IBM Reorganization Puts Emphasis On Hardware-Software Integration


A major reorganization at IBM this week brings the company’s software and hardware businesses under a single executive, a move seen as furthering IBM’s efforts to sell bundled hardware-software appliances.

Steve Mills, who previously led IBM’s Software Group, is now senior vice president and group executive for Systems and Software.

Rod Adkins, who manages IBM’s Systems and Technology Group, which includes IBM’s semiconductor, server and mainframe operations, now reports to Mills instead of reporting directly to CEO Sam Palmisano.

Palmisano announced the reorganization to IBM employees in a memo late Monday after the company reported its second quarter earnings.

The reorganization also shakes up IBM’s services operations. Mike Daniels, who was in charge of IBM Global Technology Services, is now responsible for all of IBM’s service businesses with the title of senior vice president and group executive, Services. That means in addition to Global Technology Services Daniels now oversees IBM Global Business Services, the company’s consulting operation.

The changes signal the increased importance of software and services in IBM’s sales mix and the evolution of hardware more as a delivery vehicle for software and services. In the second quarter completed June 30 IBM’s Global Services operations generated $13.7 billion in revenue for the company while software accounted for $5.3 billion in sales. The Systems and Technology group, in contrast, accounted for just $4 billion in sales in the quarter.

Computer hardware has increasingly become a commodity with narrow profit margins and industry analysts see the IBM reorganization as part of the trend among IT vendors to bundle hardware and software into appliances. Oracle is working in that direction, for example, following its $7.4 billion acquisition of Sun Microsystems.

“Although IBM has been tightly integrating its software and hardware products together for quite some time, the formal realignment signals the integration is a long-term strategy, not a short term initiative,” said a report from Technology Business Research, an industry market research firm. “Hardware has certainly evolved into a lower-value portion of the overall IT market, as seen by IBM’s shedding of the most commoditized portions of its hardware business and execution of 60-plus [software] acquisitions over the past seven years. TBR believes the combination of hardware with software [operations] is an extension of this strategy.”

TBR said a recent survey it conducted found that more than 50 percent of business customers had bought an integrated IT appliance within the last 12 months.

Under the reorganization senior sales vice president Ginni Rometty also is taking on more responsibility for IBM’s marketing and strategic planning with the new title “group executive for sales, marketing and strategy.” Rich Hume, who oversees IBM’s channel operations, previously reported to Rometty and that is unchanged under the reorganization, according to an IBM spokesperson.

Chief financial officer Mark Loughridge also takes on new duties as senior vice president of finance and transformation, including overseeing IBM Global Financing.

The reorganization has touched off speculation whether any of the four executives with increased responsibilities (Mills, Daniels, Rometty and Loughridge) are being positioned to take over for Palmisano when he retires. While IBM CEOs have traditionally retired at 60 and Palmisano is 59, the CEO has given no indications about his intentions.