Demanding times are good times for IBM

2 Mar 2004

LAS VEGAS – IBM hammered home the messages of its On Demand strategy to over 5,000 business partners who have gathered for PartnerWorld in Las Vegas to hear top executives such as CEO Sam Palmisano outline Big Blue’s plans to support them in the coming year.

Palmisano’s keynote kicked off by reminding business partners of their importance to IBM — in financial terms they accounted for US$29bn of the company’s US$91bn revenues in 2003. Based on analyst’s forecasts he predicted a 6pc increase in IT spending worldwide this year with financial services, media and entertainment, government, and the small to medium enterprise (SME) sector being the fastest growing.

At a session for European, Middle East and African (EMEA) partners, Giuseppe Giuliani, VP for EMEA business partners, gave detailed figures of IBM’s performance in the region last year. At US$7.1bn revenues broke US$7bn for the first time and an aggressive target of US$7.9bn has been set for this year, which will require the company to win market share from competitors.

SMEs, a sector that IBM is now actively targeting through the channel, accounted for 50pc of revenues and grew US$220m throughout 2002. At US$1.74m the PC still accounts for the largest chunk of sales but US$200m was lost from box shifting where it competes on price rather than trying to sell a solution that includes software, services and financing.

In his keynote Palmisano also expanded on the three central tenants of On Demand — integration with partners, suppliers and customers, flexible pricing and procurement models, and standards-based infrastructure.

The deeper integration piece of the jigsaw is being covered through the acquisition of PricewaterhouseCoopers consultancy division, which specialises in this sort of business transformation.

He pointed out that every industry that has matured has adopted open standards and cited telephony, retail and financial services as examples where this has succeeded. Of all the areas where IBM is working on open standards — Java, web services and grid computing — Linux gets the most attention, which he puts down to its flexibility and compatability.

Palmisano admitted that the riskiest prong of the strategy is providing flexibility in procurement to customers particularly if a model where customers only pay for business benefits is adopted. “You really have to know what you are doing,” he said. “It’s very risky so you better have done business process transformation before.”

Palmisano said the strategy is a response to the model of the last decade when customers bought 10 or 15 best of breed applications and systems and then faced the challenge of how to integrate them, a model that largely failed but created huge opportunities for system integrators and middleware vendors.

All IBM executives were stressing the company’s new found interest in the SME market where it sees huge market potential. IBM estimates the total SME market for IT purchases is over US$300bn. In the EMEA region IBM estimates there are approximately 19 million SMEs who are increasing their IT spend much faster than its core enterprise market.

By John Collins