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Reinventing IBM: The evolution of on-demand

Martin LaMonica and Mike Ricciuti CNET News.com

Published: 15 Jun 2004 11:10 BST

The symbolism could not have been more obvious to those who had long endured predictions of IBM's extinction. The new chief executive's 2002 coming-out party -- the public launch of the company's ambitious on-demand initiative -- was at New York's American Museum of Natural History, an institution renowned for its collection of fossils.

Samuel Palmisano, on the job as chief executive for less than a year at the time, was intent on proving that IBM was anything but a relic.

"We are on the cusp of a dramatic shift in this industry," he told customers and employees at the event. "Think about this change. See the world from a different dimension. Don't manage it strictly by functional silos, because a lot of this is really about culture -- cultural transformation."

Since then, IBM has effectively erased its epitaph as corporate dinosaur. In the past two years, the company has gained market share in categories such as server hardware and middleware -- two strategic and high-ticket corporate businesses that have contributed to its $89bn in annual revenues. No longer a lumbering giant living off a faltering mainframe franchise, Big Blue has shifted its focus to services and made its $14bn software business, once dismissed as an ineffectual also-ran, a central part of its long-term strategy.

In many ways, however, it can be argued that IBM has succeeded in spite of itself. As a modern technology patriarch that was once synonymous with computing, the company had every reason to dominate the industry through the end of the 20th century. Instead, because of strategic blunders and bureaucratic inertia through much of the last two decades, IBM fell behind in key technologies -- from databases to personal computers -- that it had pioneered.

Given that ignominious record, it was no surprise that many greeted with scepticism IBM's "on demand" computing initiative, a broad plan to help customers handle rapid changes by providing technology with the efficiency of a utility. The general idea of more tech-savvy, streamlined businesses had been around for years, but the on-demand campaign has galvanised IBM's disparate groups -- though the vision is years from being realised.

"I see a focus and a drive there that is unprecedented, in my mind, in IBM history, and a vision that is pretty broad and far-reaching in its scope and impact," said Tony Scott, the chief technology officer of General Motors, one of IBM's largest customers. But when asked about the on-demand concept, he replied: "They may think they are further along on the path than I do."