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Saturday, April 09, 2005

Sam Palmisano's New Vision For IBM

That IBM is making waves in the consulting and services market in the world is indeed felt by one and all. Businessweek has published a well researched article(sometimes I felt that this looked like an IBM brochure!!) about IBM's vision to create a new future for itslef. Excerpts with edits and comments added:

Specialized service companies might be able to handle everything else, from human resources to customer care. With this belief, Sam Palmisano has built this concept into a strategy that would with the goal to free IBM from the traditional IT services arena.Instead of merely selling and servicing technology, IBM is putting to use the immense resources it has in-house, from its software programmers to its 3,300 research scientists, to help companies like P&G rethink, remake, and even run their businesses - everything from accounting and customer service to human resources and procurement. "We're giving our clients a transformational lift," says Palmisano. He is out to transform the very nature and image of IBM with vision to carry IBM beyond that 20th century legacy, beyond computing while making IBM as indispensable to clients today as it was during the heyday of mainframes.
The change at IBM is palpable. The number of employees focused on business rather than pure technology has leaped from 3,500 in mid-2002 to more than 50,000 today - out of a total of 330,000. And that's growing at more than 10,000 a year. Meanwhile, in a painful process, other employees are exiting by the thousands - those in administration and computer repair, for instance, and from shuttered offices in Germany and Scandinavia. To pull off his strategy, Palmisano must win a torturous trifecta: He must manage wrenching change inside IBM while, as a pitchman, convincing corporate customers worldwide to hand over their operations. And he must deliver decisive results. This means turning laggards into leaders everywhere from emergency rooms to blast furnaces. The world of computing that IBM long ruled is increasingly becoming a commodity business. "The big question is: Will services go the same way hardware has? We think it will," says Steve Meyer, a vice-president in Dell's services unit.

The market opportunities are enormous.IDC estimates that in IBM's target markets, nearly half a trillion dollars are already flowing to outsourcers in everything from HR to industrial design. It expects the field to grow by 8% to 11% per year. Merrill Lynch assessed growth in annual growth in IBM Global Services from less than 5% a year over the next few years to as much as 9%, excluding currency effects. Business services promise to pretty up profits, too IBM estimates that it will be able to achieve 20% operating-profit margins - double the margins in traditional tech services. With his business-services push, Palmisano is building on top of the "On Demand Business" campaign he launched 2 1/2 years ago. The idea there: to use advanced computer and software technologies to quicken the flow of knowledge within corporations so executives can react instantly to changes. That's still a work in progress. Now, with business services, it's as if he's building a big addition onto a house that's still under construction.As IBM morphs from computer company into business expert, the vaunted 38,000-person sales force is undergoing a painful overhaul.In addition to its four original businesses - accounting, HR, customer service, and procurement -it is now plowing into six others. They include after-sales service for consumer electronics, insurance-claims processing, and supply-chain optimization Services. "In the past, IBM defended the mainframe against client-server computing and PCs," Palmisano says. "We're not defending the past anymore." No, IBM is off and running into a new world of business, beyond computers.

IBM seems to have envisioned the future well and executing well indeed. The key thing for IBM is to benchmark and do a competitive analysis like what GE does to make sure that they are No.1 or NO.2 in all its division's core markets and offerings. IBM is seen te be doing very well in its high end server market and middleware market -With HP trying to find its identity and debating what its new CEO should or should not be doing - IBM has a huge advantage to penetrate further and fortify its leadership. It should extend this aura to all arenas including the messaging market where it is seen to be losing ground heavily.In services offshoring while IBM has scaled up operations, it is nowhere near establishing leadership.These may look like small fry compared to what IBM is attempting to do in future - but these are important areas that IBM should not lose out or undeemphasise.

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