Palmisano outlines IBM's $10 billion initiative
By Stacy Cowley and Ed Scannell, IDG News Service
OCTOBER 31, 2002
IBM CEO Sam Palmisano spoke yesterday before a gathering of several hundred top IBM customers and executives, offering a State-of-the-Union-like rundown on IBM's view of the IT industry and vision of its future.
The technology industry moves through eras every 20 years or so, and it's now entering a new one: A wave of integration and "on demand" business capabilities that will allow organizations to respond rapidly to constituent needs and market trends, Palmisano said.
On-demand computing was the theme of his talk, as Palmisano outlined the forces and technological advances driving the new wave, to which IBM is committing $10 billion in research and development, acquisition and marketing funds. During his talk, which was also webcast to IBM's 350,000 employees worldwide, Palmisano said he planned to put Irving Wladawsky-Berger, currently vice president, IBM Server Group Technology and Strategy, in charge of a new on-demand computing initiative.
"In my point of view, what you are seeing is a fundamental shift that is a long-term shift, that is irreversible," he said.
As companies began adopting e-business technologies, they first focused on access: Putting information on the Web, enabling some e-commerce and so on, Palmisano said. Next came the integration phase, as businesses worked for internal integration, adopting enterprise resource planning and customer relationship management systems and building connections between them.
The next stage, the on-demand transition, is about extending the enterprise beyond its borders, integrating fully with customers, partners and suppliers and using IT to increase businesses' flexibility and responsiveness, he said.
IBM saved $6.2 billion in costs by adopting integration technologies, but its savings from on-demand technologies will be even greater, Palmisano said.
He sees open standards and virtualization as major components of on-demand computing, with grid computing and autonomic technologies key to creating infrastructures robust enough to support enterprises' increasing IT complexity.
Grid computing is "operational, it's functional, it's here," Palmisano said, citing a cancer research project IBM is working on in partnership with the University of Pennsylvania. "But there's really another dimension to solving the problem: Become autonomic."
IT systems need to become more like the human body, able to repair, protect and optimize themselves, Palmisano said. IBM's Project eLiza is an umbrella encompassing dozens of IBM software and hardware autonomic initiatives, which are now paying off with new capabilities in products, including Tivoli and DB2, he said.
IBM released a white paper yesterday, titled "Living in an On Demand World," further outlining its position on the issues Palmisano addressed.
"Customers increasingly want products and services on their own terms, specific to their needs -- when, where and how they choose," the paper states.
Palmisano's speech reiterated many of the same themes articulated by Lou Gerstner, who led IBM for a decade before retiring and turning the reigns over to Palmisano earlier this year (see story). Six years ago, at another New York speech before executives and partners, Gerstner proclaimed that the IT industry was entering the e-business era. On-demand computing is a further step toward crystallizing that vision.
"This is a $10 billion bet [for IBM)]," Palmisano said. "No doubt about it, it's a bold bet. Is it a risky bet? I don't think so. I don't think it's a risky bet, because it's tied to our customers priorities, not to our own."
Palmisano's speech, which was one of his first major addresses since becoming CEO, served as what several observers called his "coming out party." On that count, the new top executive did well, analysts agreed.
"His approach, his style, I thought it was excellent," said Gartner Inc. analyst Tom Bittman, a former IBM employee. "He did a good job of delivering the message."
Palmisano's personal style is well-matched to that of IBM and its customer set, Illuminata Inc. analyst Jonathan Eunice said.
"He's quite sophisticated, but you don't look at him and think 'rock star,' " he said. "He's a guy who, unlike maybe a Steve Jobs or Larry Ellison, the customers can identify with. It fits with IBM's 'no cowboys' mentality."
The technologies and vision Palmisano discussed are nothing new, but IBM is doing a good job of positioning itself and reminding customers about the depth and breadth of its portfolio, Eunice said.
"This is essentially the networked computing message as we have known it for five years now. But I do think that we in this industry have a better line of sight to actually doing it than we did five or six years ago, when the messages first arrived," he said. "It's a good time for IBM to remind the world that it has the practical assets to do what the customers want to do."
IBM shook the financial community earlier this year when, for the first time in a decade, it warned that slumping sales would lead to quarterly earnings below expectations. The company has since revamped struggling business units and laid off some 15,000 employees, allowing it to hold relatively steady on revenue and sales. In this environment, with many other IT firms posting losses or drastically overhauling their strategy and operating, holding steady is pretty respectable, analysts said.
"IBM is taking the opportunity to get while the getting is good," Eunice said, praising the company's recent string of acquiring middleware software developers and its pricey buy of PwC Consulting.
"They're positioning themselves, as they've been doing for several years. They're playing for five years out," he said.
With IBM's business on firm ground, Palmisano's challenge is to increase revenue by attracting more business from existing customers and finding new markets for the company to tap, said Forrester Research Inc. analyst Ted Schadler. The vision Palmisano laid out is a solid step in that direction, he said.
IBM's on-demand computing is akin to a model Forrester calls "organic IT," its vision of a flexible, automated IT infrastructure of the future.
"It's something those of us who are on the crystal-ball side have been saying for a long time, but IBM actually put a business model behind it," Schadler said.
"It's the right thing for them to focus on," Gartner's Bittman said. "They have the broadest capabilities. They have the deepest pockets. They can make it happen." |
