Starting Earlier, Ending Later
Meanwhile, in addition to the researcher's brain power and algorithms that help automate processes for the services business, the tooling for building the reusable assets comes from IBM's Rational suite of development tools. "We deliver value through our Rational tools," Morris said. "Most of the techniques are implemented as plug-ins for our Software Group tools. For GTS we use a lot of our Tivoli tools, and for GBS we have a lot of components built on Rational and WebSphere. So you have products, services and research all working together in a triple-play model." And to manage the software supply chain, "We've created a methodology called Application Factory, which is like project management on steroids," Morris said. The Application Factory deals in the concept of "work packets," which break out work items for processes. Morris said work packets represent "a new research area for us, because we realized traditional project management tools were very deficient."And the services team also uses IBM's Rational Asset Manager (RAM) to house all the assets it uses for engagements. "We have re-engineered all of our assets on a Rational Asset Manager-based repository. so our hardware, software and services business all comes together and can reach into that repository. We have tens of thousands of assets. And it's not all just code; there are business processes, workflows, data models, etc."Moreover, what sets IBM apart from its competition is "We start earlier and end later," Morris said. "We're end to end. We're building the assets now that our clients haven't even asked for yet." Michael Valocchi, a partner and global industry leader for energy and utilities in IBM Global Business Services, said he came into IBM via the PwC acquisition and "it's been a fascinating six years; I don't think we could have realized the potential." Indeed, "When we came into IBM we said leave us alone, let us do our piece," Valocchi said. Yet, "where we really got surprised was with the assets that were floating around the place," he said. "It took us a few years to identify the assets and to put them together." Valocchi said he found out about research assets like "Deep Thunder," which is a weather modeling asset. "The granularity was amazing, and we could put that to use in things like dispatching crews for utilities. We could know where bad weather was going to hit." So after feeling his way the first couple of years after IBM's acquisition of PwC, "I got a lot more proactive in the next three years in what it was my team wanted to build and how we could build it using research services." For instance, another research asset is an algorithm for projection faults that could be used for fault detection in utilities. "So we began to look at whether we could detect where a line would go down before it goes down and whether we could 'self-heal' it before it goes out," Valocchi said. "And it's not only the help from research, but also the software piece," Valocchi said. "One thing we're hitting up against is business intelligence. In the utility industry there is so much data out there and companies don't know how to use it. We used to read your utility usage once a month, now we can do it every 15 minutes, automatically. And we're starting to build the analytical engine that surrounds all that. We want an asset that can translate into any software. We'll have content packs and data models that can then get transferred into code." Valocchi said he is pleased to have the IBM software group at his back, "because I could get caught up in developing code and that's not my strength or my business; my business is consulting." Yet the bottom line is that "replicable assets are driving better margins," Valocchi said. "From a competitive perspective there aren't many companies that have this kind of breadth. We've figured out how to blend these assets, and it's one of the ways I beat my competition." Meanwhile, IBM is watching rival Hewlett-Packard and what it is doing in the services area, particularly in light of HP's $14 billion acquisition of technology services provider EDS in May. IBM officials estimate that HP's research and development spending is up less that 1 percent since 2002--investing $3.6 billion in 2007, while revenue increased from $72 billion to $104 billion in that time. As a percentage of revenue, HP's R&D investment dropped from 4.6 percent to 3.5 percent. In the same period, IBM R&D spending is up 29 percent since 2002, and IBM spent $6.2 billion in 2007. IBM invests nearly twice as much as HP on R&D and has more than five times as many researchers in its research labs and 20,000 software developers, IBM officials said. Moreover, while HP is focusing on a handful of areas for the next five years, IBM is focusing on the next 20 years, Morris said, noting that over the past three years, HP dropped from the third to fifth to ninth in terms of the number of patents filed, while IBM has been No. 1 on that list for the past 15 years. In addition, HP has not integrated its research arm into its services business, IBM officials said. "They are following yesterday's business model," Morris said. "They're just getting to where we were five years ago."