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Inventing the agentic enterprise playbook at IBM: Phil Fersht with Mohamad Ali
281 Plays27 days ago
In the latest episode of From the Horse’s Mouth, Phil Fersht is joined by Mohamad Ali, Head of IBM Consulting. They delved into what happens when one of the largest services organizations begins operating more like a software firm in the AI era.
The conversation covered everything from how digital workers are reshaping delivery models, to the reimagination of margin structures and how value is defined. As enterprises demand more for less, Phil and Mohamad dig into IBM Consulting’s big bets and what the next phase of technology means for the industry.
What you’ll hear in 30 minutes:
- Why the consulting and software worlds are colliding
- How enterprise expectations are changing
- The growth of human and digital offerings.
- Whether AI driven efficiency shrinks margins or grows them
- What “trillions of agents” means for the modern enterprise
- Why leaders who stutter will fall behind in the AI era.
Guest Snapshot
Mohamad Ali leads IBM Consulting, overseeing the entire global services organization that generates over $20 billion in annual revenue. He spent almost 14 years at IBM between 1996 and 2009, before embarking on an career that saw him serve as the CEO at two different companies, before ultimately returning to help lead IBM’s enterprise AI play in 2023.
Explore More
Phil Fersht on LinkedIn: https://www.linkedin.com/in/pfersht/
HFS Research Website: https://www.hfsresearch.com/
Mohamad Ali on LinkedIn: https://www.linkedin.com/in/alimohamad/
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Transcript
Introduction to the Podcast
00:00:00
Speaker
Phil Furst, Hello and welcome to the latest edition of From the Horse's Mouth podcast. I'm your host, Phil Furst. And joining
Guest Introduction: Muhammad Ali
00:00:06
Speaker
me today is the head of IBM Consulting himself, Muhammad Ali. It's great have you on here. I'd
IBM's Strategy on Services as Software
00:00:12
Speaker
love to learn a bit more today, obviously about you, but also Where is IBM going with its whole strategy around, we call this, services of software and around all the things that you're trying to do since you've joined the company? Perhaps you could start with a bit of your background. And I know you were at IBM in your earlier career and then you came back a couple of years ago. Well,
Career Journey of Muhammad Ali
00:00:33
Speaker
first of all, Phil, thank you very much for having me on From the Horse's Mouth, which is convenient given that it's the Year of the Horse. We already started off.
00:00:44
Speaker
That's right. I came back to IBM a couple of years ago. actually started my career at a small
Transition to Enterprise AI at IBM
00:00:51
Speaker
company after graduating from a college called Neural Applications Corporation.
00:00:56
Speaker
We actually built neural networks and we eventually sold the company. I joined ibm and was here for about 14 years. i worked in the software business for much of that time.
00:01:07
Speaker
I left out with CEO of two companies. And then once the IBM took a big swing at the becoming the leader in enterprise AI, I thought it was a good time to come back and rejoin the company.
00:01:20
Speaker
And this time, not in software, but in in consulting. Right. And,
Technological Adaptation and Services as Software
00:01:26
Speaker
um, How much of an adaption has that been for you personally? Because a lot of people who' have gone from services into software and it's a difficult transition. But going from where you came from into into the services business, during a time where there's so much change in technology, and of evolution happening, tell me what's been going on. What's it been like?
00:01:48
Speaker
Yeah, actually, it's been fascinating because, I mean, if you think about what's going on and, you know, you know use the term very early, right, which is services as software. So a lot of services is now getting encapsulated in bits of software, right? So these
Development of Digital Workers at IBM
00:02:05
Speaker
digital workers that we're building that help our customers our human workers do work much more efficiently, well, they're built with And yeah in my past life, that's what I helped build, right? I built software. And so one of the first things that we did when I rejoined the company here was to start thinking about how do we create a platform?
00:02:30
Speaker
that allows our consultants to very easily build these bits of software in a way that is reusable throughout the organization and and and it is also reusable with our clients. And so effectively, we started building a software business within IBM Consulting about two years ago.
00:02:50
Speaker
And today we have about 3,000 of these unique digital workers that we deploy on our project. So in some ways, you know, having that software background is probably a big reason why Arvind asked me to come into consulting and help try to transform consulting as it moves into this new era.
