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IBM’s Next Transition

October 11th, 2003 · No Comments

Management is about making the right shifts at the right time. IBM executed an important transition in the 1990s under Gerstner. Now, it is making yet another shift – to services and eBusiness-on-demand under Palmisano. Financial Times writes:

If the 1990s were about automating functions and departments, the next decade will be about trying to integrate these “islands of automation” so that information flows more easily through, and between, corporations.

Under Sam Palmisano, chairman and chief executive, IBM is investing billions of dollars in research and acquisitions under the banner of “e-business on demand”.

The scope of Big Blue’s ambition is breathtaking. Executives admit that IBM now sees itself as competing not only for the $1,000bn a year that companies spend each year on IT but also for the billions spent on processes of the kind outsourced by P&G – which last month signed a $400m, 10-year contract with IBM.

“‘On demand’ is a statement of flexibility. It doesn’t start with technology, it starts with business model and operations,” says Steve Mills, head of IBM’s software division. “The aim is to achieve smoothness of processing, from demand to delivery.”

IBM now encompasses financial services; software in a multitude of flavours (operating systems, databases, collaboration tools and middleware); hardware, ranging from mainframes to notebook computers; and the design and manufacture of microprocessors. Now Mr Palmisano’s move into management consulting and business process outsourcing has taken IBM into activities that are not one step but two steps removed from the old, core business of building computers.

There is more to this than empire-building. Bruce Harreld, the former Boston Chicke n executive hired by Mr Gerstner to head IBM’s strategy unit, points out that profits in the IT industry have been migrating away from makers of components – such as disc drives, microchips and operating systems – towards suppliers of software, services and consultancy.

The only notable exceptions to this trend are the two manufacturers with tremendous market power: Microsoft and Intel.

A related story discusses re-engineering:

“The leap to the next level of productivity won’t come from just making the same business processes more efficient. It will involve another wave of process re-engineering, no question,” says Doug Elix, who runs IBM’s global services division.

Looking at companies as collections of business processes (order entry, fulfilment or billing) rather than functional departments (marketing, manufacturing or customer care) makes sense. Breaking down boundaries between departments to ensure smooth operations is also a legitimate goal.

The objective now is to use industry standard technologies – such as the internet and XML, a kind of lingua franca that enables computers to understand each other regardless of the software they run – to bring more flexibility and transparency to companies’ operations.

We have to become the IBM for SMEs.

Tags: Enterprise Software

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