
“In the past, IBM defended the mainframe against client-server computing and PCs,” Palmisano says (Chief Executive Samuel J. Palmisano). “We’re not defending the past anymore.” No, IBM is off and running into a new world of business, beyond computers.
This sounds like IBM is changing its definition from international business machines to international business models.
The world of computing that IBM long ruled is increasingly becoming a commodity business. Ruthlessly efficient Dell Inc. fresh from its conquest of the PC market is climbing up in servers and even tech services. “The big question is: Will services go the same way hardware has? We think it will,” says Steve Meyer, a vice-president in Dell’s services unit.
IBM, with its legions of PhDs and closets full of patents, is not built to duke it out with the likes of Dell. Palmisano’s strategy promises a neat escape. Instead of battling in cutthroat markets, he takes advantage of all the low-cost technology by packaging it, augmenting it with sophisticated hardware and software, and selling it to customers in a slew of what he calls business transformation services. That way IBM rides atop the commodity wave - and avoids drowning in it.
Therefore, IBM is putting to use the immense resources it has in-house, from its software programmers to its 3,300 research scientists, to help companies like P&G rethink, remake, and even run their businesses - everything from accounting and customer service to human resources and procurement. “We’re giving our clients a transformational lift,” says Palmisano. He expects that within 10 years IBM could build an annual revenue stream of as much as $50 billion in business consulting and outsourcing services. If so, Palmisano will have created a second services miracle and hitched IBM to a crucial growth market. And in the process, his company will be fixing - or running - big chunks of the world’s business.
In its pursuit of vital industry experience, IBM - much like an eager college intern - is sometimes willing to work for free. IBM’s unpaid partnership with the Mayo Clinic dates back to a cocktail party in 2000 in Mayo’s hometown of Rochester, Minn., where IBM has a computer factory. A Mayo employee and an IBMer realised that scientists at both companies were working on genomics research. This soon led to joint projects on gene profiling of leukaemia cells, and a published paper in a scientific journal in 2003. This is not the kind of connection that Dell, Accenture, or Wipro is likely to make. “This is the way to transform the way we practice medicine,” says Dr. Nina M. Schwenk, chairperson of Mayo’s Information Technology Committee. And for IBM, it’s a foot in the door of the $1.4 trillion health-care business.
In addition to its four original businesses — accounting, HR, customer service, and procurement - it is now ploughing into six others. They include after-sales service for consumer electronics, insurance-claims processing, and supply-chain optimisation. The old IBM would have studied for many months before deciding whether to enter these new businesses. This time, it has set up small SWAT teams to work with a handful of initial clients and launch businesses.
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