2011 was a pretty good year for IBM. The company celebrated its centennial anniversary, it secured a multibillion-dollar investment from Warren Buffett, and its computing systems even managed to win “Jeopardy.” To follow up such a successful year, the company announced it would be appointing a new CEO, Virginia M. Rometty, at the beginning of 2012.
With all these accolades, it would be tempting to look for cracks in the IBM armor. But as the juggernaut of business services and middleware continues to focus on business results rather than simply packages of software, it’s difficult to find those cracks.
Bobby Cameron, vice president and principal analyst at Forrester Research, said that “Rometty’s appointment is all about staying the course. There’s a transition that’s been underway at IBM for quite a long time. It’s toward an integrated set of offerings with consistent customer attention and service. That’s what’s been going on since [Louis V.] Gerstner, after [John F.] Akers almost blew the company up. The focus is increasingly around business results instead of selling products. It’s this whole ‘Smarter Planet’ stuff they’ve got going around integrated bundles of software for targeted industry sectors. All that is trying to shift orientation towards the business value.”
Cameron said that, for the most part, IBM’s strategy going forward is to further integrate its products to focus on these business outcomes. For that reason, he said Rometty’s appointment as CEO shouldn’t bring about any major changes. That sentiment is also echoed from within IBM.
Kristof Kloeckner, general manager of IBM Rational, said that he doesn’t expect IBM’s second century to bring about sudden changes or direction shifts. “I don’t think anything major is going to change in terms of the overall strategy of IBM, and I’m not telling you anything new there. We’ve been on this very focused road map for several years. There’s the road map to 2010 and the road map to 2015.
“But what it’s really been is a strong focus on leveraging both our ability to innovate and to enable our customers to innovate; enabling them to focus on the global trends, increasing globalization and focus on customers. When you look at the major growth agendas, they are all tied to these trends and they are all driven by software. Software is codified knowledge, and the more you can place software into services, the more successful you will be because you can lower the cost of your services and business outcomes.”
The challenge ahead
Despite this planning and focus on customer outcomes, IBM and other enterprise software companies are waking up to a harsh reality, said Cameron. “I think they’re all stumbling upon the truth. The real sophisticated customers out there are already ahead of the game,” he said.
“Let’s take Procter & Gamble as an example. They’re delivering shared services as targeted business services in a global business organization. They’ve got 170 services…which are a combination of pieces from shared functions, from IT to HR to finance to real estate. They’re all trying to recognize it’s no longer a game of selling a big ERP engine and letting the user do all the modification. You look at the bundling IBM is doing; they’re bundling a bunch of packages together.”
Cameron said that IBM, Oracle and other large enterprise software vendors have been learning this lesson, that large companies are building services out of smaller functionality, and are cobbling together existing code to work in tandem across the globe. In this type of environment, where hundreds of applications can be working together, selling large, monolithic software packages that try to be all things to all users is not the best solution.
IBM’s realization of this trend has been strongest in its business services division. Rometty herself comes from that division, and she is said to have heavily advocated for the company’s purchase of PricewaterhouseCoopers Consulting, which expanded IBM’s business services arm.
Kloeckner said that Rometty, despite her consulting background, understands the software business. “I have worked with her. [She] has been very much a presence and force behind what has happened at IBM, and she does understand the software business.”
Cameron seemed to agree. “Rometty ran global business services from its inception. [PricewaterhouseCoopers] had been playing this game for a long time. They not only rolled out SAP, but used off-the-shelf components they could combine to deliver solutions. That’s nothing new; it’s just that we’re running further and further up the stack for the value that’s getting delivered.
“One of the challenges IBM has is getting the sales organization away from selling boxes and into selling value. I know [Rometty] very much understands that business results are integrations of lots of combined capabilities from lots of players in the value chain.”
Kloeckner seems confident that Rometty is the person to lead IBM into its second 100 years. “The one thing that you find is that we constantly adapt, and when you look at our guiding principles, we focus on customers’ business outcomes, on innovation that matters, and on sustaining relationships based on these principles.
“I think you will find IBM has the staying power for another 100 years or more. I certainly hope to be part of the next several.”