At anniversary, IBM renews on-demand vows

IBM Corp. Chairman and Chief Executive Officer Sam Palmisano stood before several hundred of his company's top executives and customers last October and gave the speech that launched a thousand marketing campaigns.

"On-demand" computing was the industry's future, and IBM would tailor its products and reshape itself internally around the kind of flexible, open technology needed for the next era of business transformation, Palmisano proclaimed.

While customers and analysts debated what "on-demand" actually meant, other vendors began integrating it into their own roadmaps and strategy speeches. Soon, nearly every one of IBM's rivals had its own on-demand initiative: Hewlett-Packard Co. spoke of the "Adaptive Enterprise," Sun Microsystems Inc. focused on utility computing, Electronic Data Systems Corp. introduced an "agile enterprise" framework, and Computer Associates International Inc. touted its love-all-platforms approach to enabling IT flexibility. A host of smaller vendors -- most notably in the enterprise software market -- sparked a resurgence of the ASP (application service provider) model that had seemed to fade with the end of dot-com mania.

Palmisano will speak Wednesday at a customer gathering in San Francisco about IBM's first year of experience with its on-demand push. Internally, the company is close to completing the first phases of its top-priority projects. Externally, analysts say IBM is further along than its rivals, but that the major benefits of the flexible architecture at the core of the vendors' on-demand rhetoric remain several years from realization.

"All of these things, whether it's 'on-demand' or 'adaptive enterprise' or what have you, they're all about as concrete as Jello, it sometimes seems," said Illuminata Inc. senior analyst Gordon Haff. "I think IBM does get good marks for painting a roadmap for where things need to go, although they're not an awful lot further ahead than anyone else is right now in building, say, the all-singing, all-dancing virtualized data center."

Every vendor has its own definition of what 'on-demand' means. Flexibility is at the heart of IBM's. The company sees on-demand as the next step beyond IT integration. Building on a foundation of standards-based hardware and software components, on-demand companies, in IBM's view, have an IT infrastructure malleable enough to adapt in real-time to changing business conditions.

"Business transformation is a very key element of on-demand, as is IT enablement," said Linda Sanford, IBM's senior vice president of enterprise on-demand transformation. "The key word is enablement: technology that enables business processes, not technology for its own sake. The days of the latest gizmos are over. Customers don't want to deal with that anymore. It's 'bring me something that helps me solve my problems.'"

Sanford is in charge of IBM's internal migration to on-demand systems, an initiative Palmisano hopes will save the company billions of dollars. As the executive most directly responsible for backing IBM's on-demand talk with tangible changes and cost savings, she meets frequently with customers to talk about the strategy.

"There was confusion early on that it was a product, or a utility, or a pay-as-you-go plan. While those elements are clearly pieces of on-demand, on-demand is much broader," she said. "When competitive responses (from other vendors) are very niche, it further exacerbates that kind of misunderstanding. As we spend time with customers, though, this resolves so well. They may not call it on-demand, but they have this attitude exactly. They know they need to flip their companies on their side and get out from running everything in silos."

IBM is responsible for that early confusion, said Forrester Research Inc. Principal Analyst Ted Schadler.

"When they launched this a year ago, it was mostly about getting the vision out. Almost immediately thereafter everybody focused on the utility pricing, the variability of that, which is misleading. It's really about data center cost (reduction). That's where the sweet spot is," he said. "They've spent the last year recovering from that."

IBM has done a good job mapping out its vision; now, it needs to begin talking about customer results, Schadler said. That's what he said he hopes to see Palmisano address in his Wednesday presentation.

One customer pleased with IBM's strategy is American Express Co. The company last year signed a seven-year, US$4 billion services contract with IBM, which assumed management of nearly all of American Express's IT operations.

American Express was in discussions with IBM and other vendors for more than a year before signing that contract, at a time when IBM was in the early stages of pulling together the strategy that became on-demand, according to American Express spokesman Tony Mitchell.

"The whole concept was really beginning to crystallize for them. Based on what it was that we were looking to achieve, and some of our ideas about the agreement, we think we played a role with them in helping them define what on-demand could look like," Mitchell said.

American Express' main goal was flexibility. The company wanted to avoid the expense of a fixed IT infrastructure when it knew its needs would vary.

"We wanted to have our capacity increase in times of high demand, and in times of lesser demand we wanted not to pay costs we didn't need to," Mitchell said. "Our CIO (chief information officer) likes to talk about technology like electricity. You could build your own power plant, but why?"

For customers smaller than American Express, without sweepingly inclusive contracts with IBM, the evidence of the company's on-demand push will show more slowly.

"You certainly don't have many customers who at this point in time are saying, 'I am going to totally change the way the data center is going to run next week,'" said Illuminata's Haff. "This is going to take a lot of time and a lot of gaining of confidence and a lot of changing of business processes."

"This is a ten-year story, and we're in year two," Schadler said. "The vision is very strong and getting stronger. There's still work to be done on the results, but when you compare it against CA or HP or Sun, IBM is way ahead."

IBM executives say they're confident that the buzzword IBM has in the past year turned into its mantra will be a good guiding strategy for Big Blue and its customers.

"We had lost our way," Sanford said of IBM in the early 1990s, before Lou Gerstner arrived as CEO and began engineering a company turnaround. "We have a whole sheet of lessons learned, and they go all over the map. Whenever we really lost focus on the customer, we could veer down the wrong path. We learned, do not, do not, do not lose focus on the customer. With on-demand, we're keeping the customer foremost and doing what they tell us they need us to do."

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