Think research, and what comes to mind is usually dull, detail-oriented work—certainly not where the money is. At IBM Research, that perception could not be further from the truth. In fact, IBM is counting on its research arm for help not only in developing hardware and software technologies but also in bolstering its biggest business unit: services.
IBM is putting more of its research dollars into services and turning those services into high-value business opportunities for IBM and its customers. At IBM Research, in Yorktown Heights, N.Y., the company showed eWEEK how its investments are adding value by cutting time and increasing productivity for IBMs services arm and the companys customers.
Paul Horn, senior vice president and director of IBM Research, said that since more than 50 percent of IBMs revenue is generated by services, IBM Research is shifting its focus there.
Services address high-end, high-value business problem solving; business design transformation; and process integration, as opposed to labor-intensive, maintenance-type services, Horn said.
As a result of this new focus, IBM Research has created ODIS (On Demand Innovation Services), an arm within IBM Research that provides customers with access to researchers who specialize in business transformation and technology consulting. ODIS marks the first time IBM Research has created a formal, customer-facing services organization.
IBM Research is calling on its computer scientists, mathematicians and other researchers to create new types of services and provide high-end services, as well as optimization algorithms, to speed up processes. In addition, it has initiated a service-related research project called the Business Component Model, which uses a model-driven approach to bridge technology and business processes.
Horn said that in 10 to 15 years, IBM Research will be able to look at a series of service practices that would not have been possible without dedicated services research. He said IBMs is a new research model for the IT industry.
“Weve had a history of getting connected to our products with research,” Horn said. “Very strong connections exist between IBM Research and our hardware and our software products.
“In fact, now, essentially all of our products start as a partnership between Research and one of our product divisions,” Horn said. “And that allows us to take innovative new components and get them into WebSphere quickly.
“And the team that does it actually doesnt just do the early research; they also stay with the development right until it gets into the marketplace. Thats worked pretty well, and I think IBM Research is in many ways unique in the way we flow technology from our research organization into our products. So thats great, but half our company is services. So you really would like to have the same concept.
“So what weve done, just as we have with hardware and software, we said its not good enough just that you have ideas that you want to transfer to this services organization; youve really got to work with them, just the way we work with hardware and software.”
Making use of
With that in mind, IBM Research entered the services business in force last year and helped close more than $100 million worth of contracts, Horn said. “But more important than the numbers, we want to build the services practices of the future,” he said. “We want to be creating the future of the IBM company. Thats our ultimate mission.”
Amy Wohl, president of Wohl Associates, of Narberth, Pa., said IBM is looking for ways to put its expertise to use. “They have a lot of assignments where they take something and use a service engagement to figure out how you really solve the problem and then try to boil that down to a product or technology or framework or something that can be used in future service engagements or something that can be used repeatedly,” Wohl said. “Expertise can be used as a resource. The idea is to more fully use [IBMs] resources.”
In addition, Wohl said working with services “is good experience for the researchers and for the customers. It makes IBM look like it has resources that arent available elsewhere.”
Peggy Kennelly, vice president of ODIS, said ODIS has three main goals. One is to help IBMs clients solve complicated business problems and become on-demand businesses. The second is to help the consulting division become successful. The third is adding value to research.
“But now that IBM is half Global Services and half in the services business, its not as clear how we add value to services as we have to hardware and software,” Kennelly said. “And that is something that Research is dedicated to doing. ODIS was created specifically to focus on how can we add value to the consulting business, which is one of the divisions within IBM Global Services. So how do we add value? We do it in two ways. We bill our time on their projects. We look like a subcontractor and help them drive revenue and profit.”
IBM Research developed a series of 12 “micropractices” to focus its efforts (see chart, below). “A micropractice is really just a little services practice that we think could potentially grow some day into a big practice for our BCS [Business Consulting Services],” Horn said.
“One of my favorite examples is in this whole area of text analytics,” Horn said. “One of the micropractices is called Information Mining and Management. I think of it as Google on steroids. Web Fountain is an example where you can get detailed business insights using technology that can be a huge lever for our services business.”
Another micropractice is in optimization, which is “about taking hard optimization problems in the presence of a noisy environment and trying to find the best solution,” Horn said. “So most mathematical techniques for doing an optimization on a certain problem, such as optimize your supply chain or flight scheduling, these are hard math problems. But most of them dont work well in the real world because the real world is noisy, so IBM applies a technique known as stochastic optimization.”
So far, IBM Research has worked on dozens of services projects with clients and used as many as 200 researchers around the world.
“Probably our poster child effort is BostonCoach, Kennelly said. “BostonCoach is a limousine company, and their business model is based on the premise of providing very high customer satisfaction. So if they tell you theyre going to be at your house at 2 oclock, theyre going to be there. And if they anticipate therell be traffic or problems, they will dispatch two drivers.
“In fact, they average about 1.2 to 1.5 drivers per customer call. They had done this by localizing their operation and updating schedules often. But no one person can manage all those variables on their own, [variables] like Are you a VIP? Are you one of their best customers? Theres a storm coming.”
Kennelly continued: “They thought they could solve this problem by putting GPS [Global Positioning System] systems in their cars, but one of the researchers concluded that that wasnt going to solve their problem. Ultimately, we worked with our consulting division to build them an optimization model. We were able to take the variables and trim them into a math problem.”
Eileen Newman, a BostonCoach spokesperson, said that last year the company expected to see a 15 to 20 percent increase in the productivity of the fleet due to the implementation of the Fleet Optimization System developed with IBM Research. “In other words, with roughly the same level of labor expense, BostonCoach could realize an additional $10 million in revenue,” Newman said.
Meanwhile, IBM is using its expertise in modeling and research to deliver its Component Business Model, using Business Informatics. Business Informatics is an IBM Research discipline that uses IT as applied to businesses, especially IT used to integrate people, processes and information, said David Cohn, director of Business Informatics at IBM Research.
Cohn said that reusable, industry-specific models will speed business transformation.
“By applying IT to biology, weve completely changed that space, so I came up with Business Informatics because I think we can do the same thing in business,” Cohn said. “We are working on techniques to connect business objectives to IT implementations via multilevel modeling.”
IBMs research and development budget is about $5 billion, and it is producing profits for the company, Horn said. “We licensed our intellectual property for over a billion dollars in bottom-line profits. And thats the cash dollars bottom line for licensing our intellectual property,” he said. “We estimate it that if we had to license all those patents, we could be paying $5 billion a year in order to get access to all that intellectual property. And these are rough numbers, but the fact is that our technology base and our IP portfolio is a strong asset and one that is very much a part of how we think about ourselves.”