Reinventing IBM: The evolution of on-demand
Published: 15 Jun 2004 11:10 BST
What's 'on demand,' and who's demanding it?
IBM's own executives acknowledge that the on-demand initiative has created some confusion outside the company. But they say any risks in the marketplace are far outweighed by another value: its power as an internal rallying force to direct an unwieldy empire spread over 170 countries, encompassing more than 350,000 employees, 670,000 stockholders and dozens of manufacturing plants in such far-flung locations as Prachinburi, Thailand, and Szekesfehervar, Hungary.
The on-demand concept has become something of a personal crusade for Palmisano. When IBM launched the campaign, the company had fully recovered from near-death experiences of recent decades but still needed a way to break into new markets. An IBM lifer who joined the company right out of college, Palmisano had to show that he could articulate a strategy for long-term growth.
His charge was made more difficult by inevitable comparisons to predecessor Louis Gerstner, who in 1993 was parachuted in from RJR Nabisco to rescue IBM -- a rare outsider appointment in the company's senior ranks, which were usually as incestuous as the rest of the high-tech industry's. Gerstner was elevated to celebrity status after being credited with saving the company. By contrast, Palmisano worked his way up and was known as more of a "street fighter", a former college football player who had steadily ploughed his way through the ranks since joining the company 1973.
As it turned out, blocking and tackling may have been exactly what IBM needed when Palmisano assumed the reins. He is a no-nonsense businessman who enjoys talking to clients and getting things done.
"Every six months, he's turning the crank," said Jonathan Eunice, an analyst at research firm Illuminata. "I hear all the time that 'Sam says we're going to do something,' and people are reacting."
To fully understand what on-demand means within IBM's headquarters, the initiative must be viewed in the context of the company's extraordinary history. With origins that date back more than a century, IBM had for years been known for a buttoned-down culture that resisted change. It had a stultifying bureaucracy that made it a corporate version of the Pentagon, alongside other industrial institutions like General Motors and AT&T.
As a testament to its military-style hierarchy in the early 1990s, one former employee said he was once assigned to elevator duty during a visit to a North Carolina facility by then-CEO John Akers, making sure the boss would not have to wait for one in the lobby. That kind of mentality still existed a few years ago, according to another company source who said work was once halted for two days at a lab in IBM's hard-drive division so that it could be spruced up for a 15-minute visit from a senior vice president.
It is against this regimental backdrop that Palmisano made the $10bn on-demand initiative the hallmark of his ascension. The IBM veteran knew well that he needed a high-profile instrument of change to continue the evolution begun with his predecessor's dramatic organisational overhaul and bold technology decisions.
By the early 1990s, the company had lost touch with its customers and prevailing industry trends, having based its strategy on locking clients into proprietary mainframe systems. Gerstner, a former IBM customer himself, ridiculed the computing industry's modus operandi of forcing customers to upgrade to solve business problems.
Now, Palmisano is pushing to complete IBM's transformation from primarily a hardware company to one led by software and services. The idea is that customers want bundled "solutions" of software, hardware and services tailored to specific industries, rather than a catalogue of products.
"Sam Palmisano talks to the business side of the customer and other IBM people talk to the technical end of the customers," said Amy Wohl, an analyst and president of Wohl Associates. "Technology vendors have learned their lessons that if you're going to talk to the CEO, you'd better talk about the business value."
IBM's services-led approach has its risks. The company's high-price consulting talent needs to bring in new business and compete with cheaper alternatives from an increasingly global consulting and services industry. And some customers may be leery of employing a cadre of consultants to get their technology projects done.
"They have teams of consultants that don't always know the products," said Tim Kelly, technology director of TSYS, a credit card transaction processor in Columbus, Ga., that reported $1bn in revenue last year. "You know how it is when you're trying to hit certain needs, and someone pulls out a book and starts reading it right in front of you to figure out how to do something. The $300 an hour all of a sudden tastes pretty sour."
Moreover, the definition of on-demand remains inexact to almost everyone outside IBM. Some customers associate it with other industry trends and jargon, such as "utility computing" or "hosted outsourcing services." Those most sceptical of the concept reduce it to little more than a repackaging of existing goods and services.
"On-demand reminds me of the emperor with no clothes -- there's nothing there that's new or different," said Michael Cusumano, a professor at the Massachusetts Institute of Technology's Sloan School of Management. "It's mostly hand waving on the part of a few technology companies that are trying to get people to buy hardware and services."
IBM managers concede that on-demand is an attempt to redefine the market for computing. The opportunities to make money on smaller-scale jobs, such as PC networks or back-office applications, have largely dried up. Tech companies now sell goods to automate processes that touch many points across a corporation.
"Everyone is trying to do it, and everyone cares," said Steve Mills, the senior vice president in charge of IBM's software group. "Therefore, we are on the right track."
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