|IBM’s Reorganization Proves Hardware + Software = No Joke
Allan B. Krans, Senior Analyst, TBR
Shortly after its Q2 2010 earnings announcement, IBM announced organizational changes that bring its structure into alignment with the changing way customers are consuming IT. The rigid lines between hardware, software and services are increasingly blurring, with customers focusing more on solving their business problems versus the details of how that solution is delivered.
In TBR’s Appliance Customer Adoption Study, more than 50% of business customers had purchased an integrated IT appliance in the last 12 months, citing considerable value in the deployment, management and integration as driving the purchase decision.
For the software business, the important and symbolic move occurred when Steve Mills was named to oversee IBM’s hardware business in addition the software group he’s managed for the past decade. Although IBM has been tightly integrating its software and hardware product together for quite some time, the formal realignment signals the integration is a long-term strategy, not a short term initiative.
Not your grandfather’s IBM
For a company whose legacy is built on hardware, as clearly articulated by its name, International Business Machines, bringing its hardware business under the purview of a software executive is a significant step. IBM will mark the 100th anniversary of its incorporation in 2011, a feat that would not have been possible without significant changes to its business over since its inception. Hardware has certainly evolved into a lower-value portion of the overall IT market, as seen by IBM’s shedding of the most commoditized portions of its hardware business and execution of 60+ acquisitions over the past seven years.
TBR believes the combination of hardware with software is an extension of this strategy, but is also a recognition that hardware will continue playing an essential role in IT delivery. Whether delivered via a cloud, appliance, or traditional IT, hardware will remain the underpinning of IT services.
Delivery, not just software functionality creates value
One of the critical components for IBM to continue driving organic software revenue growth is an increased focus on the delivery mechanisms for its software, not just the actual product functionality. In the current market environment, customers are less interested in hardware, software, or services than they are in delivering value. Budget constraints have forced customers to care much less about how that value is delivered as long as it is in fact delivered. While the trend toward cloud computing and mobility has existed for years, the economic downturn provided the added incentive many customers needed to evaluate new forms of IT delivery.
In the post-recession era, solutions are being judged not only on their functionality, but also on the flexibility of how they are delivered and consumed. IBM’s renewed focus on software delivery is manifesting through investments both in how software functionality is delivered (cloud and appliances) and in who is delivering the software offerings (channel partners).
IBM can meet any flavor of delivery option
With a broad portfolio of offerings that spans professional services, hardware, and software, IBM is well-positioned to deliver software functionality any way its customers so choose, and the company is aligning its portfolio to do just that. IBM’s breadth is a strong competitive advantage in this respect, and the company is grouping its software offerings into four delivery categories - public cloud, private cloud, purpose-built device delivered and traditional on-site software delivery.
As opposed to pure-play cloud vendors such as Google or Salesforce.com, TBR believes IBM’s multifaceted delivery approach will most closely match actual customer adoption patterns. Few customers will fall cleanly into a single delivery method, and the vast majority will employ multiple software delivery methods depending on their specific requirements and existing IT assets.