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Why is IBM in the horizontal solutions business?

December 15, 2010 Leave a comment

Every year I attend IBM software analyst meeting. It is an opportunity to gain a snap shot of what the leadership team is thinking and saying.  Since I have had the opportunity to attend many of these events over the year, it is always instructive to watch the evolution of IBM’s software business over the years.

So, what did I take away from this year’s conference? In many ways, it was not that much difference in what I experienced last year. And I think that is good. When you are a company of the size of IBM you can’t lurch from one strategy to the next and expect to survive.  One of the advantages that IBM has in the market is that has a well developed roadmap that it is in the process of executing on.  It is not easy to execute when you have as many software components as IBM does in its software portfolio.

While it isn’t possible to discuss all that I learned in my various discussions with IBM executives, I’d like to focus on IBM’s solutions strategy and its impact on the software portfolio.  From my perspective,  IBM has made impressive strides in enforcing a common set of services that underlie its software portfolio.  It has been a complicated process that has taken decades and is still a work in progress.  The result required that all of the business units within software are increasingly working together to provide underlying services to each other.  For example, Tivoli provides management services to Rational and Information Management provides data management services to Tivoli. WebSphere provides middleware and service orientation to all of the various business units.  Because of this approach, IBM is better able to move to a solutions focus.

It’s about the solutions.

In the late 1990s IBM got out of the applications business in order to focus on middleware, data management, and systems management. This proved to be a successful strategy for the next decade. IBM made a huge amount of money selling WebSphere, DB2, and Tivoli offerings for SAP and Oracle platforms. In addition, Global Services created a profitable business implementing these packaged applications for enterprises.  But the world has begun to change. SAP and Oracle have both encroached on IBM’s software business. Some have criticized IBM for not being in the packaged software business. While IBM is not going into the packaged software business, it is investing a vast amount of money, development effort, and marketing into the “solutions” business.

How is the solutions business different than a packaged application? In some ways they are actually quite similar. Both provide a mechanism for codifying best practices into software and both are intended to save customers time when they need to solve a business problem.  IBM took itself out of the packaged software business just as the market was taking off.  Companies like SAP, Oracle, Seibel, PeopleSoft and hundreds of others were flooding the market with tightly integrated packages.  In this period of the early 1990s, IBM decided that it would be more lucrative to partner with these companies that lacked independent middleware and enabling technologies.  IBM decided that it would be better off enabling these packaged software companies than competing in the packaged software market.

This turned out to be the right decision for IBM at the time.  The packaged software it had developed in the 80s was actually holding it back.  Therefore, without the burden of trying to fix broken software, it was able to focus all of its energy and financial strength on its core enabling software business.  But as companies like Oracle and SAP cornered the packaged software market and began to expand to enabling software, IBM began to evolve its strategy.  IBM’s strategy is a hybrid of the traditional packaged software business and a solutions business based on best practices industry frameworks.

So, there are two components in IBM’s solutions strategy – vertical packaged solutions that can be applied across industries and solution frameworks that are focused on specific vertical markets.

Horizontal Packages. The horizontal solutions that IBM is offerings have been primarily based on acquisitions it has made over the past few years.  While at first glance they look like any other packaged software, there is a method to what IBM has purchased.  Without exception, these acquisitions are focused on providing packaged capabilities that are not specific to any market but are intended to be used in any vertical market.  In essence, the packaged solutions that IBM has purchased resemble middleware more than end-to-end solutions. For example, Sterling Commerce, which IBM purchased in August 2010, is a cross channel commerce platform.  It purchased Coremetrics in June, provides web analytics and bought Unica for marketing automation of core business processes.  While each of these is indeed packaged, they reach represent a component of a solution that can be applied across industries.

Vertical Packages. IBM has been working on its vertical market packaging for more than a decade through its Business Services Group (BSG). IBM has taken its best practices from various industry practices and codified these patterns into software components. These components have been unified into solution frameworks for industries such as retail, banking, and insurance. While this has been an active approach with the Global Services for many years, there has been a major restructuring in IBM’s software organization this past year. In January, the software group split into two groups: one focused on middleware and another focused on software solutions.  All of the newly acquired horizontal packages provide the underpinning for the vertical framework-based software solutions.

