IBM CEO: On-demand strategy paying off

Six months after IBM adopted its "on demand" mantra, Chief Executive Officer (CEO) Sam Palmisano proclaimed himself pleased with the progress being made to refashion IBM around that vision, during his annual midyear meeting Wednesday with financial analysts

IBM executives traditionally avoid discussing current operations during the midyear gathering, focusing instead on a strategic overview of the direction in which IBM sees the industry heading. Palmisano stuck to that script, reiterating many of the points made in his October unveiling of IBM's on-demand strategy.

With the global IT market now an industry worth more than US$1 trillion annually, the days of "product-centric, gizmo-driven growth" are over, Palmisano said. No single innovation will ever again be enough to create double-digit growth in so large a market, he argued.

Instead, the industry's future growth will come from meeting customer demands for "a new business design," Palmisano said.

In IBM's view, that design involves standards-based systems that can be easily integrated and tailored to optimize enterprise processes and operations, with the help of strategic consultants like those IBM picked up in its PwC Consulting acquisition. On-demand computing consists of all the products and services an organization needs to connect its internal and external systems and tap into them as needed. The key is to make the organization flexible and able to respond quickly to changing business conditions, according to IBM.

Other companies have been quick to hop on the on-demand bandwagon, leading some analysts to flag the phrase as a marketing crutch. Research company ZapThink LLC cited it as "one of the buzziest buzzwords to come along since 'dot.com' was on everybody's lips," in a report last week.

Palmisano rebutted such criticisms in his remarks.

"It's not a marketing campaign. It's not a slogan," he said. "It's an era. It defines an environment that's about organizational productivity."

Palmisano also reiterated the view of the industry's future that IBM has been backing for several years: The lucrative and growing areas of the IT industry are software and services, while the hardware end of the business is heading toward commoditization.

That ongoing shift has accelerated in the last two years, Palmisano said. In response, IBM plans to continue reshaping its business, exiting low-margin sectors and replacing the lost revenue with acquired or internally built operations in more strategically valuable areas, he said. As an example of that strategy, he cited IBM's exit from the hard-disk drive business and increased presence in the services market through its PwCC buyout.

Traditionally held in New York City, IBM's analyst meeting moved this year to Boston, a change the company attributed to a desire to draw in analysts who don't usually attend.

One year and two months into his tenure as CEO, Palmisano seemed more relaxed at this year's analyst meeting than at last year's, when questions about a shaky just-ended quarter and looming layoffs hung over the gathering.

With apparent good cheer, he teased analysts and deflected the inevitable questions about when he thinks the economy may rebound. Palmisano allowed that the environment has "stabilized" from a year ago but declined to speculate about turnaround timing.

In explaining IBM's on-demand vision and justifying the company's declaration that the IT industry is undergoing a fundamental shift, Palmisano paused to place even this sea change into its larger historical context.

"You can go through the history of this industry, and it's always moving, and it always evolves," he said. "This is just another cycle."

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