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June 24, 1990

IBM’s 16% STAKE CAUSES COMPUTER TASK GROUP TO REFLECT ON FABLE OF THE WOLF AND THE DOG

By CBR Staff Writer

IBM’s large-scale investment in third party software firms, currently estimated at $500m (CI No 1,442), and mooted to rise to $1,000m before too long, seems to be less of a boon than some partners anticipated. Computer Systems News has recently highlighted the case of Buffalo, New York-based Computer Task Group, in which IBM has 15.2% stake. The company initially welcomed IBM’s attentions since it provided a $21m cash boost and prevented a possible takeover by Volmac Holdings BV, which has a 9.1% shareholding. Computer Task also expected its $12m IBM-derived business to grow, and that has happened, with a $5m increase in 1989. However, problems within IBM seem to have soured the relationship, and the Computer Taskmaster has undergone a period of rationalisation since the honeymoon period last summer. Over 300 employees have been made redundant, and 13 field offices have closed down. The US trade weekly attributes some of the problems to confusion in IBM as to which division actually manages the relationship. Systems Integration was responsible at the time of the agreement, but that division was actually in the process of winding up its activities. Computer Task Group was then shunted over to Systems Services, only to find that division was being reviewed. Consequently, Computer Task moved from software product development and implementation to facilities management, and Applications Solutions is now responsible for Computer Task’s programming work for IBM. This confusion was compounded by IBM’s apparent reluctance to involve the Task Group in anything but internal software developments, and according to Computer Systems News, large-scale systems integration and facilities management contracts have been few and far between. There has been some contract programming work, but contrary to expectations, this has not included any development effort on AD/Cycle. The paper also alleges that Stephen Carns, the former head of IBM Professional Services, gave his sales force the go-ahead to compete with Computer Task for contracts – and telling clients that they would get Computer Task’s services for nothing if IBM won the contract was apparently an acceptable tactic.

Penalty clauses

IBM is supposed to use at least 500 Computer Task staff by June 1991, and the contract contains penalty causes if IBM doesn’t honour the agreement. The newspaper quotes sources claiming IBM was so eager to eliminate Computer Task competition that it was prepared to pay a lump sum for the use of Computer Task’s staff – regardless of whether it does so. However, Computer Task did benefit from the 10-year facilities management deal that IBM signed with Bank South. Computer Task supplies the staff, and IBM does the capacity and hardware planning. David Campbell, chairman and chief executive of Computer Task, says that he expects business from the IBM connection to triple within five years and reach $100m. Consequently, he intends to increase the resources to implement IBM products. Computer Task staff also derive encouragement from Carns’ departure to CAP Gemini America, and a recent willingness within IBM to integrate staff in the marketing and services division, thus reducing the chances of conflict. Nonetheless, it does not dispell questions that several commentators have raised over IBM’s motives and tactics when it takes a stake in software developers. And in view of Campbell’s plan to devote more resources to IBM products, it is possible that the company will soon find itself locked into an IBM-dependency culture.

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