This week saw two news items on IBM that seem contradictory at first, but with further study seem to portend troubling times for IBM. IBM is a large organization making a wholesale shift in delivery of products. It's moving quickly from the tangible to the intangible. Will this work for IBM? Only if they take certain steps.

IBM announced their first quarter results and they fell short of expectations. At first blush this looks like it's bad news, but they did increase revenue and profit by 3 percent.

We all know that IBM is now out of the PC business; a business they created. They've begun focusing on delivering services as a primary revenue stream. Can services really allow IBM the growth they need?

IBM contends that they have the ability to reach out to smaller businesses especially through their partner programs.In the service game you're always looking to focus on segments you can make money in. IBM hasn't been known to embrace the smaller organization, so this is a definite shift for them.

The secret weapon for IBM is their research program. In an article from Technology Review, Michael Fitzgerald looks at how IBM research is transforming to focus on the service side of the house.

Paul Horn, who runs IBM Research, says:

If we were to disappear, there’d be a sudden stop in our products side. I can’t make that statement about services.

That's an interesting statement. Here is an organization who has turned out a record number of patents year after year. An organization that is responsible for developing many of the products that make today's technology world possible. Yet they are being asked to focus on the softer side of research.

The article talks about the strides being made and how IBM Research is moving to softer research. They've had some successes, but it's hard to get excited about the Pharmaceutical Production Refactoring Tool or the Center for Business Optimization when compared the the hard drive or smaller form factor CPUs.

On Paul Horn's introduction page on the IBM Research site he states the three top trends and areas of focus are:

1. More than ever before, innovation will become critical for businesses of the future to differentiate themselves. I/T will facilitate this innovation by allowing for new channels for the delivery of products and services, and novel business models.
2. I/T suppliers will evolve into innovation suppliers through services scenarios, with innovation coming from "open" collaborations with customers, partners and suppliers, as well as academia, government and other parties.
3. This will demand new skills, driving academia to adapt to ensure competitiveness

Notice the focus on processes and models.

Now look at Paul Horn's areas of focus just a year ago:

1.  "Autonomic computing" describes the next era in computing wherein complexity is either hidden from the user or eradicated by computing systems modeled after the body's self-regulating autonomic nervous system. While IBM will lead the industry in this area, autonomic computing cannot be a proprietary solution and will demand the efforts and active contributions of the I/T industry and academic world.
2. "e-business" describes the rapid transformation occurring in traditional business and economic models as companies large and small (and many entirely new) turn to an online environment to function more efficiently and productively. The transformation will not stop with businesses, but extend to markets, trading environments and exchanges, altering economics in as yet unseen ways.
3. "Pervasive Computing" describes the ensuing global environment where computing ceases to be something that occurs only in a specified, restricted space -- inside a box on your desktop, for instance -- and instead becomes an accepted, readily available utility that occurs in the "ether" of the networked world.
4. "Deep Computing" defines an expanded method of computing -- some would argue, a novel approach to thinking -- that will marry incredible computational ability with human intelligence in problem solving. Using this approach, companies, educational institutions, and eventually individuals will be able to take the enormous amounts of information that a pervasive computing world will capture and make sense of it.

Wow. The shift is stark. I guess this leads to the question of what was IBM thinking? Either they were on the wrong path earlier or they're on the wrong path now.

We took that detour to show that IBM is in crisis right now. They're attempting the toughest task in the business world: reinventing your business. The funny thing is that they're trying to leverage how they did things in the past with how they do things now. That rarely works.

What can IBM do to prosper in the future with a focus on services?

• Embrace open source. I note this as this is the primary avenue they are using. It's a savvy move to help them bring a wide range of solutions to their customers.
• Simplify communication. There are too many buzzwords associated with IBM services right now. Technical services has always been a tough area to define and then communicate to your customers, but you can do it with a clear message. IBM needs to get one.
• Rename. IBM is a great name, but for hardware not services. If you asked 100 IT decision makers in medium businesses what IBM does 75% would say hardware. Keep IBM for the big boys, but create something new for the newer markets. It's like Neiman Marcus opening up a WalMart type store and keeping the name.
• Buy, buy. buy: You're not going to make money in a services segment that is new to you unless you 1) Buy the business by under bidding or B) Buy a successful provider.

It'll be interesting to see if IBM can make this huge transition into a services based profit model. The pessimist says that a services only business is limited by the number of those willing to pay for it. For IBM this isn't an issue due to their global reach. The only that can stop IBM is IBM.

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