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IBM Touts Steps Toward Services 'Products'

Trying to squeeze more profit from its crucial services division, IBM Corp. is launching an effort to sell more repeatable "products" out of that unit and reduce its reliance on labor-intensive, customized consulting contracts.

By incorporating expertise and technology from IBM's software and hardware divisions, Big Blue believes it can cut costs for its services clients and give the company an edge that lower-cost overseas outsourcers will struggle to match.

"We're throwing the entire weight of our company behind this," said Mike Daniels, IBM's senior vice president for global technology services.

The first two service products, being announced Tuesday, are a package that analyzes communication networks and one that manages Internet-voice systems. Both will be sold by a new "integrated communications services" unit.

Armonk, N.Y.-based IBM says 30 more such services "products" will be released over the next eight weeks.

IBM has transformed itself into a services-led business over the past decade, with the division accounting for 55 percent of revenue and 200,000 of the company's 330,000 employees. But with increasing competition from India and other lower-cost areas, the services unit has seen revenue drop 1 percent this year.

It also is IBM's least profitable division, largely because of the high cost of consultant labor. That is why IBM is trying to use software and other repeatable attributes to reduce the labor component of its services offerings.

The main benefit of IBM's "product" approach is that it should help customers get results faster, said analyst Bob Djurdjevic of Annex Research. While IBM and other tech-services companies already sell various "reusable assets," IBM's new effort could be more comprehensive, he said, provided the $90 billion company can take advantage of its enormous scope.

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