Applications of Digital Workers
00:03:08
Speaker
Right. So when you say you have a few thousand digital workers deployed, are you saying those are deployed to service your clients or they're deployed within your clients? So a little bit of both. We build these 3,000 unique digital workers and they're in 134 packages.
00:03:22
Speaker
so you can imagine each one of these packages has about 30 digital workers that do a particular thing, right? So in one case, we have a set digital workers that work in your cybersecurity operation center and they do threat investigations. It used to be that you would give a particular threat to person to go investigate it because it weren't that level of work.
00:03:44
Speaker
And now you would hand it off to these agents. These agents would do the investigations. They would plan the investigation. would run the investigation. They would up the report. They would highlight all kinds of things. And then they would hand it over to a human being to verify all of this, right? So it's still very much human in the loop. But that's an example of how these digital workers are used. Now, in that particular case, they could be used by us to provide the service to our client or could used by our client to provide that service for themselves. You talk a lot around consulting advantage and how this has impacted the way that you're going to market.
AI's Impact on IBM Consulting
00:04:18
Speaker
How seismic has the change been for such a traditional firm like IBM and how have you battled with it? Pretty seismic and I mean in ah in a great way right? I mean you've probably seen our performance and we've been doing pretty fairly well and a part of that is us deploy deploying AI on ourselves. So within consulting, as you you mentioned the name, IBM Consulting Advantage, we built this software platform that allowed us to create these 3,000 digital workers. And this is an ongoing process. Like we're always creating more, we're finding what we have.
00:04:51
Speaker
But IBM Consulting Advantage serves as that effectively software platform that allows us to deploy these digital workers wit along with our our our human colleagues,
00:05:04
Speaker
on these projects and we have in excess of 200 major projects now where we we are delivering it with this type of an approach. Right, and would you say this has been more of a like push onto your clients or they're pulling you in saying we want this type of offering?
00:05:22
Speaker
it's It's definitely a pull. I mean, you know, now when you show up at clients, clients will say, well, in the old days, you know, you used to be able to do this project for this much cost. Now
Client Expectations and AI-driven Innovation
00:05:33
Speaker
we want it done for this much cost, which is, you know, mostly always less, right? And sometimes meaningfully less. And the reason they get to that point is they expect that you are going to be using these modern technologies, these, you know, AI technologies and deploying it within the process in order to deliver that value through them. Now, oftentimes they say, well, that's great. You know, I want, I want this piece of work at this less cost. But one of the good things about the business is that frees up some part of their budget. And oftentimes they will redeploy that budget for some sort of innovation project. And so it's, it is very much an expectation now of the clients that we are delivering with human plus digital labor. What's fascinating is, and I was reading about, i think Jevin's principle, that the more you can provide efficiency and intelligence at cheaper prices, the more your clients actually want. So ultimately, how do you make more money out of your clients? Because
Historical Tech Advancements and AI
00:06:28
Speaker
they're saying, hey, like you've been delivering these services for 20 years and we've been spending, I don't know, 10 million a year. Now we want to spend less. So how do you say, right, we're going to deliver back to you what we've been doing for unto perpetuity, but we think we can deliver it at significantly less cost because of the technology, but we're now going to start delivering you more data, more alignment, more strategy. Is is that the goal? Is it, like, how can we actually now
00:06:52
Speaker
move up the chain and start to get more intimate. And they get even simpler for you, right? Like, so you you commented on that principle. And,
Tech Advancements Boosting Market Demand
00:07:00
Speaker
you know if you go back in history, whether decades or or centuries, one of the things that that you'll notice is that yeah Every time there has been a major technological inflection that has lowered the cost of production, the GDP has actually increased and increased meaningfully, right? And so then let's apply that to ourselves in in the technology space, right? So when cloud came into existence, and the cost of developing apps went down dramatically because you'd go to the cloud, the cloud would have all these, you know pre-configured building blocks. You'd be able to build these things very quickly. And so what what happened? It's not like the market declined. Actually, what happened was that there was more demand for cloud-based applications, right? And so the market grew. When it came to, you know, the mobile, for example, the the the iPhone, it used to be that we would build these monolithic apps. When the the iPhone and and, you know, these mobile apps came along, again, it was very much, much easier to build these apps.
