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Field Guide: IBM Corp.

There's not a single bit of information technology, nor industry, nor industry need, nor business process untouched by the largest IT vendor in the world: IBM.

The Company

International Business Machines (IBM) Corp. (Armonk, NY) is a computer company. The largest computer company in the world. Under the general umbrella of "information technology" (IT), IBM invents, designs, and manufactures computer hardware and software, network systems and components, storage devices, and microelectronics. Complementing this raft of hardware and software, IBM also provides design, implementation, management, and operational services. In fact, those services are an increasingly large part of the "big iron" from IBM.

IBM's roots date back to the mid-1880s. In 1885, Julius E. Pitrap of Gallipolis, OH, patented his computing scale, founding the Computing Scale Company of America. In 1886, Herman Hollerith created the Tabulating Machine Co. and showed his tabulating system for recording vital statistics to the Baltimore (MD) Department of Health. This system used code represented by holes punched into cardboard cards. (This code was adopted by the U.S. Census Bureau and was still used up into the 1960s.) In 1888, Alexander Dey invented the first dial recorder. In 1889, Harlow Bundy incorporated the Bundy Manufacturing Company, the first company in the world to produce a time clock for recording worker arrival and departure times on paper tape. 

These companies eventually merged in 1911 to form the Computing-Tabulating-Recording Company (C-T-R; New York, NY). The company had 1,300 employees and offices and plants in Endicott and Binghamton, NY; Dayton, OH; Detroit, MI; Washington, DC; and Toronto, Ontario. In 1914, 40-year-old Thomas J. Watson was hired from the National Cash Register (NCR) Co. as C-T-R's general manager. In 1924, Watson changed C-T-R to International Business Machines Corp. (The company had operated under the IBM name in Canada since 1917.) By then, the company had 3,384 employees, revenues of $11-million, and net earnings of $2-million.

Over the years, IBM has developed, manufactured, and marketed a slew of products. Computers. Processors. Magnetic hard disks. Typewriters. Speech recognition. And more. Each of these hints at a story of development, market acceptance, production, and sales. IBM has also divested itself of commodity businesses, such as printers, personal computers (PC), and hard disk drives, while acquiring both technologies and competitors. Some divestitures have created new companies. In March 1991, IBM's typewriter, keyboard, personal printer, and supplies business begat Lexmark International (Lexington, KY). In 2003, IBM's hard disk drive operations begat the subsidiary Hitachi Global Storage Technologies (San Jose, CA). In December 2004, China-based Lenovo Group Ltd. acquired the IBM Personal Computing Div. In January 2007, the IBM Printing Systems Div. begat the Ricoh subsidiary InfoPrint Solutions Co. (Boulder, CO).

The list of acquisitions goes on and on. In 1997, for example, IBM spent $1-billion for 12 acquisitions, six being software companies. So far this year, acquisitions include Cognos (database management), XIV (storage technology), Encentuate (identity and access management systems), Telelogic (application lifecycle management systems), InfoDyne (high-speed data transfer system), FilesX (data protection/disaster recovery systems), Diligent Technologies (data protection/storage systems), Platform Solutions (mainframe products), and ILOG (business rule management systems and rule engines).

IBM's divest and acquire strategies have pointed the company toward higher-value markets, specifically service oriented architecture (SOA), virtualization, high-performance chips, open and modular IT (such as Unix- and Linux-based systems), and its Information on Demand (IOD) initiative. (IOD basically covers the strate-gies, business processes, services, and technology for companies to acquire, manage, analyze, and use information.) A variety of IBM business partners comple-ment what IBM already has "in house."

IBM in October 2002 acquired PricewaterhouseCoopers (PwC), a tax, business, and technology consulting company formed in 1998 from a merger between Price Waterhouse and Coopers and Lybrand. This acquisition made IBM Business Consulting Services, a part of IBM Global Services, the world's largest consulting services organization. (By 1995, Global Services had surpassed Electronic Data Systems [EDS], becoming the largest computer services business in the world.) Currently, PwC has more than 146,000 people in 150 countries providing consulting services in 22 industry-specialized practices such as tax, human resources, performance improvement, and crisis management.

All enterprises are potential IBM customers, from one-person companies to multinationals, from companies in every major industry to governments. IBM divides its markets into six major groups: industrial, distribution, financial services, public, communications, and small and medium businesses (generally enterprises with less than 1,000 employees).

The nickname "Big Blue" only hints at the company's gargantuan size. The company is a leader in almost every market it operates in, including mainframes and servers, storage systems, microelectronics, and IT consulting and implementation services. By year-end 2007, revenues were $98.8-billion (up 8% from 2006) and pretax income was $14.5-billion (up 9% from 2006). Revenue contributions by geographic regions are as follows: Asia Pacific, 21%; Europe, Middle East, and Africa, 36%; the Americas, 43%. The company's major business segments contributed to the pretax income as follows: software, 40%; services, 37%; hardware and financing, 23%. IBM generated more than $70-billion in cash flow over the past five years, ending 2007 with $16.1-billion in cash and marketable securities. Its gross profit margin rose for the fourth consecutive year-to 42.2%.

