The Blue Horizon

After a flat year in 2002, IBM CEO Sam Palmisano is pinning his company's hopes on its $10 billion eBusiness On Demand strategy, but will it be compelling enough to rally Big Blue?

As IBM prepares to embark on the second year of the Sam Palmisano era, it looks like the time for a clear, compelling vision may finally have arrived.

After a flat year in 2002, IBM needs something. Although it can count its blessings—the company has not faltered badly, as have some rivals—IBM is caught in a no-growth torpor brought on partly by a protracted downturn in technology spending. Facing increasing hardware competition from relative newcomers in enterprise technology such as Dell Computer Corp., slowing software sales and even shrinking revenues in the service business, IBM has reported level or lower revenues and earnings in every quarter under Palmisano. Thats forced the companys leader to cut costs—eliminating an estimated 15,000 jobs last year—and to come up with a strategic direction that will inspire not only investors and IBMers but also—most importantly—enterprise customers.

Palmisanos answer, unveiled in November and fleshed out since with a series of new products and partnerships, is what IBM calls eBusiness On Demand. By pouring $10 billion over the next few years into self-healing and utility computing technologies, along with business process outsourcing integration tools and expertise, IBM officials say, eBusiness On Demand will help enterprises reduce complexity and respond to lightning-quick changes brought about by online commerce.

But is On Demand computing clear and compelling enough to rally IBM, its partners and its enterprise customers? Or is it just a warmed-over update of IBMs e-business strategy of the mid-1990s? For some IT executives at least, the goals of cutting complexity and boosting agility prove that Palmisanos eyesight is 20/20.

"Thats right in line with where we expect our technology providers to go," said Jim Haney, vice president of architecture at consumer appliance manufacturer Whirlpool Corp., in Benton Harbor, Mich., which is pushing to build quicker online links to trading partners and customers. "If they can help us do it faster and cheaper, we can gain market share."

Still, say others, in an era when IT managers are interested in shaving costs, selling the somewhat-fuzzy On Demand concept will not be easy. Nor, they say, will convincing enterprises and ISVs that IBM should suddenly be considered a top-tier business consulting provider, on a par with Accenture or McKinsey & Co., even though the company acquired PricewaterhouseCoopers consulting business in September.

"Acquiring business process expertise, as IBM has done, is not the same as having it integrated throughout the company. Well have to wait and see how well they do at integrating PwCC," said Pat Flynn, vice president, CIO and longtime IBM customer at truck manufacturer Paccar Inc., in Bellevue, Wash.

The eBusiness On Demand strategy is rooted in the belief that as businesses use the Internet to integrate with partners and customers, they will need to slash the time it takes to respond to competitive challenges.

"EBusiness On Demand means making environments more adaptable," said Steve Mills, senior vice president and group executive for IBMs Software Group, in Armonk, N.Y.

The On Demand strategy makes use of the companys so-called autonomic computing initiative, which is intended to create self-managing, self-healing computing platforms. It is also geared toward the concept of utility computing, in which enterprises access and pay for only the amounts of, say, storage or server cycles used. IBMs investments in grid computing; Linux; and its Project eLiza, the forerunner of the autonomic computing initiative, underpin the current thrust.