IBM and the fine art of survival

23 Jan 2003

The beginning of 2003 has been ominous for the Irish tech sector what with Logica cutting 350 employees, Microsoft shifting its localisation operation back to the US and Square D closing its plant in Ballinasloe. At a time when no company seems immune to job cuts and restructurings, IBM is a welcome exception.

Big Blue is quietly ploughing its own furrow, making very little commotion, but doing what it’s done in Ireland for the past 50 years: making healthy profits out of selling IT solutions to the home and business user. And employing some 4,000 people in the process.
This is not to say that John Scully (pictured), the laid-back head of IBM Global Services, is in any way complacent about the company’s position and the challenges it faces. If anything, he’s more pessimistic than most about the outlook for the sector.
“The heady days of the late Nineties are over. In the IT services area in this part of the world the peak was 1998. For businesses such as ourselves we have to accept there’s a new reality and there’s no point in hanging on and expecting things to bounce back, because they’re not going to.”
Like a solar eclipse when the Sun, Earth and Moon are aligned for a freakish moment, the combination of the internet boom, Y2K and the Euro changeover created a grotesque and unsustainable bubble that the industry has been paying for ever since. Scully is not so disingenuous as to suggest that IBM, like every else, didn’t make the most of the boom but he does sense there’s a payback mentality in play with some customers – and rightly so perhaps.
“Organisations have made enormous investments in IT over the last decade and now they’re beginning to ask, ‘what am I getting out of it?'” Return on investment (ROI) has lately become the mantra of IT managers up and down the land who have to justify their IT spend at board level.
A new fiscal rectitude has emerged out of the shadow of the free-wheeling, high-spending corporate culture that dominated the market in the Nineties. With revenues down, many companies have embarked on a war on cost to stop running out of cash. First, they attacked variable costs by, for example, letting IT contractors go, canning new projects and freezing new equipment budgets. Scully believes we are now entering the next phase: the fixed-cost cutting phase.
“CEOs are starting to realise that you can vary the size of your workforce or sell off a building but one area that’s damn hard to get variability into is you data processing and IT costs,” he says. “You have to have the whole ERP system, you can’t have a bit of it; you have to buy the server to run it, you can’t buy just a part of it.”
Such a scenario calls for a particular solution. That solution is outsourcing and Scully believes that, at long last, Irish organisations have an exceptionally good reason to put the responsibility for owning and running IT systems in someone else’s lap.
“Outsourcing is a way for people to achieve variability in their IT systems,” reasons Scully. “If you need more power, you can get it without buying a whole new server or hiring two or three new people.”
Ongoing corporate belt-tightening is, he believes, also creating opportunities in the server area – especially in server consolidation, as businesses look to boost the efficiency of their installed base of boxes – and for Linux applications. “More and more people are talking about migrating their print and file servers to run on Linux because it runs very efficiently on slower, older machines, so you don’t need to go to the next generation of chip to run your less critical applications.”
A more immediate task facing Scully is welcoming to his team next week the hundred or so consultants who are joining IBM Global Services in Pembroke Road as a result of last year’s global acquisition of PWC Consulting. The merger of the two organisations to form a new unit within Global Services – Business Consulting Services – is almost complete and is has been achieved, moreover, without any job losses. Scully puts this down to synergy between the two – PWC was strong in a number of areas where IBM wasn’t, such as the public sector. Nevertheless, IT consultancy is a tough sell for any company these days so does Scully think IBM can buck the trend?
“There is still a lot of opportunity in the sense that companies have a lot of systems around the place and are interested in integrating those systems because that shows immediate benefit but the idea of embarking on a large ERP implementation over a two or three year period is very slow I would say.”
Though Scully obviously possesses a shrewd commercial brain, the erstwhile computer programmer freely admits to being a techie at heart. He talks with childlike wonder about the enabling power of technology and is particularly drawn to large-scale conceptual projects like grid computing which promises to make computing power as accessible as water from a tap or electricity from a plug. “The whole idea of under-utilised capacity – millions of half-full disk drives and tenth-full CPUs – seems like a huge waste to me,” says Scully. “The technology I’m looking forward to is being able to plug in an appliance at home and being able to have unlimited access to whatever capacity I need without having to run down to the computer store to buy another 20 gig drive to run the thing.”