Gartner Outlines IBM's Future Growth

Last week, analyst firm Gartner, Inc. released a research note outlining areas where IBM hasthe potential to grow. It believes IBM will shift from a company that offerscomprehensive services and products for the enterprise to a company that isrecognized as a technological innovator.

The report, “IBM: Going on the Offensive” begins bybreaking down what Gartner sees as Big Blue's biggest growth areas. It believesthat IBM’s work in services, software, and component technology will help itcontinue to compete and become an innovator in the IT market.

IBM’s Global Services Division, which is frequentlyfingered as a recession-proof IT organization – will continue to drive growthat IBM, according to Gartner. It already constitutes the largest chunk of IBM’srevenue, and Gartner says it will grow even more with outsourcing services in Europeand Asia, as well as a focus on high-end business innovation services.

Gartner believes one of the reasons services is so keyto IBM’s future direction is because IBM consultants reach a customer at anearly stage of the buying cycle, directing clients to a particular technologyor solution. Although IBM supports a variety of products with its services,products such as the DB2 database server or the WebSphere application servercan be pushed as key components of an overall strategy.

One of the downsides Gartner presents to a strategydependent on services is the high overhead and low margins in the servicessector. IBM must pay the high salaries of top-drawer consultants to keep itsdivision running, and there are a variety of organizations competing with IBMfor consulting dollars.

Because of IBM’s unique position, Gartner believes thegreatest threat to Global Services is the prospect of an IBM technologycompetitor, such as Hewlett Packard Co. or Microsoft Corp. purchasing abusiness consulting organization. Although HP’s plans to purchase the consultingarm of PriceWaterhouse Coopers was thwarted, this scenario is still possible.

Gartner believes software is one area where IBM canpick up the monetary slack from the low-margin services arena. Softwareorganizations have much more flexibility in pricing software, and IBM’s coresoftware products – databases and middleware – are easily leveraged to sellmore supporting software. Gartner believes the Lotus and Tivoli softwaredivisions are not as strategic as the enterprise software platforms.

The software segment also allows IBM to replace itsprevious strategy of locking in customers to proprietary hardware platformssuch as the mainframe zSeries and midrange iSeries. Because DB2 and WebSphererun on so many different platforms, it can create software lock-in withouthaving to push any particular plaform. In this regard, Gartner believes IBM’sgreatest competition comes from Microsoft.

Finally, IBM’s efforts to manufacture and selltechnology components to other vendors could constitute a major part of a growthstrategy, according to Gartner. Although it lacks the attention given to IBM’ssoftware, platform hardware, or services, IBM manufactures products used byother vendors. For example, its Mylex division makes storage controllers soldon the general market.

Gartner believes this can grow in IBM’s favor byavoiding the need to directly compete in a particular industry niche. Insteadit can partner with a company focused in that niche, sharing in its growth as asupplier.

In the report, Gartner puts these growth areas in thecontext of IBM history. When Lou Gerstner took the reigns at Big Blue hefocused on finding synergies within the company and creating an overallcorporate strategy. Now, IBM has turned some attention to what it deems“Horizon 3” timeframes – products that will hit the market in three-to-fiveyears.

Gartner believes this new direction will become moreexplicit once Sam Palmisano officially becomes CEO. It gives an 80% probabilityof Palmisano’s ascension to the top spot in 2002. Chris McConnell