00:08:01
Speaker
But what happened? People wanted not hundreds of large apps. They wanted millions of these tiny apps. So, you know, we all got into the business of building all these mobile apps for our clients to do all kinds of things, right? From major food companies to airline, reserva, bookings, apps, et cetera, et cetera. And so I think the principle that you just...
00:08:21
Speaker
laid out is I think we have seen this over and over and I actually think it's going to repeat itself. So what's happening in our time now with AI? So
AI Transforming Business Models
00:08:32
Speaker
clients are not coming to us. We have client, the partner who's working on it, which was in my office yesterday, and he was saying, hey, listen, the client asked us to build these three agents for them. And we did it and it delivered this value. Now they want another three, and now they want a factory to build all these agents, right? So this is not stuff that we used to do before. But all of a sudden, instead of having millions of mobile apps, we're going to have trillions of agents.
00:09:00
Speaker
And somebody's got to build those agents. So this this is all incremental work in some ways to to what we do today now. To your point, the the work that we do today, a lot of it can be delivered at lower costs and the clients are expecting to be able to get that savings and then redeploy it on all these new things like these digital workers that that, you know, they hadn't envisioned before, but now they can envision them. They can put them to work. So I think your principle actually going to play out. Yeah, because it's like, if you're, say, just delivering, don't know, some sort of transactional finance for a client, which is kind of flat anyway, they want to save money. Once you show, this is how we work together to build agents,
Horizontal Expansion with AI
00:09:41
Speaker
train your people, think differently, you're going to be the first one they come to you to say, right, how can we not do this in marketing? How can we do this in supply chain? So it's a whole new capability that's evolving and it's kind it's becoming more horizontal, right? Because it's like, once you learn how to manage these,
00:09:57
Speaker
technology, it doesn't matter if it's in finance or it's in marketing or it's in sales because it's about how do you do it? it's It's about a different mindset, right? It's a different mindset. I think those words really matter because you're going to be able to create business models that just didn't exist before.
00:10:12
Speaker
Right. And we are starting to see that with some of our clients where within their existing business, They're doing things that just couldn't have been done before. And I can give you some examples. And we're also seeing businesses come into existence that couldn't have come into existence before, right? Because of AI.
00:10:29
Speaker
And
AI in Traditional Business Efficiency
00:10:30
Speaker
so maybe maybe I'll give you one example of a traditional business that started using AI and they couldn't have they couldn't have actually done what I'm talking about before. And so this particular business makes electronic components. So Phil, if you were going to go build a data center, the data center was going to cost you you know a billion dollars, you'd probably buy five million dollars worth of these connectors from this company. And the connectors are probably a dollar each, right? And so they would get these orders for five million dollars worth of individual components, and somebody would have to match this up to their catalog and and so forth, right? And this could take days.
00:11:06
Speaker
And so they asked us to build an agent for them that allow them to do this in minutes. So that's a traditional process that all of a sudden you can do in a shorter period of time. The CEO comes along and sit and sees this says, hey, you know I don't view this as just an efficiency gain.
00:11:20
Speaker
I view this as incredible insights into what I'm selling to my clients. So what I'd like you to do is if you could look at my catalog and figure out what I've got, can you look at everybody else's catalog because it's all open and figure out what they have and what's available.
00:11:35
Speaker
And so things that are not available in lots and lots of places, let's put some sort of price premium on it. And all of a sudden, this becomes a revenue generator for the company, a growth driver for the company. And so if you think about that, you know, technology from three years ago could not have done this. You could not create a business model like this. So all of a sudden, you know you have your agents mining the world so that you can have you know better pricing efficiency. Now, you play that out and you say, well, the competor competitor is going to figure this out at some point and they're going to hire somebody else, not IBM Consulting, but one of our competitors to build agents that to you know do the the exact same thing the opposite way. And then you have sort of an agent on agent and economy, right? So think about how this thing is unfolding and it's unfolding in a way like,
00:12:21
Speaker
With the technology from three years ago, this could not have happened, but now it's happening. So how do you win as a services-led company in this market? Is
Competitive Edge in AI Market
00:12:30
Speaker
it through just training the best talent and acquiring the best talent, changing your reward structures around that, or is this something else?