IBM has 386,558 employees worldwide, and has customers in 170 countries. In 2007, for the fifteenth consecutive year, IBM was issued more U.S. patents (3,125) than any other company.

 

Product Information

IBM's major operations encompass five major segments: global technology services, global business services, systems and technology, software, and global financing. There's also IBM Research, the major engine behind all of the company's patents, which has about 3,000 scientists and engineers in eight labs worldwide.

Global Technology Services (GTS) focuses on IT infrastructure and the related business process engineering required to implement IT-based operations. These services range from strategic transforma-tion to the nitty-gritty of data center design, systems integration, and data communications (network and wireless communications, and RFID), to mainten-ance, regulatory compliance, security, and disaster recovery. GTS also supports multivendor hardware and software environments through middleware products and SOA integration services.

IBM provides a variety of outsourcing services, such as Applications on Demand, business process outsourcing, and IT outsourcing and hosting. The company's Application Services can supplement a client's staff, co-manage applications, or manage a client's entire IT. IBM also offers software testing services (test consulting and test automation, performance and SOA testing).

GTS assignments sometimes draw in consultants from IBM's Global Business Services; that is, IBM assembles teams of people with the technical and business expertise to provide consulting, delivery expertise, advanced technologies, custom application development, and systems integration. While IBM can develop application for most business needs, it has "packaged" its expertise into major application areas: wireless operations (such as smart cards, RFID, cell phones, PDAs, tablets, embedded solutions, and telematics); enterprise integration; portals, content, and e-commerce; customer "touch points" (including stores, call centers, catalogs, and Internet, intranet, and extranet sites); security and privacy services; and learning and development (IBM has over 270 professionals worldwide who design and develop training for classroom or technology-based delivery in such subjects as demand portals, ERP, CRM, and data translation).

Global Business Services (GBS) provides professional and application outsourcing services, including systems integration and applications management, across a broad swath of industries, business processes and functions, enterprise needs, and IT platforms (hardware and software). The company's functional expertise consists of multiple service areas including change management, people management, and workforce management, CRM, SCM, and financial management.

One might think that IBM consultants would mostly recommend installing new technology. That's not necessarily so. That might be the default approach in operations strategy consulting, where new IT is often used to automate or otherwise optimize core processes, reduce cycle time/complexity, and integrate functional business processes. However, IBM consultants also offer non-technology but systematic consulting, such as Lean Sigma/Green Sigma and business process reengineering.

Under the category of CRM services, IBM offers a variety of services and service disciplines. For instance, business intelligence (BI), is one of the key supporting disciplines of IBM's IOD initiative. BI can be many things, such as data analytics, business performance management (BPM), data warehousing, BPM dashboards, and key performance indicators. It can also be applied to many needs, including planning, forecasting, identifying risk, managing compliance (financial, safety, and environmental), monitoring operational effectiveness, predicting sales, and detecting financial and credit fraud, and other risks that can be identified and often predicted for further action. To implement BI, GBS typically first focuses on a client's business processes and the decisions BI supports, using a systematic plan involving assessing business needs and processes, available and needed information within the client enterprise, and then the technology to support those needs and processes.

Other CRM disciplines include contact center optimization, outsourcing services (including marketing, sales, and warranty and problem/detection resolution), CRM process design, IT implementation (such as Siebel CRM OnDemand; portals and e-commerce services; and infrastructure services readiness assessments), and marketing evaluation.

Many of the consulting practices for CRM can be applied to other disciplines-with the particular slant of the individual discipline. There are also unique practices. For instance, IBM Warehousing and Distribution consultants in the SCM practice offer Distribution View (DView), a state-of-the-art warehouse management system. The SCM practice is, not surprisingly, a broad discipline that includes supply chain planning and optimization, freight and logistics, PLM, procurement, asset management, and the aforementioned distribution/warehousing management.

The GBS Financial Management practice helps CFOs and finance organizations design and implement financial processes and the underlying technologies. This practice covers accounts payable processes, order-to-cash processes, BPM, business risk and compliance management, finance operations improvement, Sarbanes-Oxley requirements and systems, and IT for financial management. GBS enterprise expertise covers several areas: business analytics, IOD services, enterprise innovation (business transformation), and various micropractices, such as SOA design, implementation, diagnostics, and management.

GBS has nearly 3,500 consultants worldwide. Interestingly, the segment's change strategy practice is a global business with 80% of practitioners concentrated in 10 countries. All senior-level GBS SCM consultants, for example, possess a minimum of nine years of supply chain experience across various industries. Many of the consultants have published; several hold patents in areas related to SCM. More than one out of every four team members holds a Masters or higher degree in SCM-related fields (operations research, industrial engineering, applied mathematics, etc.), and more than 200 hold doctorates in relevant fields. All application consultants attain vendor certification status in one or more supply-chain applications. Within the SCM practice, over 750 Asset Management consultants are based in over 30 countries.

