The two developments I outlined last time – growing demand for full solutions and this new computing model (CI No 2,727) – are causing large enterprises to focus on four things: interconnectivity and open standards; creating a common architecture out of the chaos the piece-parts era created in their enterprises; a strong need for systems […]
The two developments I outlined last time – growing demand for full solutions and this new computing model (CI No 2,727) – are causing large enterprises to focus on four things: interconnectivity and open standards; creating a common architecture out of the chaos the piece-parts era created in their enterprises; a strong need for systems management tools, and very strong interest in network integration and management capabilities. Now in light of all of this, what are we doing about it? Well first of all, we’ve gotten very, very serious about solutions as the driving force for what we do at IBM. Over the last two years we have totally refocused our sales force from what had been a geographically-based sales force to a sales force that is focused entirely on specialisation. In particular, specialisation by industry for our largest customers: 13 industry groups operating worldwide independent of historical geographic boundries. We’ve taken all of our services businesses and structured them into a global services business – for consulting, systems integration and outsourcing. We are today the world’s largest system integrator – 25,000 people, in every country in which we do business, 10,000 systems integration contracts. We have focused on product specialisation as well. We now have 15,000 product specialists where only a few years ago, arguably, we had none. We now have 42 open system centres in 32 countries that permit customers to test, build and integrate heterogeneous solutions. And our industry solution groups are gaining strength every month in terms of creating applications that produce true solutions for their industry clients.
A good example is the Canadian-based Footprint Software Co we bought in May. Brought under the leadership of our financial services industry group, Footprint is a leader in applications software for the banking industry – several banking industries – and it’s a leader in object-based applications. Objects is an important part of our technical underpinning of all of our solution work. In terms of the new computing model, we’ve responded – obviously first and foremost – with the acquisition of Lotus. Stand-alone desktop productivity applications is where the puck used to be. Obsession with operating systems is fighting the last war. Now the action is on how you tie it all together. And Lotus Notes is a critical component – but not the only one – in our plans for integrated systems. In systems management, the third of the most important priorities of our large enterprises, we introduced SystemView in May. It helps customers easily and more affordably manage what they have today, which are very heterogeneous systems, with many, many suppliers that arose at the time of the piece-part makers. You will see us roll out enhancements to SystemView on a regular basis. Our flagship middleware is very important in this new network model to support the high volume of commercial transactions that will occur across networks and to organise and manage the vast amount of data that will be created. And most important, we are opening up all of our products to work on all popular industry platforms and to exploit all networks. CICS runs on all IBM platforms plus Sun, HP, DEC, NT Server, Windows, and Mac. DB2 now runs on MVS, OS-400, HP, and Solaris – as well as our SP2 supercomputer. In the network area itself, we’re increasing every day the portfolio of our ATM products and IBM’s G lobal Network today is the world’s largest data network. And by year’s end it will be the world’s largest, global Asynchronous Transfer Mode network – high-speed, high-bandwidth.
By Louis Gerstner
And we’re in discussion with a number of partners around the world to extend the capability of the IBM Global Network. It’s important to understand that this is not one of those on-line networks where people go to get information. High-speed, high-bandwidth networks will change the way customers buy information technology. They will be able to subscribe to very rich portfolios of application
s and services versus what they do today – which is build or buy, maintain, upgrade them – themselves. For many, the Global Network will be their IT infrastructure. And finally, super-servers will play a very critical role in this new computing model. But they must be open and optimised for networks. That’s why we’re putting so much emphasis on our leading position in parallel supercomputing with our SP2 line, and it’s why we have reinvented our S-390 mainframe product line in the last two years. You know, 1991 was the previous peak year for MIPS shipped for S/390, and 1994 saw the new peak. In the first half of 1995, MIPS shipped on the S/390 line are up 55%. So this is our turf – our historical turf – and what I can tell you is that we are winning back share in this market. And we intend to be very aggressive in continuing to win back share. Now, let’s turn to our next customer group: small- and medium-size businesses. This is, believe it or not, 50% of the enterprise market – 50% in the small- and medium-size business: 52m small and medium-size businesses around the world. That’s businesses with fewer than 1,000 employees. That doesn’t even count China, Russia and other developing markets. They spend $230,000m on information technology. That’s our projection for this year. It’s very, very fragmented in terms of the suppliers. Not so easy to get data, but it is reasonably clear that we are the leader in every single market in the world with the exception of Japan. A 10% share, so we’ve got lots of room to grow. Traditionally, inside of IBM, this was a market opportunity that was dispersed. It was undervalued in the IBM culture, and it lacked a global, integrated strategy. These customers have an even higher demand for packaged solutions. They are entrepreneurs. They don’t have IT staffs. They want a turnkey package that’s easy to install, run and maintain. This goes a long way toward explaining why 70% of AS/400s are shipped to small and medium-size companies. Third parties are very critical to this customer group for coverage and they also need a hands-on local relationship. So where are we today in this largest-of-all markets? In 1993, our revenue was in decline and we were losing money. In 1994, we restored growth and profitability. This year we’re projecting double-digit revenue and profit growth. We’re pulling together a worldwide strategy under a single executive. Looking ahead, we’re working very hard on branding – changing the perception that existed a few years ago in this category of customer that IBM is not for me. We’ve begun doing something I was used to doing all the time – but it’s not done very often in this industry – called tracking studies, where we’re tracking quarterly customers’ behaviour and reaction to the company. The results are very encouraging in this market segment. We are making progress changing our image. We’ve seen marked improvements in perceptions of value, responsiveness, approachability and creativity.
But we’ve got a lot more to do in areas like easy-to-use products and IBM as an easy-to-approach-and-do-business-with company. We’re focusing very much on packaging our solutions for this segment. And again, there’s a very important role here for the Global Network. These institutions – these small and medium-size companies – lack networking skills, but they see the opportunity to compete as micro multi-nationals with the larger companies. And we are finding opportunities to provide their total network solutions. And finally, this customer segment illustrates the very important shift in our marketing strategy – a shift away from a single channel of direct sales to a much greater emphasis on what is known as direct-response marketing: the use of telephonic capabilities and database capabilities to grow your business. Our direct response marketing volume in 1992 was essentially zero. Last year it was $2,000m. This year, it will more than double again. We have this capability now in 50 countries. We’re building infrastructure, hiring skills a
nd setting up the sophisticated databases that are needed for this capability. We sell virtually the entire product line. At current growth rates, we will be the largest direct marketer in the world – in any industry – by the end of the year. Finally, I haven’t touched on the emerging markets of China, India, central Europe, Russia – where fundamentally, the entire market, in most cases, is small and medium-size businesses. So in a sense, this market is even bigger than the numbers I’ve given you. (To be concluded later)