00:12:38
Speaker
Well, I think it's at least twofold, right? And you touched on one of them and the other one we've been talking about, which is, I think you need the best technology and you need to build the best digital workers, right? Because, you know, if you go out there and you use a standard model, a standard model is trained on the internet. It's not trained on sort of the very specific things that enterprises do.
00:13:00
Speaker
And so these enterprises are all going to need unique digital workers for finance processes and HR processes and procurement processes and so forth. And it's going to have to be plumbed into their systems, right, in order to work.
00:13:14
Speaker
And that's why we built IBM Consulting Advantage, because we needed this ability to build these digital workers you know, kind of an enterprise and environment and plumb them into the systems. And then on the other side is to have a set of incredibly talented engineers and consultants who know how to use these tools in the best possible way, right? So, you know, i talk about human plus digital labor. There's a lot packed in there, right? You need to have the best human labor and you need to have the best digital labor, right? Which is the technology and you put those together. And I think that gives you a competitive advantage. And has this brought IBM Consulting almost closer to your software business?
Integrated Solutions through Software Expertise
00:13:52
Speaker
Because I remember before you you took over, there was a lot of, you know, before the big wave in 2022, there was always the talk around should IBM Consulting deliver third-party technology or IBM technology? Has that changed now? Do you feel it would be a gigantic wave? Well, I mean, it gives us an advantage to have access to all these software engineers, right? So when I rejoined IBM and I joined IBM Consulting, I needed a set of software engineers to go build IBM Consulting Advantage because I needed to enterprise-grade product. quality, etc. And I got those software engineers by going over our software colleagues and say, hey, can I have 100 software engineers to start? And they moved them over and we got going, right? And today we've been building up that software capability and we don't have to replicate everything. We use the same software process methodologies that tried and true.
00:14:42
Speaker
mean, there are all these capabilities that are already built. that we don't have to go and rebuild with an IBM consultant. We can leverage that. Having said that, mean, our partners are extraordinarily important. And, you know, at least half of our business is associated with some sort of partner. And so we we have 33,000 Microsoft certified professionals, right? So our Microsoft business is a very important business, our Amazon business, our SAP business.
00:15:09
Speaker
our Salesforce business, et cetera. So these partners that bring other technologies to the table, anthropic, right? the These other technologies are absolutely essential for us to bowl together with IBM technologies to bring the best to the client. What do you
Opportunities with Anthropic's Approach
00:15:26
Speaker
take on what Dario's been obviously having? They're having a bit of an existential crisis. I don't know what's going but there's a lot of talk around you know the impact on the industry and humanity and all this sort of stuff. But what's your take on Anthropic coming out saying, we're going to now really eat into SaaS apps, work apps, we're going to really take it over. Do you see this as generally existential or it's just creating more opportunity for companies like yourselves? Well, I do think it creates more opportunity for technology companies and technology-based consulting companies, right? And you know we happen to have both parts of that. Having said that, I think there's going to be a shift in the kind of work that people do because
00:16:06
Speaker
Some of this work is going to get automated, but we've experienced automation you know decade after decade after decade. It will to be quite a bit faster this time around. I think every
Automation and Skill Adaptation
00:16:16
Speaker
time it's faster, right? So certain processes is going to get automated. Coding, for example, I think a lot of that is going to get automated. And so what that's going to do is to you know the people who are going to code less are going to be required to architect things and design things and so forth, right?
00:16:33
Speaker
So people are going to have to retrain themselves. I mean, if you're in procurement and now, you know, a big part of your work is using an agent to to do your work, you're going to reskill yourself to be one of those people who know how to use an agent, right? i mean, we actually have an employee like that that I met the other day. And, you know, she's 17-year expert on financial reconciliation. And we we built a set of digital workers and gave it to her.
00:17:00
Speaker
And she uses these now and she is so proud of it because, you know, her client is an external CFO in another company, a big publicly traded company. And she now has way more confidence in the in the accuracy and quality of this financial reconciliation than she had before, because she actually has more well tools to do it better and more time to double check it. Right. And so there is somebody who actively yeah embraced this technology adapted to it and is now a leader. Like I
Innovating with AI in Traditional Fields
00:17:34
Speaker
am absolutely confident that person is going to continue to evolve in a very, very positive way as the technology automates parts of what she does. Right. And so I think we're going to need to have people who are willing to retrain themselves.
