Though it ranks as the second largest software business in the industry, IBM Software Group (SWG) is not sitting around on its laurels. This profit-driving division of IBM has been on a growth path for a long time, investing both organically and through acquisitions to build one of the most powerful software portfolios in the industry.
Behemoth IBM is not going to sneak up on anybody, but the systems giant has almost stealthily doubled its software revenues in under a decade. The last time eWEEK took a good look at IBM, SWG revenues were around $8 billion to $10 billion several years ago-last year Big Blue’s software revenue was $22 billion.
To remain competitive and drive new business opportunities in emerging and growth markets, IBM has been transforming its business with a keen focus on software and services. Indeed, over the last decade, IBM has driven a significant transformation of its business model as the company has shifted to higher value areas, improved efficiencies of its business and invested strategically for long-term opportunities.
At $22 billion in revenue last year, IBM SWG brought in more than 42 percent of IBM’s profits. Indeed, IBM Senior Vice President and Group Executive Steve Mills, who runs IBM SWG, said the company’s software profits have actually tripled in the last decade, driving more than $8 billion in profit in 2009.
This profit has enabled IBM to invest in new areas like Smarter Planet for the instrumentation and monitoring of physical assets, business analytics and data center transformation and cloud computing, Big Blue officials said.
IBM’s software capabilities also have grown because the company has continually added to its base. Since 2000, IBM has acquired more than 100 companies-more than 60 companies in software alone, including Cognos, Filenet, Telelogic, Micromuse and MRO Software. In the past few months IBM acquired Guardium, a leader in data security software; Lombardi, which enables us to boost our business integration capabilities; and Initiate, a provider of data integrity software for the health care industry. And IBM is the industry’s top middleware producer, according to Forrester Research.
Software Group Realigned
Software Group Realigned
Meanwhile, in an effort to further tap the emerging market for solutions, IBM recently realigned its software business. In January 2010, IBM’s Mills announced the realignment to further position the company to build out its technology portfolio and capture marketplace opportunities. By creating two umbrella organizations, IBM Software Solutions Group and IBM Software Middleware Group, the company will more closely align its industry and analytics growth plays, as well as its core middleware capabilities.
In a Jan. 12 memo to all IBM Software Group employees, Mills said the “Software Solutions Group will focus on integrated offerings that target high-growth opportunities, such as business analytics, collaboration and industry solutions.” And the “Software Middleware Group will include our industry-leading capabilities that build, manage and run our middleware and are fundamental to our business.”
““Businesses today want technology to solve their business problems and make them leaders within their own industries. In response, we have been moving our middleware portfolio into new, higher-value opportunities, growing our core capabilities, strengthening our portfolio and building solutions that support IBM’s Smarter Planet agenda. Now we have the opportunity to take advantage of our middleware leadership and differentiated offerings to accelerate the growth of our business. By better aligning our organization to marketplace requirements, we can focus across our broad portfolio more effectively, ensure the right levels of investment to grow our business exponentially and deliver new levels of innovation to our clients.”“
The two new groups are headed by Mike Rhodin, Software Solutions Group, and Robert LeBlanc, Software Middleware Group, both of whom have been promoted to senior vice president. They will report directly to Mills in their new roles. IBM granted eWEEK exclusive access to Mills, LeBlanc and Rhodin to talk about the ongoing transformation of IBM’s software business and other issues like Smarter Planet.
Mills told eWEEK the IBM software realignment is simply just the evolution of the organization. “The things we are doing in 2010 are really the same things we’ve been doing for quite a few years,” he said. “We’ve reached a point in terms of size and in the different things we’re trying to get accomplished that I thought it was time to spread the organization a little bit. It’s sort of the classic challenge of as things get bigger and bigger you have to come up with practical division of labor. And I thought we had reached that point where some of the things we were trying to get done were not getting quite as much time and attention. My own personal scalability has its limits. We haven’t fundamentally changed the structure of the software group overall. We haven’t created independent entities. The nature of what we do for customers doesn’t lend itself to literal separation. The organization for years has had to work across horizontally because customers are looking for systems. The reality is what they’re looking to deploy are systems that involve multiple products.”
Moreover, Mills said IBM has set a high bar relative to an integrated build, run and manage environment. Yet, the company does a lot of code sharing and follows common architectures and common structures.
“We’re still running architecture as a single integrated approach to architecture for the software business, and that’s not going to change,” Mills added. “But what this does allow is it puts Robert and Mike in a position to focus in with greater intensity on the respective areas. And the rough division of labor here has Robert somewhat more focused on aspects of infrastructure-aspects of the deeper plumbing. And Mike operating above that. So, Mike does a lot more aggregation of technology that Robert produces, and adds an incremental function to deal with industry patterns and industry-specific types of offerings.”
LeBlanc said his group’s sister organization will deal with analytics. However, “My organization is going to worry about managing the data,” he said. “So, if you think about it in basic terms, it’s managing data and analyzing data. And we’re on the managing side, and the other side will be the analytics. That’s an internal thing. From a marketing side we’ve got one strategy, which is the information agenda. And that’s what the client sees. They don’t see the organization.”
