IBM Systems And Tecnology Group Growth Strategies

At its recent industry analyst event in Rye Brook, N.Y., IBM's Systems and Technology Group (STG) unveiled its five-year growth strategies for 2011 through 2015. As the guardian of the hardware and software that exploits that hardware to maximum benefit, STG is one of the recognized foundations of IBM, with a wide range of servers (including x86, Unix and mainframe systems) and storage products, as well as the IBM Research labs that support those efforts. Understanding what IBM STG is doing is i

David Hill

December 8, 2010

10 Min Read

Growth in revenues and profits for a good many private enterprises is important, but growth for a huge IT vendor such as IBM is an imperative. There are a number of reasons for this, but chief among them are investors' demands for appreciation in stock price and dividends over time. Yet the bigger you are, the harder it is to grow. Unless a company takes market share from competitors or makes sizable acquisitions that include additional new customers, growth may be limited to mirroring the overall market (where all vendors may be able to benefit from the rising tide). IBM obviously wants to capture these known benefits, but it also is doing more--much more--to make sure that it will meet its ambitious growth objectives.

IBM's efforts focus on three things: vision, strategic planning and execution strategies. Everything starts with a vision--basically, a desired destination. Vision is important, for, as the old saw states, if you don't know where you are going, any road will get you there. And so enters strategic planning, which lays out the roadmap for IBM's route to the destination. But strategic planning only describes the game as a whole; individual plays have to succeed, and that gets into execution strategies.

A simple example may help to clarify the process: Vision is knowing or deciding that you want to travel between Boston and San Francisco. Planning involves selecting the mode of transportation--say, air over train, bus or car. Execution involves booking a flight on a specific date at the best possible price, then actually making the flight and completing the journey.

Not surprisingly, IBM's vision for STG is company-centric. At the Rye Brook event, IBM spelled out a number of key areas for which it is building and continuing strategic development efforts, including growth markets, business analytics, Smarter Planet and cloud. Each of these provides the company notable commercial opportunities:

Growth markets: Historically, IT infrastructures have been unevenly distributed around the world with major concentrations in North America, Europe and Japan; continuing IT infrastructure development in the so-called BRIC (Brazil, Russia, India and China) countries, as well as ROW (Rest of World) including Africa, provides potentially huge business opportunities for those IT vendors who play their cards right.
Business analytics: The traditional IT uses of transaction processing, social collaboration applications (including e-mail), the Web and business process management will continue to grow, but the expanding need for business intelligence and business analytics represents a huge new growth potential. Business analytics has been around in some form or other for decades, but never before has it reached a critical mass where it became a requirement or a major focus for IT vendors. The maturity of business processes, the richness of the information that is now available for use within an enterprise and the availability of powerful sets of analytical tools has reached the point where insights can be derived that improve decision-making processes on a continuous and comprehensive basis (not just a niche or ad hoc basis). The latter is so important a development that business analytics will become more and more critical to the success of any enterprise.
Smarter Planet: This is a drumbeat that IBM has been playing loudly and clearly for some time. (Notice the media ads on TV, radio, and magazines.) To greatly simplify this notion, digital sensors are being used to capture information from objects, devices and locales not typically associated with computing (such as utility/power meters attached to homes). In turn, this can provide information and intelligence that can lead companies and consumers to make better decisions (such as better use of energy through more frequent, automated meter readings).
Cloud: OK, this is obviously not unique to IBM (nor are the company's other vision areas, though IBM has a stronger, clearer focus on Smarter Planet than anyone else). However, recognize that "cloud" is a code word that covers a lot of IT sins, including data center transformation activities. Although no one IT vendor will dominate this space, all will play here.

Although the word "strategy" was bandied about any number of times at the STG event, the terms "strategic planning" and "corporate planning" were probably never uttered. Still, the fingerprints of a strategic planning process were evident everywhere. Strategic planning has historically had its ups and downs. Nowadays, it may not be an episodic event at the executive level that results in a paper document that simply sits on a shelf and gathers dust, but rather an ongoing iterative process that leads to a living, breathing approach to how to fulfill a business's vision. And that is what it appears that IBM is doing.Two huge keys to the success of such efforts are that they are culturally sound and that they build upon proven strengths. Culturally sound means that any incremental changes are not going to disrupt what employees consider their social contract. This is essential to get the buy-in and commitment that is necessary for the execution strategies. Building off one's strengths is essential; trying to do too much new tends to entail too much education and risk.

IBM has three basic strategies for growing its business: 1.) Take advantage of geographical growth markets, 2.) Take advantage of the new business IT growth markets (business analytics, Smarter Planet and cloud) and 3.) Emphasize competitive take-outs to gain customers and market share from other IT vendors.

