News

IBM chief sets 'e-business on demand' strategy

• By John K. Waters
• November 4, 2002

What do you get when you cross ''e-business'' with ''computing-on-demand''? If you're IBM chief Sam Palmisano, you get a far-reaching enterprise computing strategy dubbed ''e-business on demand'' -- and an opportunity to take your predecessor's vision to the next level and make it your own.

Palmisano outlined IBM's latest big idea last week in a speech to corporate customers, business partners and analysts at the American Museum of Natural History in New York. ''It's a phenomenal opportunity for us to drive the next technology agenda,'' he said.

IBM is betting on the enterprise appeal of the so-called utility computing model, which allows companies to buy only the computing services they need, without investing in expensive hardware and software. IBM will provide these services through distributed networks that appear to users as single machines, Palmisano said. The networks would be able to adapt to spikes and disasters by drawing from resources across the network. They would provide the precise processing power needed, while automating routine configuration and maintenance tasks.

''It's a bold bet, no doubt about it,'' Palmisano said. ''Is it a risky bet? I don't think so. We've been at it. The technology is now there. It's ready. We understand it.''

The initiative combines the business process integration software of newly acquired CrossWorlds Software, IBM's Tivoli data center management software, consulting services from IBM's PricewaterhouseCoopers' consulting division, its experiments with universities in grid computing and the firm's recent establishment of an 'autonomic computing'' initiative, Palmisano explained.

Palmisano's presentation was compared to predecessor Lou Gerstner's launch of the company's e-business initiative a few years ago, which many credit with turning the ailing hardware maker into a global services and technology company. Palmisano said the on-demand initiative evolved from an August 5 meeting at which some executives suggested packaging projects in which IBM had already invested heavily.

''They saw that if we bring them all together we could solve a big problem in the industry and differentiate ourselves,'' Palmisano said.

He said IBM would spend $10 billion on research, acquisitions, marketing and training centers to support the on-demand strategy. The company plans to open four on-demand design centers -- in the U.S., Japan and elsewhere -- to help customers test the new concepts and products, Palmisano said. IBM will also expand its consulting services to support the new plan.

The concept of utility computing is not exactly a new idea. In fact, Hewlett-Packard and Sun Microsystems offer their own versions. HP calls its technology the Utility Data Center (UDC); Sun's is solution N1. HP is expected to announce its second generation of UDC products in November, and Sun plans to roll out its N1 products over the next 18 months.

It was a big week for IBM's new chief, who succeeded Gerstner as CEO in March. The IBM board of directors elected Palmisano chair of the board, effective January 1, 2003. Palmisano also succeeds Gerstner in that position. Gerstner will retire from the company and from the IBM board of directors at the end of this year, according to company representatives.

Although this new program has been characterized in the press as Palmisano's first big idea, observers say he hasn't exactly been sitting on his hands since he took the reigns of the company in March. The $3.5 billion PricewaterhouseCoopers Consulting acquisition created one of the industry's largest IT service organizations. And then there's the pending sale of the company's hard disk drive business, a major realignment of its microelectronics unit and the outsourcing of desktop PC manufacturing.

Big Blue plans to spend big bucks to advertise its new strategy. Reportedly, the company expects to spend between $700 million and $800 million on a new ad campaign next year. (In 2001, IBM spent more than $300 million on advertising, according to CMR.)