IBM Sees Continued Strength In Public Sector, Even In Transition

In a year where many IT businesses have celebrated "flat as the new up," IBM has seen strong growth in its public sector business, even as other IBM segments have softened. The challenge now is for IBM to continue to grow its robust public sector partner community and stay ahead of the competition.

There's no question IBM's public sector practice has been one of its biggest success stories this year. According to its most recent quarterly earnings, in July, IBM's public sector business was its strongest. Since then, IBM has maintained a bullish outlook overall, echoed in a recent 8-K filing with the SEC.

Among other growth areas, IBM has trumpeted Smarter Planet, its massive, worldwide initiative to influence how technology is deployed to make public infrastructure more efficient.

"We're in a position where what we're seeing is great demand for a type of vision as well as the solutions we've developed," said Gerry Mooney, general manager of IBM Global Fiscal Stimulus and Economic Recovery, in a interview. "We need partners not only at the infrastructure level, but when we look at things like smarter grids, we're talking about things at a whole different level than we used to."

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According to Mooney, IBM's success in public sector comes from not only identifying opportunities in such areas as water systems and public safety, stimulus and health care, but also aligning its executive team and channels to address those opportunities in both the U.S. and abroad -- and changing the approach large services organizations took to solving those problems in the past.

It's that "s" word, "services," that keeps coming up. IBM partners say the seismic shift that happened at IBM over the past decade -- that is, the move from hardware and software sales to becoming the more services-oriented "solutions" vendor it is now -- has been keenly felt in how it now engages public sector. "Public sector is learning to change with the economy, because the economy has forced any number of changes on public sector," said Daniel Serpico, president of Jeskell, a Sunnyvale, Calif.-based solution provider. "Green initiatives are critically important, power and cooling, virtualization, storage, all these things are driving a lot of demand. IBM's strength is that it meets that diversity -- it can do everything from the data center up to the cloud and that's really refreshing as opposed to focusing on refreshing laptops and printers, you know? In public sector, IBM can hang with anybody."

"They have a breadth of contracts and they've been good about getting us into contract opportunities we sometimes didn't have before," offered P.J. Byrd, government contract specialist at Sirius Computer Solutions, a San Antonio-based solution provider. "I think there's a level of public sector involvement there that we don't see with other vendors."

IBM's public sector gains also have progressed even as it undergoes a major change in leadership: namely, the retirement of the iconic Robert Samson, IBM's general manager for Global Public Sector, whose succession of leadership roles in IBM's public sector organization throughout the 1990s -- and his stewardship in the current decade -- is credited with bolstering IBM's public sector channel into the powerhouse it is now. Everything Channel awarded Samson its public sector Lifetime Achievement Award in 2006.

Above all, say observers, Samson and IBM's top public sector executives have shaped its strategy into one of being proactive. Smarter Planet and many of its other high priority initiatives, in other words, suggest IBM is attempting to direct the conversation about technology's role in public sector, rather than react to it.

"I think part of what sets them apart is that IBM has a perspective that tries not to look at government as someone to buy stuff," said Andrew Bartels, vice president and principal analyst at Forrester Research. "They're good at looking at the government and thinking about what problems the government is facing, and thinking about the solutions for those problems."

That's one of the differences between selling technology to the government and influencing how the government buys its technology, Bartels suggested.

"They approach the government with a mind-set of not just, 'Hey, you need our stuff' and not just, 'Tell us about your problems and let us figure out how to solve them,' but more, 'We've done a lot of thinking and a lot of research and we know you probably have these problems, and the solution is going to be a mix of our stuff and other people's stuff, so here's a way of addressing a problem in new and creative ways,' " he said.

Next: Setting IBM Apart

Bartels often describes IT vendors as Vertical 1.0, 2.0 and 3.0, relative to the ways they approach doing business with the government or other vertical markets. It's there, he said, that there's a key difference in how IBM looks at public sector compared to HP, Dell and other tier-one vendors with dynamic public sector business.

A Vertical 1.0 vendor, under Bartels' definition, hews to RFPs and government contracts: order-taking and filling needs for products and services the government has traditionally purchased.

Vertical 2.0 vendors, on the other hand, approach the public sector with an idea toward how their products and services can be best used to change business processes and make government business more efficient. Vertical 3.0, said Bartels, takes that idea one step further: The vendor drives the conversation instead of responding to it.

