IBM's New Hook

CIO Magazine (online) ^ | 1 July 03 | CHRISTOPHER KOCH

[for-q-clinton]

IBM's pitch that on-demand e-business will reduce IT costs and make everything work better sounds good, especially to CEOs who don't understand that the technologies to make it happen just don't exist.

A CEO watching a football game or a golf tournament on TV today is reminded during the commercial breaks of something about his IT infrastructure. He's reminded that it's a mess.

The bearer of this bad news is IBM. The message embedded in its ads (once you finish laughing at befuddled businesspeople peering through "magic business binoculars" or examining the "universal technology adapter") is simple: Your IT is broken, and you need IBM, the biggest technology company in the world, to fix it.

Now CIOs watching those ads know that IBM can't, in fact, clean up the mess they live with every day—the costly proliferation of hardware and software that doesn't work together; the shrunken staffs asked to manage more applications running on servers that typically use only 10 percent to 20 percent of their computing and storage capacity. They understand that IBM's "e-business on-demand" proposes to solve those problems with technologies that are either in their infancy or so numbingly complex that they're years away from being applied by the typically risk-averse Fortune 2000 company.

Unfortunately, CEOs and CFOs don't care about any of that. All they know is that their IT costs—which are now more than 50 percent of the average Fortune 500 company's capital costs—are throbbing on their balance sheets like big red sore thumbs. All they know is that they are facing a crisis of cost and complexity. And every time they see those IBM ads, it brings it all back.

But IBM's on-demand vision is not going to bail CEOs out of their predicament—at least not yet. More than a year ago, American Express outsourced much of its IT group to IBM in what was hailed as the first example of IT as an outsourced utility. But it is not a utility. Amex's computing resources are not mixed into a vast pool to get giant economies of scale, like electric utilities do. It is a variable pricing arrangement in which Amex pays a floating rate for computing power from a bunch of existing machines that are fully dedicated to Amex. That's outsourcing with a pricing twist.

"IBM does support and the data center," says Amex Vice President and CIO Glen Salow. "We do everything else—like application development and architecture." Stripped of its on-demand hype, what you get with IBM is outsourcing, and outsourcing is what it has always been: a risky strategy that according to numerous surveys fails to achieve either better service or reduced costs 50 percent of the time.

That's a coin flip.

But that heads-or-tails gamble doesn't stop CEOs from wanting IT off their books right now, and IBM's TV commercials tell them they can do it right now. Today.

However, if CEOs buy on-demand the same way they bought ERP and CRM—over 19th hole cocktails with consultants—the consequences could make the bloated expectations and cost overruns of the ERP and CRM era look like best practices by comparison. At least CIOs could unwrap ERP and CRM software and put it on servers. On-demand exists only in theory. And while CIOs during the years have managed plenty of difficult technology projects, implementing theories has never before been on their to-do lists.

Why Your IT Is a Mess No one is better at conveying the crisis in IT today than IBM. The brilliance of its advertising campaign (and the way it avoids culpability for the problems it helped create) lies in the fact that it has beaten its competitors to market with a startlingly new strategy for selling technology: the truth.

And the truth is, IT has not delivered on its promises to the enterprise.

For all the sales talk about agility and on-demand, no hardware vendor today makes a server that can manage a server from a competing vendor as well as its own, if at all. And no software vendor writes its applications to share that server with anyone else's apps. Any claim that on-demand computing can be delivered today depends on the fiction that you can build your infrastructure using a single type of application and use hardware with a single operating system from a single vendor. Every CIO knows that's nonsense.

What CIOs need today is the ability to share computing resources across operating systems and across hardware vendors because that's the reality they live with: a heterogenous infrastructure comprising everything from legacy mainframes to 15-year-old PCs to cutting-edge blade servers. And CIOs need applications that can be shared across this complex mess without falling apart or bringing down other applications in a massive crash. This technology exists (much like the technology to make a nonpolluting car), but there has been no advantage for vendors to offer heterogenous infrastructure and application management because doing so would hurt the sales of their own stuff.

But now the stuff is not selling. Sales of high-end servers were down 30 percent in 2001, according to IDC (a sister company to CIO's publisher), and rose only 1.6 percent in 2002. And in 2001, ERP vendors' revenue from existing customers for the first time outstripped those from new ones.

So by acknowledging, albeit humorously, the IT nightmare that their customers face, and by articulating the industry's most ambitious vision for fixing it, IBM is attempting to make lemonade out of today's lemons. And in so doing, it is threatening to leave its competitors in the dust.

