IBM To Sink $1B into Research/Consulting Wing

IBM (NYSE: IBM) has launched the first phase of what executives say will be a complete organizational shift toward on-demand computing and services, saying it will invest US$1 billion to provide customers with access to a team of consultants and researchers.

Big Blue said it will staff its On Demand Innovation Services team with 200 IBM research consultants, who will split their time between pure research and working with customers on real-life computing and business problems.

In essence, IBM is renting out its vaunted technology researchers, enabling clients to receive custom-made technology along with advice on how it can help make a business stronger.

Changing Marketplace

IBM president and CEO Samuel Palmisano said the move reflects IBM's belief that information technology is "entering a new era of on-demand business" in which highly flexible companies that can quickly adapt to changing marketplaces, by using only the technology they need when they need it, will rise to the top of their industries.

"This requires the integration of business model innovation and technology innovation," Palmisano said. The transformation, he added, will leave IBM "better positioned to help our customers accelerate their transformation into on-demand businesses."

Palmisano recently said IBM would invest $10 billion overall in its push for on-demand computing, which would enable corporations to harness computing power as they need it, rather than making large up-front investments.

Research Still King

The move reflects a turn toward services and away from pure IT research, but IBM, which spent more than $5 billion on research and development in 2001, said it plans to keep investing heavily in technology advancement.

On Tuesday, the company said it was already at work on its next generation of supercomputers, to be sold to the U.S. Department of Energy. Just days before, Cray announced it had built a machine capable of performing 52 trillion calculations per second, giving it the title of the world's fastest computer.

"IT research has to change along with the industry," IBM senior vice president Paul Horn told the E-Commerce Times. "Research has to be driven by the real problems being faced by enterprises as they try to adapt."

Horn said IBM's on-demand division is already at work on new platforms that will help companies gather, analyze and synthesize data to spot trends in business performance as they develop.

IBM said its new division will focus on advanced analytics, business process transformation, information integration and experimental economics, which focuses on how an enterprise can impact economic decisions.

On Demand: Demanding

Forrester Research analyst Ted Schadler said IBM has the right idea in trying to foster a market for on-demand services, which he said will help companies better match IT investment to business returns, something that could in turn help jump-start sluggish spending in the sector.

Gartner (NYSE: IT) analyst Thomas Bittman told the E-Commerce Times that IBM's move may stem from a need to find new ways to engage its army of technology consultants, including 30,000 it acquired when it bought the consulting arm of PricewaterhouseCoopers.

Bittman noted that business consulting revenue was down 8 percent in IBM's third quarter, reflecting the economic slowdown. He said IBM probably has until the third quarter of 2003 to reverse that trend before it will be forced to make steep cuts in the division.