IBM’s Second Transformation

Some call it IBM’s second transformation. In keeping with its highly

illustrious and much talked about image of turning the bend from a hardware

focussed entity in the early 90s to an organization that could deal with

software and services with equal success, IBM announced in the last quarters of

2003 another tactical change in the way they do business. "It was more or

less a huge strategic decision to transform our sales coverage model. The

backbone to the transformation is that the customer’s mindset has changed and

he is now buying ideas and software solutions instead of brands. IBM decided to

realign its forces around a set of industry solutions that are more specifically

matched to the way a customer buys software," says Richard Smith, APAC VP

for Sales and Operations, IBM Software Group.

And how does the transformation translate to ground reality? Mostly it

involves a reorientation of the sales force to give a more comprehensive push to

IBM’s middleware offerings. Beginning January 2004, IBM’s sales force,

numbering over 13,000 will function more as solution providers than individual

brand ambassadors.

IBM’s Software Group, valued at close to $14 billion, functions through

five distinct product categories - Lotus (its communication and collaborative

software), Rational (its software development tool), Websphere (enterprise

software to manage business function on the web), DB2 (database software) and

Tivoli (software for network and storage management). According to Smith, with

this change, sales people will present solutions that can comprise components

from the different groups to customers, based on their industry needs.

"I would call it a natural evolution in software and services. We will

focus on 12 technology areas initially including content management, business

intelligence, Linux, storage, development tools and data centric automation.

Vertical focus areas would include banking, financial markets, automotive,

retail, telco, healthcare, government and life sciences among others," says

Smith. He added that of 2200 sales personnel in Asia, close to 60% had already

been retrained for a broader technological understanding.

All considered, the strategy makes perfect sense when one considers the

larger picture of On Demand computing which has been IBM’s focal point since

it was taken over by present CEO Sam Palmisano. Understanding the role of the

local partner to comprehend customer requirements better, IBM also plans to

leverage on its existing partners and ISV strengths — to which they plan to

continuously add through the year — to better establish the strategy. In fact,

close to $15 million has been allocated by IBM for marketing and development

support for ISVs in Asia.

And IBM seems to have made a success story out of the strategy for the first

quarter of operations at least.

But then the game might be too early to predict a home run. For one, while

IBM continues to push the middleware front aggressively (it has picked up a

string of companies since 2001, the most recent of which was Trigo Technologies

in April 2004, to augment its offerings in the space), application ERP vendors

like SAP and PeopleSoft have announced plans to integrate and work on the

application front to aid in doing away with middleware completely.

For another, the recent truce between Sun and Microsoft could hit IBM from

the two fold directions of Linux and the Java development platform. Though the

ink on the pact has not dried yet and it is too early to state anything, one

cannot but wonder on what the future holds for Web Services and Java as an open

standard.

On the other hand, nothing much has come of the noises made by ERP vendors to

date and IBM might just have the girth enough to push through and make big on

the middleware front with its new strategy. Another potential strength is the

fact that none of IBM’s competitors have the kind of reach IBM has in the

industry.

But whether this second transformation will create the success for IBM that

the first one did is something that the future will have to tell. With the

Software group contributing much higher margins (85%) than both global services

and hardware segments, it’s a bargain that IBM is betting on to a huge extent.

But then, who says elephants can’t dance?

Sathya Mithra Ashok in Bangalore