procedures in place to target and reduce sickness, typically aiming to reduce it by between 3 and 3.9 per cent - the most popular is providing sickness information to line managers, cited by 81 per cent of those questioned.

Absence triggers are used by 78 per cent of organisations, occupational health professionals are used by 77 per cent and, that old classic, reducing sick pay, is used by 76 per cent. Seventy-five per cent of the organisations polled have introduced disciplinary action for unjustified sickness.

Bloor Research is a leading independent analyst organisation in Europe. You can find out more at http://www.bloor-research.com or by emailing mail@bloor-research.com.