Let's take a quick commingled look at some IBM planning and execution keys:

Growth markets: Expanding or emerging IT markets have a different pattern of growth than the existing well-established markets. A lot of the growth comes from the consumer or individually used products, such as cell phones and smartphones. So, how does IBM play in consumer-driven markets when it emphatically emphasizes its enterprise IT infrastructure focus? The answer is that consumer products are connected over networks (such as those supported by telcos and the Web), and the other end requires an IT infrastructure, such as for billing or Web commerce. That is why Namibia has seen the installation of its first IBM mainframe; the key is that wherever there is an IT enterprise infrastructure market, IBM intends to play in it
Growth solution areas: These areas (business analytics, Smarter Planet and cloud) represent a lot of market potential. IBM's continuing focus on Smart Analytics ranges far and wide, including the recent release of Cognos 10 business analytics software and the recently completed acquisition of Netezza, which gives IBM a leadership role in the appliance-based segment of the data warehouse market. The ongoing evolution of the Smarter Planet initiative demonstrates the continuity necessary to take a strategic planning initiative and execute successfully on it over the large span of time necessary to fulfill its potential. On cloud, IBM brings to the table its very, very extensive data center experience, as well as an enormous catalog of innovative products, IBM Research developments and numerous partnership relationships.
Competitive take-outs: IBM's focus on integration and innovation extends to more than point products alone. (That is, a "value' sell typically results in higher gross margins than price-sensitive commodity point product sales.) In addition, IBM is focusing more on third-party sellers of its products--notably, ISVs and systems integrators, as it believes that third parties are now having a disproportionate influence on what is installed at customer sites. IBM offers not only cross brand/integrated offerings, but also support services, including the ability to provide upfront capital or credit. Potential customers' growth areas (whether geographically or new products) tend to rely upon third parties and vendors for their knowledge, wisdom and experience to do the right thing (effectiveness that leads to value). Of course, this approach applies to green field opportunities (such an account in an emerging market that typically has done little or no business with any major IT vendor), but it is also useful for a competitive take-out strategy. IBM claims a measure of success against HP, Oracle/Sun and others

Space does not permit going into every development area in which IBM is involved, but here are a few highlights related to its execution strategies:

Workload optimization: IBM is focusing on "smarter" systems designed to maximize workload optimization according to server and storage system characteristics. Processes including software exploitation, such as parallelism and memory management, are essential in achieving ideal workload optimization. IBM discussed both vertical (highly integrated appliance or enterprise system-based) and horizontal (such as Hadoop- and massively parallel processing-based) workload optimization solutions.
Leverage the labs: IBM Research's laboratories have long been a source of innovation that has greatly contributed to the company's success over the years. A new program called Systems Agenda Delivery enables research engineers on a selected basis to help CIOs with design strategies. This does not compete with standard services, but is a way of providing very specialized knowledge in situations in which help could not otherwise be provided. These are short-term, non-revenue-generating engagements where IBM hopes to get design wins but that could also result in engineers gaining experience that brings future lab activities and new products.
Routes to market: As discussed earlier, IBM is focusing more on working with third parties. While direct sales remain an important element in its go-to market strategy, this represents a refocusing of the operational sales strategy to align more closely with indirect sales channels, including third parties that can benefit from IBM's technology, support services and financial muscle.

The world of the enterprise IT infrastructure is in a period of rapid change and growth that will continue into the foreseeable future, including the five years incorporated in IBM's strategic vision. That growth occurs in two primary ways: 1.) an increase in enterprise IT infrastructure density in geographical regions that have not previously played heavily in the IT infrastructure market (and with a hopeful overall economic growth that benefits the worldwide economy in general) and 2.) the introduction of new business models and technologies that create opportunities in areas where IBM is concentrating notably on business analytics, the Smarter Planet and cloud computing.

Now, IBM's server and software-based competitors may feel that while IBM may do well in all those areas, they can also do well or even better. And since no one vendor is likely to dominate any of those markets, they may very well be right. However, these companies should not rest easily given IBM's competitive take-out strategy and migration efforts that are continuing or even accelerating. IBM was clear about its strategic plans and execution strategies at the Rye Brook STG analyst event, but its competitors cannot take any solace in that.

Opponents of Vince Lombardi's championship Green Bay Packers often knew what was coming, but the Packers executed so well that competing teams could do nothing to stop them. Since its competitors know the "plays" that IBM is running, the company has the challenge of executing those "plays" so well that competitive countermeasures cannot stop IBM from achieving its desired level of success.IBM is currently a client of David Hill and the Mesabi Group.