IBM’s Palmisano Has A Vision

In an important meeting with a few hundred customers in New York City, a dozen observing analysts and perhaps three dozen journalists – plus over 300,000 IBM employees vis their worldwide network, IBM’s president and about-to-be CEO Sam Palmisano laid out his vision for the future of IBM and the industry.

It’s only been a few months since Palmisano took the helm from IBM’s previous chief, Lou Gerstner, so comparisons are inevitable, especially since Gerstner was famously quoted, early in his IBM tenure, as offering no vision.  (Actually, we think he really meant that he was busy assessing IBM’s complicated problems and crafting its recovery; solutions first and vision later was the plan.  Gerstner successfully turned the company around and went on to offer his vision – e-Business.)

The Palmisano vision looks to a new On Demand era of business and technology that will create enormous opportunities for IBM, the computer industry, and its customers.

Such On Demand systems would be responsive (able to nearly intuitive change to meet the needs of dynamic, unpredictable changes in demand, supply, pricing, labor, competition), employ variable cost structures to reduce risk, focused on core competencies (using partners for other tasks), and resilient to a variety of natural risks or security threats.

The idea is to let customers buy computing in a utility model, like electricity.  Buy just as much as you need, as you need it.  No need for customers to make capital investments, unless they choose to.  They can, instead, simply pay for computer, as an expense, as they go.  This could mean a company could buy all its computing by the drink or, more likely, that it would buy only its mission critical needs, at some base line level, for in-house support, buying the rest On-Demand to cover peak periods of usage, new or unpredicted activities or sudden cutbacks.

An evolution of the previous and ongoing movement of customers to take advantage of Internet technology, companies who move to the on-demand business model will find themselves better able to respond in real time to the dynamic and demanding conditions of global economics.

IBM is investing $10 billion in helping to create and refine technology, through R&D, emerging business initiatives, and acquisitions, to help provide their customers with the transparent and flexible systems they will require.  These systems will have particular attributes that are not new, but which together represent the newest thinking in architecture and system design.  They include integration to link transactions and processes in real time and across companies, compliance to open standards for ease of integration, virtualization for increased collaboration and efficient use of resources, and autonomic (that is self-managing) to decrease complexity and cost.

Key to that effort will be the creation of a new IBM organization to focus on the task, headed up by Irving Wladawsky-Berger, a senior IBM Executive with deep experience in bringing new technology concepts to market.  The organization will drive efforts across IBM and coordinate partner efforts.  IBM will also be opening On-Demand design centers to implement customer pilots based on open technologies such as Web Services, Linux, and Grid Computing and create a new On-Demand assessment practice in their business consulting services. 

Palmisano views on-demand business and the cost savings it can offer as highly disruptive.  That is, it will provide clear winners and losers, just as the birth of the PC did, as companies recognize the new business model and exploit it – or fail to do so and become decreasingly competitive.

IBM started off with a splash – major press coverage and a many-paged color insert in the Wall Street Journal.  A new television and print advertising campaign will follow.

Of course, competitors, especially HP and Sun, will need to take notice.  While all of them are preaching similar values – reducing complexity and cost, increasing integration, open standards, and so forth, none of them have yet offered the comprehensive picture envisioned by Palmisano and IBM.  The resources, too, would be hard for HP (still busy managing its way through its merger execution) and Sun (struggling with a down economy that has hit its best customers especially hard) to match. 

Of course, shifting the playing field, or its rules, even a little could have a big pay-off.  IBM is counting on that.

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