"Vertical 3.0 is what IBM is starting to do: understanding the vertical more deeply than anyone else and being more insightful about the vertical's problems than even the people in the industry," Bartels said. "It's a profound change, and they're not there yet -- they still do bits of Vertical 2.0 -- but when you talk to people at IBM, that's clearly their goal."

"The government is very slow to adopt new practices and new processes and procedures, and I believe that IBM is the only company in the marketplace that can provide the entire end-to-end solution," said Matt Garst, vice president of worldwide sales and marketing at Enterprise Information Management (EIM), a Dayton, Ohio-based IBM solution provider. "In public sector, they've earned the ability to be looked at as a one-stop shop. They've also been ahead of the curve, whether stimulus or SOA -- these were places where IBM had already been shaping solutions before everyone started talking about them."

IBM has generally been good, most partners agree, about taking its partner community along for the ride. The challenge will be keeping it that way.

Bartels, for one, applauds IBM in the public sector for "not being too greedy."

"A lot of vendors say, 'Let's let partners have this stuff for a while and when it gets profitable and interesting, we'll take it over.' Oracle does a lot of that, for example," Bartels said. "IBM and, say, Microsoft, are pretty good at letting partners fill stuff in. Sure, there are points where its partner interaction is hole-y, but many software partners don't feel as though IBM will just come into the space and take away what they'd been trying to build. That's one of the key points of differentiation."

Not all IBM's partners would agree, though. Many of the solution providers interviewed by said those "hole-y" points to which Bartels referred are actually chasms: that IBM's breadth as a services-driven public sector problem solver is slowly causing it to lose sight of how to help its ground-level partners. "The government's rules of engagement are complex enough -- IBM sometimes makes it so difficult that you have to wonder, with all of its resources, why it can't make things easier," said one solution provider, who requested anonymity. "If IBM wants to increase its presence among public sector partners, it needs to have specialists assigned to those partners. It needs to provide executives who say, 'I am here to do nothing but help you increase your public sector business.' In terms of ease of doing business, IBM might be the hardest company we work with."

Several partners said that IBM was helping drive significant public sector business, especially around the areas of infrastructure, energy grid and public safety.

But many added that they were seeing signs that IBM's programs such as Smarter Planet were causing IBM to lose focus on individual verticals within public sector -- key segments such as state and local government where regional VARs that don't have the muscle of large integrators often find their best opportunities.

"Federal, state and local are very different animals," said the solution provider who requested anonymity. "I'm not sure their management team agrees with that. They're successful, but the question now is whether IBM is nimble and patient enough to carry that through to fruition, and whether it's going to take partners with it."

"Some of the things they've said have been confusing," said another solution provider who requested anonymity because "we are renegotiating some terms with IBM and that can't be challenged right now." "I don't think many of their people are always on the same page about how to address public sector, but that was sort of true under Samson and probably won't change," the solution provider added. "It just feels like they're too big to be able to laser-focus on everything. I guess that's what you get when you partner with one of the big guys."

Next: End Of The Samson Era

Samson's successor is Anne Altman, who for the past two years has been general manager of IBM's Systems z mainframe computer business.

Altman, who declined to be interviewed for this story, said in a statement at the time of Samson's retirement that she was "thrilled to return to public sector market during a very unique period, as large government recovery and stimulus programs are under way here in the U.S. and abroad."

"She's brilliant," Garst said. "It's always difficult to transition, but we worked with Anne in past capacities and specifically, an opportunity we had with the Department of Homeland Security. They've passed the torch on to someone very capable of growing the business and getting the Smarter Planet initiatives to be a bigger piece of IBM's overall footprint."

Like Garst and EIM, many solution providers know Altman already from her previous role as managing director of IBM's U.S. federal business, and most say the depth of her government relationships and savvy for the red-tape-strewn business of government IT procurement ranks with the tech sector's best.

"She's good, extremely good, very professional," Serpico added. "Jeskell has a very large federal practice and her assistance was an important component of our success and strategy."

Altman's challenge will be continuing to make IBM an attractive partner for public sector-inclined solution providers while all of her lieutenants push major agendas.

Along with Mooney, Altman's reports will include general managers Chuck Prow of IBM Global Business Services for Public Sector, Dan Pelino of IBM Healthcare and Life Sciences and Todd Ramsey of IBM Federal.

Not to worry, says Mooney of the transition.

"Bob had a strong hand in selecting Anne for the role, and as the managing director for our federal account for a number of years, she knows government inside and out," he said. "We're not going to miss a beat."