How IBM Plans to Conquer the IT World Although it sells fewer units than smaller competitors in most of its markets, not to mention the fact that its prices are almost always higher while its technology rarely leads the pack, no other technology company can assemble as comprehensive a set of products as Big Blue: services, software, hardware and financing. Everyone else has a hole in his bucket. EDS ($11.7 billion in outsourcing revenue in 2002 versus $16 billion for IBM) lacks in-house hardware and software divisions, as does IBM's main consulting rival, Accenture. Microsoft focuses solely on software. Only Hewlett-Packard comes close to having IBM's breadth, but HP's services and software divisions are much smaller.

Of course, all of IBM's major competitors have partnership agreements with smaller vendors to fill out their offerings, but for the risk-averse CEO, IBM is the closest thing to a one-stop shop in IT. And if you have a mess, you want a janitor who knows how to clean up every bit of it.

IBM's goal is to leverage its breadth in order to stop selling IT hardware and software and start selling business capabilities enabled by technology.

This vision is not new, nor are any of the technologies behind it. What's new is the effort to make it consistent across the vast global empire of IBM. All IBM sales representatives—from its server division to software to outsourcing—are supposed to sell on-demand along with their own products. On-demand is supposed to drive the development of all of IBM's software and hardware with the goal of making them capable of mixing with and managing applications from other vendors. The coordination challenge is huge. For example, employees in IBM's grid computing unit spend 50 percent to 70 percent of their time doing marketing and education inside IBM itself, according to Ian Baird, vice president of marketing and sales operations at Platform Computing, which is one of IBM's primary partner companies in grid computing.

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[for-q-clinton]

ping

[muawiyah]

Our top brass either believe the IBM-type propaganda or they believe themselves capable of doing those things.

Some of the IBM ads leave me rolling on the floor, wet britches and all, because they so closely parallel the company propaganda we get delivered to us on a daily basis.

Fortunately at the moment the brass are enthralled with their "blackberries" and are looking forward to their improved "blueberries".

Most have forgotten how to read a wrist watch.

I think I will invest everything in IBM stock. They've got the brass figured out!

[Golden Eagle]

Interesting read, what's the poster's take? To me, the article was very long for not really saying much. I did find this three quarters way down:

Open source gives IBM a weapon against its only real competitor, Microsoft, and it makes IBM look good to the IT community.

That seems like a pretty subjective and all encompasing statement, myself being a member of IT and personally feeling it makes them look bad. A little further down at the start of the fourth page we find:

With e-business on-demand, IBM is gambling with its most valuable asset: the trust of the market.

They have little choice. Being simultaneously caught between a securities fraud investigation as well as being sued for billions of dollars for technology theft, their PR departement is being forced to respond with everything they have.

[dfrussell]

I worked for the division of IBM which supported companies like Walmart etc. until recently.

Management and Sales went out and essentially underbid everyone and wrote contracts whose cost decreased yearly for up to 7 years... they assumed economy of scale and repeat business would allow them to recoup the losses.

When they discovered they were incorrect, they worked us like dogs: I had months with over 100 hours a week. The clients were billed for the hours and we got a pittance of the time in an additional bonus.

A combination of raiding the pension fund, having "gay benefits/rights" and EEO shoved down your throat and the unremitting demand for more time caused a good percentage of the permanent employees in the lower tier of pension to quit.

Everyone I know who still works there said it sucks even worse now.

The person in charge of IBM's IGS while this was all happening is now their new CEO.

Ten years ago, IBM's focus was technology and service, and it was a good company for which to work.

Management's primary concern is now "diversity" and short-term profits... even if they're only on paper.

[JRandomFreeper]

And the truth is, IT has not delivered on its promises to the enterprise.

Somewhat. Mostly.

There have been productivity gains with computers, but they have generally been delivered by mavricks that don't work for IT. And often have to fend off the IT department to accomplish what they want to do.

IT can't be managed from the top any more than cats can be herded. Cats and innovaters have to be coaxed.

All 6 cats in this house come to the call of: "Seeeewwwwwieeee, pig, pig, pig... " because they get a treat. (Yes, I'm warped) But if you try to herd them anywhere, they suddenly get smart and remember their E&E (escape and evasion) training.

Which is why I'm out of the business.

I'd rather flip burgers than try to nail jello to a tree. Year after year after year.

/john

[Richard Kimball]

Well, I can sell them laptops for only $2500 each, and all they have to do to reboot them is turn them upside down and shake.

Click here to see an online version of it. Have your people contact my people, we'll do lunch and throw it down the well and see if anyone salutes it.

[Nick Danger]

There are two schools of thought on the fundamental issue being raised here, and I don't imagine we will ever see one of those visions totally overwhelm the other.