IBM's Financial Management Consulting Services has more than 4,100 financial consultants worldwide, and has had over 400 engagements with companies over the past three years. The consultants have worked with 75% of the global Fortune 50 and 80% of the Fortune Top 50. This services group is the number-one SAP Consulting Provider and a leading integrator of Oracle/Hyperion applications.

Systems and Technology segment provides computing systems, including computer hardware, servers, data storage (disk, tape, optical, and networked-based storage systems), semiconductor technology and products, engineering and technology services, business applications, and systems (hardware and software) for retail stores. IBM computer hardware includes mainframes, what used to be known as "minicomputers," and blade systems. (IBM PCs, such as ThinkPad laptops, are sold by Lenovo.)

IBM System z computers are mainframes that support IBM operating systems as well as a variety of industry standard software, such as Java and Linux. IBM System x (xSeries) computers are Intel-based. IBM BladeCenter systems are rack-mount computers that take up little space and energy compared with conventional computer systems. IBM Unix servers include the IBM System p (pSeries) computers and IBM IntelliStation Power systems, which are 64-bit, IBM Power processor-based systems. IBM Linux servers can run on IBM Power processors, Intel x86 servers, and AMD Opteron-based servers. There are also 32- and 64-bit IntelliStation Pro workstations that run Microsoft Windows and Linux.

IBM Power Systems of computers, introduced in April 2008, are basically the next generation of IBM System i (iSeries) computers mixed with the System p computers. Some history. The iSeries, introduced in 2006, was a rebrand of eServer iSeries, introduced in 2000, which itself was the next-generation IBM AS/400 minicomputers, which were introduced in 1988. The AS/400 only ran the OS/400 operating system. System p computers were the former RS/6000 (for RISC System/6000) computers, which ran only Unix.

IBM cluster systems are scalable, high-performance computing systems that can be powered by AMD Opteron, IBM Power6, or Intel Xion processors (or combinations of the three) and run on IBM AIX, Linux, or Microsoft Windows Computer Cluster Server 2003. IBM cluster software helps in building, managing, and expanding such cluster environments.

IBM semiconductor products include ASICs, the IBM Power Architecture (PowerPC, Power4, Power5, and Power6 processors, which are used in applications ranging from consumer electronics to supercomputers) and custom chips. IBM foundry products include bulk, low-power, and RF CMOS; and silicon-germanium, high voltage, and silicon-on-insulator technologies. The company has two fab plants: 200 mm fab in Burlington, VT, and 300 mm fab in East Fishkill, NY.

Software from IBM provides operating systems, middleware, data and systems integration, software development, and application software for data and content management, business financial and process management (pick any three letters: CRM, EAM, ERP, SCM, SFA, and more), office productivity, commerce (web and otherwise).

This segment includes several software brands gained through acquisitions:

  • IBM information management software (and services) help implement the infrastructure for IOD, including data and enterprise content management software.
  • Lotus software (from 1995 acquisition of Lotus Development Corp., a software company known for its business and groupware software, most notably the spreadsheet program Lotus 1-2-3 and-at the time-the messaging program Lotus Notes) helps individual users collaborate through real-time communication and knowledge management using collaborative, messaging, and social networking software.
  • Tivoli infrastructure software (1996 acquisition of Tivoli Systems for its network system management software) helps customers centrally manage networks, including security and storage.
  • Rational software (2002 acquisition of Rational Software for its software development and application lifecycle management software) includes integrated tools for developing software for process automation.
  • WebSphere products include middleware and applications software to create, run, and monitor Web-enabled applications for a wide variety of business processes as well as product lifecycle management software.
  • Global Financing segment provides commercial financing, lease and loan financing, and trade-in, sale, and lease of used equipment.

 

Competition

In just about every category of IT, regardless of computer hardware, software (operating system, information management, and business application) and industry IT need, IBM has competi-tors in terms of installed customer base, industry preference, state-of-the-art technology, market awareness, or a combination thereof. IBM's key competi-tors include Apple, Dell Computer, EMC, Hewlett-Packard, NCR, Silicon Graphics, and Sun Microsystems. International competitors include Canon, Fujitsu Siemens, Hitachi, and Toshiba.

Chip manufacturers Intel and AMD are both suppliers and competitors to IBM. Likewise, information management and enterprise application software from BMC, CA (Computer Associates), Microsoft, Oracle, and SAP, to name a few vendors, run on IBM systems. These companies are also competitors. In terms of IT implementation/consulting services, IBM competes with powerhouse IT consulting firms Accenture, Capgemini, and EDS, as well as traditional hard-ware vendors such as HP and Sun Microsystems, and traditional software vendors such as Microsoft and SAP. In data communications and network systems, IBM competes with Cisco Systems and Nortel. IBM also has competitors depending on market niche, such as BAE systems in the defense and aerospace arena.

Ironically, while "open systems" computing, such as applications based on the Linux operating system, might create competition for certain companies, it doesn't for IBM. IBM has hardware thatcan run Microsoft Windows, Linux, IBM's own version of Unix, plus various proprietary IBM operating systems-and has the IT infrastructure as well as application-specific software to run on those operating systems.