IBM's Strategy For Business Models

Bruce Harreld, senior vice president of strategy at IBM, lives in what he calls a "Weird World," A perspective from which he drives the company's emerging businesses as well as efforts to continue evolving the models for IBM's key business lines. Come Jan. 3, he also will be responsible for Worldwide Marketing. Editor Heather Clancy and Editor Lawrence M. Walsh recently met with Harreld to discuss his plans for 2006. The basic thinking discussed at the start is guided by the writings of British economist and author Carlotta Perez. Excerpts follow in print and online.

Harreld: [Perez's] basic premise is that over and over again in the development of the modern economy, the same phenomenon has occurred at least five times. An inventor develops a technology that is going to have, without any question to almost everybody that looks at it within a nanosecond, earth-shattering implications. And a whole series of financiers in the city of London or Silicon Valley or Wall Street pour tons of capital into it [and] bid it up to tremendous hype and overexpectation. And five times in history, we've had panics, depressions, crashes or dot-com collapses because society isn't fully prepared to deal with all the things that this new technology offers. So society was configured, in a sense, for multiple years ahead of the invention for a different world. They didn't anticipate the technology.

CRN/VARBusiness: Is that what's holding us back now?

Harreld: Absolutely. It's the clustering effect. First of all, the technology isn't fully there.

CRN/VARBusiness: What's not fully there?

Harreld: All the standards aren't fully there. Industry-specific standards need to get put in place. We're still dealing with the very front edges of [service-oriented architecture] as it's called in the industry, trying to make for rapid, dynamic integration of application software or middleware software.

We've got several things that are societal around intellectual property laws. We've probably got antitrust laws in some perspectives getting rethought. We've got legislation issues around communication companies right now that are still very much in flux.

CRN/VARBusiness: We can see horizontally who our competitors are, but who's coming up from behind? Who's actually ahead of us that we don't yet see? Those are questions that aren't easily answered.

Harreld: They're not easily answered, and this is the period that we're in now. We're in a tense period. There's some issues. We'll all get blindsided in a certain way because it's the point of the period that new business models get enabled. IBM and our business partners in developed parts of the world. The service capabilities that are going on in India are awesome. We get blindsided by that. This technology and deployment enabled a lot of that.

CRN/VARBusiness: What questions should business partners be asking or what issues should they be thinking about to prepare for this future?

Harreld: The first thing I'd say for business partners, to answer your question very specifically, is I think they need [to] think very directly about their clients' needs and their clients' long-term needs and make sure they're doing things on a set of platforms that gives their clients long-term flexibility [and] doesn't walk them into corners.

The second thing I think they need to think about, and I'm sure many of them are, is that this game is not just about IT, it's about the business value that IT can deliver. We've got to be as skilled at understanding client needs. Clients increasingly are starting to ask another set of questions: Rather than pay the IT industry for the inputi.e. a server or a service or a custom systems integration jobmaybe I'm going to need to hold you accountable and pay you for my business results that come from that. I think that those business partners and companies that focus on thinking through those very tough issues are going to be the ones that grow and thrive and deliver more value to the client.

CRN/VARBusiness: Can you talk about how much risk solution providers should be willing to take on?

Harreld: There is an enormous amount of innovation that needs to happen that still needs to play out. Innovation around new business models, innovation around technology. Periods of innovation like that require a fair amount of risk taking. But I started a program a few years ago within IBM to get at emerging business opportunities. Today we have built a substantial size business inside of IBM. When we started all that, we said big companies can't grow, big companies can't take risks, big companies have quarter-by-quarter limitations. If I take you through all that we've done, I think I could convince you that big companies can do all those things. But you have to do it in smart ways. A business partner can't put its entire company at risk.

My advice to business partners: don't risk your whole company. Find out where it's important. Find out where the innovation needs to take place. And in those areas you're going to need to have a business model, or should I say a management system, that fits that opportunity accordingly.

What do I mean? Again, use IBM. When we stepped back and looked at IBM, we had one management system. Remember, we had a near train wreck [and] we lost money. Guess what we did? We just put controls on everything and we could measure anythingsuch as expense-to-revenue ratio that didn't feel like an environment that was very conducive to taking risk. Then we decided we needed to reignite the growth engine. ...

With that management system of highly buttoned-up controls, would every line item from an expense standpoint and asset standpoint fit an environment where you're trying to search in the market for where the opportunities are with the business model experimentation? Absolutely not. So we had to say, one management system fits all within IBM. ....

How do you get from where you are today to where you need to get to without experimentation? You have to experiment, but you've got to do it with a different management system.

Go to www.crn.com. to read an expanded version of this interview. Also, check out VARBusiness' podcast of the QandA, which offers up a new set of questions.