LeBlanc also notes that middleware has been IBM Software’s core business for some time and where it has grown in the past. “But there’s still a hell of a lot of opportunity out there. You see people who’ll ask, ‘Is that why you split out the solutions because that’s the high growth and the middleware is the low growth?’ No, not at all. They’re growing at different paces, but they’re also growing very differently. Because the infrastructure has to be there to support the next generation of solutions.”
And with IBM continuing to move upstream to aggregate capability with the industry frameworks that it builds, the company is making it easier for its customers to build systems. As it becomes easier for customers to build systems, the more they will need to add to their middleware. “So all boats will rise,” LeBlanc said.
Impact on IBMs Software Brands
Impact on IBM‘s Software Brands
Speaking on how the software realignment impacts the IBM Software brands-Tivoli, Rational, WebSphere, Information Management (DB2 and more), and Lotus-LeBlanc said the IBM Software brands represent a market space, but IBM tends to think more in terms of capability and tries to orient itself around capability.
“It’s all around IBM software,” he said. Indeed, more than 10 years ago when IBM more or less initiated its software brand structure, the company had very specific competitors in the different areas. But now the company’s competition is much broader and more encompassing, LeBlanc added.
“So you’ll see us talk more about IBM Software rather than the brands,” he said. “That part’s all under me. We’ve been working on this organization design for 18 months. It’s not something we thought of overnight. When I came back to software, Steve [Mills] and Sam [Palmisano, IBM chairman and CEO] both sat me down and said, ‘We need you to help us think through what does the next generation of our software business look like?’ Because we grew by $10 billion. Well, we want to grow by another $10 billion.”
Both LeBlanc and Rhodin have held several leadership positions inside IBM prior to their new roles. LeBlanc was most recently head of worldwide software sales and marketing at IBM and has held other positions such as head of IBM Global Business Services’ (GBS’) Global Consulting Services and head of SOA and WebSphere. Rhodin was most recently head of IBM’s overall operations in Northeast Europe, and also formerly ran IBM’s Lotus division.
Rhodin said his experience in Europe, where he was in charge of all of IBM’s businesses, from its services business to its hardware and software businesses, “really helped me to understand what IBM can bring to the table when we put all the pieces to together. And I think this new group is going to allow us to bring more and more of IBM’s industry dimension to the table as we start to cast the solutions in the context of what business our clients are working in.”
Rhodin said IBM is looking at the solutions space as a “very high growth segment. We think that by putting more senior management talent over the focus of delivering this, we can get more attention faster in this space. And I think we’ve got a very interesting point of view here. We’ve been developing solutions with clients for a very long time. We started the work around industry frameworks almost a decade ago. And they started maturing over the course of the last 10 years.”
Rhodin said he was part of the group that put together IBM’s first industry framework for the telecommunications industry.
Moreover, a key goal of the solutions group is to help give IBM customers flexibility to build and deploy systems faster, Rhodin said. “They’re looking for more flexibility to include the investments they’ve made historically, so it’s not a rip and replace model,” he said. “And we think our approach to using an underlying service-oriented architecture allows us to bring all those pieces together that a client already has” and then enable them to focus on their more specific problems.
As LeBlanc noted, analytics falls under Rhodin’s unit in addition to collaboration. Indeed, Rhodin spelled it out:
““We look at a lot of core capabilities like collaboration, like analytics almost as a substrate that becomes an important element of a lot of these industry solutions. With collaboration and its focus on improving efficiency of employees in an organization, or on creating social networks across the boundaries or organizations as a way of improving the productivity of teams. And then analytics we think is one of the brightest opportunities on the horizon right now-helping people turn information into insight and then using that insight to actually deliver a better outcome. If we can pull that off, I think we can do some interesting things. I’ve always been a very innovation-focused participant in our software business. And I think the raw material here is pretty exciting.”“
Henry Morris, an analyst with IDC, gave eWEEK his view of the IBM software realignment:
““The big gap in IBM’s portfolio is its lack of an enterprise applications unit. Oracle and Microsoft made acquisitions in ERP, CRM and related application software. IBM did not move in this direction. This meant that, for example, Oracle could move J.D. Edwards and PeopleSoft customers to the Oracle middleware stack, though both of those companies were closely tied to IBM WebSphere at the time they were acquired. The ostensible reason for this was that IBM did not want to compete with its partners who built applications on top of the IBM stack. The new Solutions division is as close as IBM has come to forming an application division, bringing together its Lotus, Cognos, SPSS, Filenet assets for collaboration, analytics and enterprise content management with the charter to build out solutions (i.e. ‘applications’) both horizontal and vertical-specific. The Middleware division houses IBM’s established offerings in database, infrastructure and app development.”“
Fueling IBMs Software Growth
Fueling IBM‘s Software Growth
So where did IBM’s software market growth come from? Not from flash and frills, but from good old hard work, Mills said. “My story has never changed; I just work hard,” he told eWEEK during an interview in his conference room at IBM headquarters in Armonk, NY.
