There will be those who say the strategy is wrong, and others who will say that they’ve seen and heard it all before. But taken at face value, it looks like a major restructuring is imminent at IBM’s gigantic software and services divisions.
According to reports from the US, the restructuring will involve the ‘verticalisation’ of IBM’s $13.1 billion global software business into 12 units, from development through to packaging and marketing. It will take effect from the first or second quarter in 2004.
These units will combine with the industry-specific consulting divisions that form part of IBM’s 60,000-employee services organisation. These divisions were substantially strengthened when IBM acquired PwC Consulting for $3.5 billion in 2002.
As part of the strategy, IBM plans to compete more directly with Microsoft and its Windows, SQLServer and .NET suite, by trying to persuade thousands of software companies to build flexible applications on its platforms.
News of the planned restructuring will inevitably lead to speculation that IBM is planning a return to the application software market, which it largely quit in the 1980s. By combining its middleware and system software products with an allied expertise in building industry-specific applications, IBM will be able to build customised ‘business processes’ that could compete with packaged applications.
Many software specialists believe that software tools have now reached the point where custom-built applications can begin to rival, or substantially complement, the leading packaged applications. There are also signs that, using component kits, advanced value-added resellers can build sophisticated applications more easily.
IBM argued at its Software Symposium in Munich early in 2003 that, using Rational and WebSphere development and management tools, it can quickly build flexible end-to-end automated business processes. Moreover, executives argued that using event-driven modelling and business process management techniques, it will be possible for business people to specify and alter software ‘on-the-fly’.
Assessing the true extent of the re-organisation by IBM is difficult. Over the past three decades, IBM has repeatedly re-organised its software and services businesses, creating industry specific units as long ago as the early 1980s. However, former CEO Lou Gerstner also strengthened IBM’s focus on generic technologies, encouraging partners to take on more of the marketing load.
Although it is reported that some 20,000 software engineers are likely to be redirected towards more industry-specific work, this is not necessarily new. IBM has been creeping towards verticalisation for several years, and early in 2003, it announced 48 ‘products’ that consisted of industry specific templates for developing integrated solutions, mostly based on WebSphere.
The tailored solutions consist of pre-configured integration templates, along with services provided by IBM and its partners. It seems likely these will be extended to include more components from Rational, Tivoli, Lotus and DB2.
These address 11 key verticals: automotive, banking, chemical and petroleum, electronics, energy and utilities, financial markets, healthcare, insurance, life sciences and pharmaceutical, retail distribution and telecommunications.
The danger for IBM is that the new moves will lead to channel conflict. Although it says it is building better relationships with leading systems integration companies, some may interpret the move as a sign that IBM wants more of their business.