Palmisano Pushes Partnerships, Open Standards And E-Business

Palmisano, who next week will succeed outgoing CEO Lou Gerstner as the company's eighth chief executive, gave the keynote address Wednesday morning to close out IBM's PartnerWorld 2002 event in San Francisco.

During the keynote, he positioned IBM as not only a technology leader that's ahead of the curve of enterprise e-business adoption, but also the most reliable bet for solution providers. And he reinforced IBM's message that as companies look to move beyond the early stages of e-business and transform themselves into fully integrated enterprises, they need architectures built on industry-based open standards.

Palmisano didn't stray far from the script recited by IBM executives throughout most of the week, on one hand complimenting business partners for the role they played in the company's success in 2001 and on the other telling them how they can expand their opportunities moving forward.

"If we look back to last year it's fairly clear, we together got a lot of business," he said, noting that business partners generated about a third of IBM's total revenue, or about $29 billion. "That is Sun and EMC combined; as a team we generated more than that."

To many of the partners and executives who attended the four-day event, IBM's position was clear: While the company is enjoying success in its partner relationships, which helped the company gain significant market share in 2001, it is also struggling to avoid becoming too complacent as other companies start revamping their own strategies and look to re-engage with the channel.

"We've had lots of issues to work together as a team on, some are real and some are detail things that perhaps we've had some misunderstandings," said Palmisano, noting that he had a chance this week to speak with several business partners about the issues foremost on their minds. "The theme [from partners was let's go get business. It was all focused on what we can do in this environment to go take share from the other guys."

Palmisano took the audience through his interpretation of the IT landscape as it has changed over the years, from mainframe computing to client-server to the more recent stages of e-business adoption. "As shifts occur, it causes opportunity to be created for those that are swift and fleet of foot," he said.

Just as mainframe computing, which was primarily focused on back-office processes, was not able to serve the needs of personal productivity demands, Palmisano said client-server alone can not serve the changing needs of today's companies as they look toward end-to-end integration.

"It's all about the ability to digitize transaction flow throughout the enterprise that drives phenomenal productivity gain, phenomenal cost and strategic advantage," he said. "That approach required a different computing model. It's much more about integration. It's not about point products or a pure-play desktop experience."

Palmisano reiterated statistics from IBM's recent e-business adoption survey of more than 33,000 enterprises worldwide, noting that about 82 percent of the enterprises around the world are at some point along this cycle. Of those, about half are still at the earliest stages of publishing content and performing basic transaction services. About 31 percent are at the second 'integrating' stage, which means they are tying different aspects of their business together for efficiency. But a very small percentage of companies are at the advanced stage, using technology to create alternative business models.

He said that according to the survey, which included 8,300 IBM customers among the 33,000 companies polled, the majority of customers entering the integration and advanced stages of e-business adoption choose to work with IBM. "The focus that we have had strategically, that this was about the enterprise, not dot-com, has been holding true," said Palmisano. "The point we made was that fundamentally this was a tool to be applied for a productivity gain and strategic advantage. It wasn't about a Web experience long term."

Palmisano said the survey results also show a tremendous amount of opportunity in the market for companies that work closely with IBM to bring their clients along the three stages. "When people think about integration they think about solutions," he said. "They, quite honestly, think about IBM and our partners."

Without naming names, Palmisano criticized some of IBM's competitors who were particularly successful during the pure-play e-business era of the late 1990s and are now struggling in this new environment. "I would argue [that companies that held to a somewhat simplistic implementation of the computing model aren't doing so well now that this has moved to a more mature phase of the adoption cycle."

Palmisano stressed the notion that true integration across the enterprise is not for the timid, saying, "This is tough stuff. I know people like to trivialize it, but this is tough stuff."

IBM business partners who have done a good job helping clients implement solutions in key areas like supply chain and CRM will now be challenged by customer demands to integrate individual processes across the enterprise to deliver true productivity gains. "It's a lot harder to be able to link horizontally throughout your companies to take the order, to release it electronically to manufacturers, to ship them a bill without touching it by a human being," he said.

The good news is that along with that added challenge comes new opportunities and higher margins. "As you all know we are all struggling in a tough environment for profitability. Well moving into the value chain at a higher point in time generally means more margin than being commoditized at the front end generating Web pages."

Palmisano also continued IBM's call for open industry standards, telling the crowd that a one-shoe-fits-all' mentality can't work when you have billions of devices interacting with a given enterprise. "It absolutely calls out and demands open industry standards," he said. "You can not solve this problem with a proprietary approach."

He then outlined IBM's strategy of focusing on the three key areas of the IT solutions marketplace -- business insight and transformation solutions, infrastructure and underlying technology -- and described how solution providers can play roles in each.

Aside from addressing existing IBM business partners, Palmisano also went out of his way to position IBM as the best answer for solution providers working with other vendors who are looking for a viable alternative. The message came as several IBM channel executives told VARBusiness this week that they've been increasingly hearing from Hewlett-Packard, Compaq and Sun solution providers who are interested in exploring new opportunities with IBM.

To that end, Palmisano tried to position IBM as the most stable alternative, noting how many high-tech manufacturers have started to dramatically shift their own strategies, including Hewlett-Packard and Compaq eyeing a merger to become a services-based solution provider, Microsoft now focusing on .NET as a software-as-services play, and Sun moving to embrace Linux and open industry standards.

"Not all the companies are going to execute the transition well," he said, adding that since IBM has been well ahead of those companies in building a strong solutions-based model and embracing open industry standards, there is much less risk involved. "We don't see the need for a major shift."