00:17:49
Speaker
And those who are not willing to train themselves are going to be impacted. I couldn't agree with this more. And I've got so many personal professional examples of people who thrive in a situation. And I've got friends who are literally saying, right, I'm getting out of re accounting. I'm going to do something else.
00:18:03
Speaker
but That friend of yours, right? but I don't know which one, which one is your friend, but you know, the person who who said, I'm getting out of accounting, that's kind of interesting. But the person who said, Hey, listen, I'm going to use accounting to create a whole new business model for my accounting business.
00:18:17
Speaker
I mean, I think that person is going to do very well. Yeah, you're spot on. Well, this is fantastic. Just talking about this, i've I've enjoyed talking around services of software and watching it evolve to the point where it's now headline news and yes, it's causing some disruption, but I think I've never personally been so excited as an analyst covering this space and the excitement and the sheer I don't know, energy, a little bit of fear, a little bit of anxiety. yeah I mean,
Excitement for Services as Software
00:18:40
Speaker
this is what drives an industry, right? Yeah, absolutely. mean, it's exciting. And Phil, I remember, I think I met you two years ago ah when I joined, right? And I think, I don't know if it was in that first meeting or second meeting or third meeting, I think you mentioned this concept, services as software.
00:18:55
Speaker
And I thought about it and I realized that is exactly what we're building, right? And so I think you've been at the forefront of thinking about it, but it is an exciting time. This market is is changing and I mean, why not want to be part of this? Yeah, well, I think so much of it is because we're using so many of these tools personally in our own lives, both personal and professional lives. So we're seeing ourselves like, I go to work on a Monday and I don't want to tolerate using old systems that don't integrate and old mindsets because I'm living differently. So I think a lot of this, we call it the velocity gap between our personal experiences and capabilities and what we're seeing and experiencing in our companies. And if our companies aren't keeping up with us, they're go work somewhere else.
00:19:37
Speaker
you know So a lot of this is adapting that corporate mindset to being more open, thinking differently, and trying to be less sort of nervous about the future. On the consumer side, AI is is everywhere and it's become part of our lives. And the
Personal Story: AI in Everyday Life
00:19:52
Speaker
idea that we wouldn't be as aggressively using that technology in the enterprise you know is is just misplaced. We have to.
00:19:59
Speaker
You know, the other day I was talking to my son and I said to him that I was at this party and there were two people with the same birthday and he said, well, do you know that if you're in a room and there are 23 people, there's over a 50% chance that this is true. And was like, wow, that's kind of interesting. So I actually started trying to prove it mathematically. I ran into some issues. So, so of course, you know, I go to an AI tool and I ask it and it provides this incredibly like just simple proof.
00:20:25
Speaker
as to why that is true. And so then I called my son back and we you know we chatted about it because he's sort of mathematically interested too, right? And so, you know, I mean, this is just like a silly example of how it's infiltrated our lives. I mean, people are obviously using it for planning vacations and whatever else, right?
00:20:42
Speaker
But it's in all of our lives in all these different ways. And so I think those leaders who are not aggressively embracing it are going to fall behind because those who do are going to get a lot of benefit and it's here. It's here. I think you're absolutely right. I think my wife's chat to you because she knows me.
00:20:59
Speaker
but I could probably just go and chat to her. Here you go. You're being automated, right? Yeah, probably. Yeah, yeah. Well, this
Closing and Engagement Encouragement
00:21:10
Speaker
is great. I really enjoyed you joining the podcast and looking forward to everyone hearing our conversation.
00:21:16
Speaker
It'll be good fun and seeing you again pretty soon.
00:21:22
Speaker
Thanks for tuning in to From the Horse's Mouth, intrepid conversations with Phil First. Remember to follow Phil on LinkedIn and subscribe and like on YouTube, Apple Podcasts, Spotify, or your favorite platform for no-nonsense takes on the intricate dance between technology, business, and ideological systems.
00:21:41
Speaker
Got something to add to the discussion? Let's have it. Drop us a line at fromthehorsesmouth at hfsresearch.com or connect with Phil on LinkedIn.