Indeed, the IBM Software Group and its history and future are very much a part of Mills’ making. He instituted the company’s move to focus on middleware more than 10 years ago, and he made the move to realign IBM SWG into two groups. He also handpicked the leaders of the two inter-related organizations.
However, Mills does not seek any personal credit for this. “We do not have a culture of personality at IBM,” Mills said. In fact, Mills says his job is to make it easy for the next person to be able to come in and do his job. “My job is to make my role unnecessary.”
Mills said IBM has learned that businesses today want technology to solve their business problems and make them leaders within their own industries. In response to these requirements, IBM has been on a path to move its middleware portfolio into new, higher-value opportunities, growing its core capabilities, strengthening its portfolio and building solutions that support IBM’s Smarter Planet agenda.
The Smarter Planet
Smarter Planet is about modernizing and automating the world’s physical infrastructures-from railroads to water management to food traceability and health care modernization, IBM said. Intelligence is being infused into the way the world literally works-into the systems, processes and infrastructure that enable physical goods to be developed, manufactured, bought and sold. Software plays a crucial role in these Smarter Planet initiatives. Much of the demand for software is being created by new stimulus investments and the need to automate and modernize virtually every system today such as electronic medical records, fraud detection, energy management through smart grids, etc. IBM has been on this path for the past few years. And IBM officials said they believe IBM is better positioned than any other vendor to help leverage these new opportunities and deliver the right technologies needed for this transformation to smarter systems.
At IBM’s recent Pulse conference for Tivoli users in Las Vegas, Stephen Stokes, an analyst at AMR Research, shared his views on IBM’s renewed software push and Smarter Planet initiative with eWEEK, saying: “This is the most significant organizational transformation in IBM’s history. They’re setting themselves up to really win big in the new economy.”
However, in a direct counterpoint, also at Pulse, Jonathan Yarmis, an analyst with Ovum, said, “The last time IBM tried something this sweeping it was called SAA [IBM’s System Application Architecture, an enterprise computing strategy of the late 1980s and early 1990s], and that’s when we defined the term ‘marketecture.’ This stands to be the largest unrealized vision since SAA.”
Yet, IBM has boasted several Smarter Planet wins, including Smart Cities projects such as that with the city of Chesapeake, Va. The city of Chesapeake uses IBM Maximo software to manage and maintain the multiple departments, equipment and operations that are responsible for delivering critical services to more than 200,000 residents. IBM highlighted its work with the city of Chesapeake at its Pulse conference.
Peter Wallace, the chief information officer for the city of Chesapeake, told eWEEK, “IBM products have helped the city of Chesapeake modernize the way our people coordinate efforts, maximize the use of existing resources and share data. On the ground, this means less duplication of effort, more cost-effective purchasing, and improved coordination between departments and divisions, reducing the number of visits and time it takes to complete work and satisfy citizen requests.”
““Data previously stored in a variety of formats on hard drives and in filing cabinets is now available to everyone who needs it from a single source. We can review work history and ongoing work as part of our scheduling and planning processes. Public Works can see if Public Utilities is already working on a flooding incident and avoid dispatching another crew unnecessarily. Having our asset management, work management and inventory management under one enterprise system has allowed us to engineer a single streamlined process that is more efficient, accountable and transparent.”“
Another recent Smarter Planet win for IBM is Galveston National Laboratories (GNL), which is part of the University of Texas Medical Branch. Also highlighted at Pulse, GNL is one of only two National Institutes of Health-funded biocontainment laboratories, and its goal is to serve as a national and international resource for the safe conduct of essential infectious disease research.
GNL is using IBM Maximo technology to manage, calibrate and monitor state-of-the-art biomedical assets like air-flow handlers, decontaminating showers, and door seals and locks-making sure they are working properly to assure safe and secure operations. This is an example of an IBM Smarter Buildings/Facilities customer-managing critical physical and digital assets to ensure their safe and proper function, and applying analytics to determine inefficiencies and cost reduction opportunities while improving operations.
David Reynolds, director of fixed assets and reliability systems at the University of Texas Medical Branch, said, “IBM’s Maximo software is designed to help schedule and report on the performance of the assets that run the building: air handling units, pumps, compressors, filtering systems, etc. IBM helped the GNL configure Maximo so it would properly support the safety and reliability processes that the GNL must operate under.”
Mills said he believes that as the digital world and the physical world continue to intersect, the need to better capture data, to do better analysis and to have more anticipatory management and control of the physical assets increases exponentially. And with Smarter Planet, IBM is prepared to deliver that.
“As the world’s infrastructure has gotten bigger and bigger, you reach these inflection points where costs get too high-operating expenses are rising and you need to flatten those things out,” Mills said. “So if I move a little bit of OpEx [operating expenditure] and CapEx [capital expenditure] over to IT, I can do a better job of managing those massive infrastructures.”