In the end, business is about Return on Assets, and management is about maximizing return on assets. At one time, truly large American companies were highly vertically integrated. As soon as they got to scale at doing any damned thing, they brought it in-house. If a company got big enough in virtually any business, it would one day be running a trucking fleet, an ad agency... hell, some of 'em probably bought their own paper plant because they were using so much paper.

The other point of view on this is to say, "we don't want to tie up assets in anything that is not our core business." We make widgets, we know how make widgets. What the hell are we doing running an amateur-night trucking company, a lousy little ad agency that never attracts any good people, and so on. The principle here is that if you do not know how to maximize the return on assets invested in an activity, then don't put your assets in it, because that way lies lower return on assets.

Can you really run a data center better than IBM or EDS can? Some will say yes to that and be right. But most can't say that truthfully. They're in the building supplies business, or they make ethical drugs. If half their capital budgets are really tied up in IT equipment instead of drug-making equipment or cement factories, then something is probably wrong, and it's probably 'empire builders' in the IT department and a decade of not noticing how big they were really getting.

Well, nothing called "CIO Magazine" is ever going to suggest that maybe the CIO needs a haircut, but it's not unreasonable to ask the question: if you really are the world leader in plastic water pumps, why the hell is 50% of your capital tied up in IT equipment? Is running a big IT show your core competence, or would you get a higher return on those assets if they were deployed in your main business that you are an expert in?

IBM's pitch will sound good to those who want to maximize return on assets, and IBM's pitch will sound bizarre to those who want to maximize assets per se.

outsourcing is what it has always been: a risky strategy that according to numerous surveys fails to achieve either better service or reduced costs 50 percent of the time.

That's an interesting way to put that. What I heard is that half the people running in-house IT departments would be better off not doing that. The big gain isn't even the reduced costs -- it's getting the cash back that's tied up in wires and boxes. Put that in the core business, and you might make some money with it.

[Bogey78O]

We must invest in our employees because they're the ones who make us money. Which is why we offer to them a free coffee cup with the company logo.

Enjoy.

[Bogey78O]

Large companies get this weird handicap where certain kneejerk reactionary policies are implemented because they're the "hot" idea now.

It's like how when the internet broke out absolutely everyone wanted their own website and domain name. They just needed one becuase that's something that they just needed.

[lelio]

More than a year ago, American Express outsourced much of its IT group to IBM in what was hailed as the first example of IT as an outsourced utility.

Any idea if this is working? My guess is that it was done as some projects weren't completed on time. Now its still not completed on time, but its harder to blame someone.

[JRandomFreeper]

Which is why we offer to them a free coffee cup with the company logo.

You're going to need coffee in those cups, and I can deliver it. After all, I'm just a cook.

print pack"C*",split/\D+/,`echo "16iII*o\U@{$/=$z;[(pop,pop,unpack"H*",<>
)]}\EsMsKsN0[lN*1lK[d2%Sa2/d0< X+d*lMLa^*lN%0]dsXx++lMlN/dsM0< J]dsJxp"|dc`

/john

[DManA]

The way it's going, we won't have to worry about any of this. It will ALL be India's problem.

[PFKEY]

I get the impression that you wished you still worked for IBM.

[PFKEY]

I'd rather flip burgers than try to nail jello to a tree.

Good one. I'll have to add that to my collection.

My favorite is still
"I'd rather sandpaper a lion's ass."

[JRandomFreeper]

LOL! Dad used to say "tickle a tiger under the tail with a toothbrush" but he's Baptist...

But I did it. I quit. Took the package and enrolled in culinary school. I graduate in 3 months if the AF Reserves don't NMI. It's hard getting over being a geek, but I think I'll survive. ;>)

/john

[PFKEY]

More than a year ago, American Express outsourced much of its IT group to IBM in what was hailed as the first example of IT as an outsourced utility.

I think outsourcing IT has been going on for a little more than a year. Call it a utility or whatever.

[PFKEY]

I think I like your Dad's way of saying it better.

[JRandomFreeper]

It certainly has alliteration working for it.

/john

[RightOnline]

For those of us who just may know a little bit about the 'on-demand' strategy, offerings, architecture, etc...........let's just say that this article is so full of holes and outright misrepresentations as to be utterly laughable. The clown that wrote this should be ashamed, for I can shoot it down in numerous ways in one phone call.....but he sure as hell didn't talk to me, or anyone else who happens to know what's really going on, for that matter.

Guess I just can't stand people who pretend to be "experts" who pontificate in writing and haven't the slightest f**king idea what they're talking about. I guess I'm just funny that way.