Page Two

By eweek  |  Posted 2003-01-06 Print this article Print

: The Blue Horizon"> The new element in On Demand is the focus on rapid business process change and integration. Besides enabling enterprises to quickly adapt servers and networks to new business requirements, said Irving Wladawsky-Berger, IBMs vice president for server group technology strategy, also in Armonk, IBM wants to provide services, middleware and industry-specific best practices to allow enterprises to launch or modify online business processes on the fly.

That focus on business-process-level change and integration, said Mills, is what sets On Demand apart from strategies such as Microsoft Corp.s .Net and Sun Microsystems Inc.s Sun Open Net Environment, which tend to stop at the IT infrastructure. "Just because Microsoft embraces Web services doesnt mean they can integrate. It just means they can connect. Its not the same thing," said Mills.

IBMs attempt to move up the food chain to business process consulting, outsourcing, and other products and services makes business sense, say observers. As intense competition turns many classes of enterprise hardware, software and even traditional outsourcing into low-margin commodities, IBM is forced to look for products and services that set it apart. In the past year alone, the company has been forced to abandon such commodity activities as desktop PC and disk drive manufacturing. Focusing on business process change will allow IBM to differentiate itself, said Marty Clague, formerly vice president of IBMs Global Industries e-Business Solutions unit and, since October, CEO of services provider Covansys Corp., in Farmington Hills, Mich. "Its a bold move and the right one to expand the business," said Clague. "Right now, its where money is still being spent."

IT research organization The Yankee Group recently predicted the market for business process outsourcing will grow 15 to 18 percent per year over the next five years, to $300 billion. Thats more than twice the growth rate for all of IT spending over the same period, according to Yankee, in Boston.

IBM has been spending plenty to play in that market. The biggest single investment was for the purchase of PwCC. The $3.5 billion it paid for the company brought IBM 28,000 employees, many of whom are business process experts with deep knowledge in such industries as banking, insurance, manufacturing, chemicals and pharmaceuticals. IBM plans to use those experts to develop industry-specific business process best practices and will offer products and services based on them—many from ISV partners—that run on IBM server hardware and middleware such as WebSphere and DB2.

In the insurance industry alone, PwCC brought 1,000 consultants who are domain experts. IBM recently announced it will team them with 15,000 IBM Global Services employees serving insurance industry customers to form what it calls the Insurance Transformation Solutions unit within the companys Business Consulting Services. The unit will sell those business process On Demand services and products to insurance companies. According to Mills, IBM will take similar steps in other industries.

To support the move, IBM is redirecting money from other product areas. The company in November announced it will shift $1 billion in research and development spending over the next three years to develop business process transformation best practices and support tools such as advanced analytics. The move was in part made possible by the companys decision to exit its hard disk drive business, which it plans to sell to Hitachi Ltd. for about $3.5 billion, said IBM Senior Vice President for Technology and Manufacturing Nicholas Donofrio, in Armonk.

IBMs Software Group under Mills has been beefing up the business process integration, modeling and management capabilities built in to its WebSphere and Tivoli products through a series of acquisitions (see chart, Page 28). In January 2002, for example, the company enhanced WebSpheres business process integration tools through the acquisition of CrossWorlds Software Inc. And soon, IBM will add to WebSphere business process modeling capabilities acquired in the September purchase of privately owned Holosofx Inc.

Eventually, said Mills, IBM will use such tools to build a series of integrated industry-specific applications that enterprises could use to launch business processes internally or as outsourced services.

As IBM invests in making the On Demand concept real, however, some longtime enterprise customers say the company shouldnt lose sight of such core IT technologies as chips, server management and storage. "Without those, why would anybody continue to go to them for services if theyre just deploying other peoples technology? If they drop the ball on technology innovation, it will come back to bite them," said Whirlpools Haney.

This, say experts, is Palmisanos real challenge: maintaining IBMs technology leadership while navigating the companys migration up the business process consulting food chain. "He needs to stay focused on software and services while, at the same time, managing the declination in the hardware business in such a way that the company still makes money at it," said Dale Kutnick, chairman of Meta Group Inc., in Stamford, Conn. "If he does that, in a few years people will say, Who was Lou [Gerstner]?"


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