Leading with the solution. IBM software has changed dramatically over the past several decades.  The solutions focus does not stop with the changes within the software business units itself; it extends to hardware as well.  Increasingly, customers want to be able to buy their solutions as a package without having to buy the piece parts.  IBM’s solution focus that encompasses solutions, middleware, appliances, and hardware is the strategy that IBM will take into the coming decade.

Can IBM become a business leader and a software leader?

November 23, 2009 3 comments

When I first started as an industry analyst in the 1980s IBM software was in dire straits. It was the era where IBM was making the transition from the mainframe to a new generation of distributed computing. It didn’t go really well. Even with thousands of smart developers working their hearts out the first three foresees into a new generation of software were an abysmal failure. IBM’s new architectural framework called SAA(Systems Application Architecture) didn’t work; neither did the first application built on top of that called OfficeVision. It’s first development framework called Application Development  Cycle (AD/Cycle) also ended up on the cutting room floor.  Now fast forward 20 years and a lot has changed for IBM and its software strategy.  While it is easy to sit back and laugh at these failures, it was also a signal to the market that things were changing faster than anyone could have expected. In the 1980s, the world looked very different — programming was procedural, architectures were rigid, and there were no standards except in basic networking.

My perspective on business is that embracing failure and learning from them is the only way to really have success for the future. Plenty of companies that I have worked with over my decades in the industry have made incredible mistakes in trying to lead the world. Most of them make those mistakes and keep making them until they crawl into a hole and die quietly.  The companies I admire of the ones that make the mistakes, learn from them and keep pushing. I’d put both IBM, Microsoft, and Oracle in that space.

But I promised that this piece would be about IBM. I won’t bore you with more IBM history. Let’s just say that over the next 20 years IBM did not give up on distributed computing. So, where is IBM Software today? Since it isn’t time to write the book yet, I will tease you with the five most important observations that I have on where IBM is in its software journey:

1. Common components. If you look under the covers of the technology that is embedded in everything from Tivoli to Information Management and software development you will see common software components. There is one database engine; there is a single development framework, and a single analytics backbone.  There are common interfaces between elements across a very big software portfolio. So, any management capabilities needed to manage an analytics engine will use Tivoli components, etc.

2. Analytics rules. No matter what you are doing, being able to analyze the information inside a management environment or a packaged application can make the difference between success and failure.  IBM has pushed information management to the top of stack across its software portfolio. Since we are seeing increasing levels of automation in everything from cars to factory floors to healthcare equipment, collecting and analyzing this data is becoming the norm. This is where Information Management and Service Management come together.

3. Solutions don’t have to be packaged software. More than 10 years ago IBM made the decision that it would not be in the packaged software business. Even as SAP and Oracle continued to build their empires, IBM took a different path. IBM (like HP) is building solution frameworks that over time incorporate more and more best practices and software patterns. These frameworks are intended to work in partnership with packaged software. What’s the difference? Treat the packages like ERP as the underlying commodity engine and focus on the business value add.

4. Going cloud. Over the past few years, IBM has been making a major investment in cloud computing and has begun to release some public cloud offerings for software testing and development as a starting point. IBM is investing a lot in security and overall cloud management.  It’s Cloud Burst appliance and packaged offerings are intended to be the opening salvo.   In addition, and probably even more important are the private clouds that IBM is building for its largest customers. Ironically, the growing importance of the cloud may actually be the salvation of the Lotus brand.

5. The appliance lives. Even as we look towards the cloud to wean us off of hardware, IBM is putting big bets on hardware appliances. It is actually a good strategy. Packaging all the piece parts onto an appliance that can be remotely upgraded and managed is a good sales strategy for companies cutting back on staff but still requiring capabilities.

There is a lot more that is important about this stage in IBM’s evolution as a company. If I had to sum up what I took away from this annual analyst software event is that IBM is focused at winning the hearts, minds, and dollars of the business leader looking for ways to innovate. That’s what Smarter Planet is about. Will IBM be able to juggle its place as a software leader with its push into business leadership? It is a complicated task that will take years to accomplish and even longer to assess its success.