Understanding IBM's On Demand Transformation Strategy, Part 1

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Almost a year ago, IBM launched a new initiative to communicate its business strategy to customers and Business Partners. Called e-Business On Demand, the strategy was widely perceived as an IT plan to virtualize IT, turning the availability of IT products and services into utility-like "pay-as-you-use" functions.

On the iSeries platform, the introduction and extension of "capacity on demand" models seemed an appropriate representative of this basic technology. Additionally, many customers misinterpreted IBM's message to mean that it was backing ASP-type services or that On Demand was a marketing push for IBM's Global Services offerings.

However, digging deeper into IBM's initiative--following the footprints of senior IBM executives as they make their rounds to larger corporations and government leaders--reveals something much more significant. The On Demand strategy is not only a model for hardware and software services, but a model for the complete transformation of business processes and corporate culture.

What is this business transformation process? How does it compare to the transformations businesses have experienced in the past? Where does the transformation touch IT? Should IT embrace this initiative or feel threatened by it?

These are the questions that this column will address over the next few weeks, starting with this potted history of IBM's past business planning initiatives.

Why are we taking the space to examine the On Demand strategy? If IT is to succeed in reinventing itself over the next five to ten years, it must understand IBM's On Demand computing strategy and be able to communicate the larger transformative vision to its senior management. Without such analysis, IT will fail to embrace its next big challenge and rise again as a strategic partner in the corporate ranks.

Automation and IBM's Strategic Planning Process

IBM business strategy initiatives are nothing new. In the 1970s and 1980s, IBM helped organizations automate their accounting and manufacturing processes by presenting the "vision" of computerized information systems as the "single strategic advantage" that would give a business a significant edge over its competition. In many respects, we're still operating our IT shops as an outcome of IBM's success with these business strategy initiatives.

Starting in the early 1970s, IBM began communicating its vision for information automation by creating special seminars for individual corporations to help them undergo a "strategic planning process." These strategy sessions had little to do with computer technology per se, but they had everything to do with opening the channels of communication within an organization so that internal business processes could be identified. At the time, the operating structures of companies were still fashioned along the lines of a post-WW II military hierarchy, but the new business demands companies experienced were creating significant pressures to grow more rapidly and compete more economically. Information automation was considered the key. But how do companies automate information? That was the challenge facing business leaders.

In response, IBM business planning initiatives brought together senior leaders within a single company to identify each organization's mission, goals, and obstacles. IBM provided a venue and a moderator. The executives spent days--sometimes weeks--hammering out their organizational information flow. As a group of meetings, IBM called these seminars "The Strategic Planning Process."

Simple But Effective Marketing

As simple and basic as such meetings might sound today, these sessions were often extremely challenging and transforming for the participating organizations: For the first time, every leader within the organization was empowered to contribute to a roadmap for a concerted company strategy. In the process, the organization's measurements for success were clearly identified, silos of authority were openly acknowledged, and internal and external obstacles were pinpointed. All the while, IBM's technical systems engineers were in the background, ready to answer feasibility questions about the prospects for automating particular processes.

Critics were quick to point out that Strategic Planning Process meetings rarely resolved the larger, nagging issues that businesses faced. However, the meetings did provide IBM and the client companies with opportunities to team together, spurring the investment in company information automation. The results were quite often company-wide commitments to information technology, with IBM leading the charge with the blessings of the senior management. As a marketing strategy, IBM's play was ingenious and very powerful: It gave the business executives a planning methodology for business success that was customized, realistic, and politically sensitive to the players involved. It also sold a lot of IBM boxes.

(By the way, it was in such a climate that the idea of a "strategic computing platform" was spawned--a centralized machine that could handle a wide variety of business computing demands, which in turn would be isolated from technological obsolescence. This design point--certainly key to our love of the architecture we now call the iSeries--was really a response to corporate concerns about the rapid change in technology. The myth of the AS/400 as that strategic platform persisted within IBM until Lou Gerstner shot it down during IBM's reorganization.)

The Rise of IS

IBM pushed information systems (IS) management as the "strategic advantage" for a company's competitive and economic success well into the 1980s. And indeed, automation and information systems did in fact revolutionize business processes. Those companies that did not automate could not grow, could not economically compete, and eventually simply went out of business. IS became a strategic management partner in the viability and profitability of a company's future, and that future never looked brighter.

But by the 1990s, information automation alone could no longer be considered strategic to a company's success; instead, information automation had become the status quo for simply staying in business. Fortunately for computer jocks, however, two new technologies snuck in for corporate attention--technologies that were too economically powerful for companies to resist. The first was the client/server architecture model, and the second was the proliferation of the Internet protocol.

The Client/Server Sideshow

Companies began to hear that there was a strategic economic advantage in the client/server model of computing: Client/server broke down the silo of authority that had become known as IS. It brought in low-cost, high-function personal computers with powerful, inexpensive packaged software tools so that users no longer had to wait for the IS department to provide them with automation tools. Companies claimed that they gained significant departmental productivity advantages by buying inexpensive PCs and teaching employees how to do their jobs with the bundled software, all without bothering the IS department. As this productivity trend continued, IS personnel began linking the PCs together into file-serving networks that allowed workgroups of employees to become increasingly productive.

Meanwhile, mission-critical applications remained within the IS domain. But departmental productivity became more important as companies downsized, and the client/server model propelled the rise of newly defined "IT" departments. Soon, the importance of IT departmental productivity superceded the strategic advantage of IS. Over time, the moniker of "strategic importance" was piecemeal, transferred to the IT departments, until--by the late 1990s--the realm of IT embraced both departmental networks and legacy mission-critical IS functions.

The Internet Road Show

In a similar manner, the technology of the Internet spurred the focus on overall corporate productivity by enabling company-to-company transactions. Though the Internet--at its core--is no more than a standard communications protocol, at the height of its promotion by technology vendors, it represented a new productivity frontier. It offered many unexplored pathways to greater profits through things like standardized messaging protocols (e.g., email) and financial transactions (e.g., e-commerce.) And it opened the door for a truly global economic marketplace.

The Internet helped to maintain IT's moniker of "strategic importance," but by the late 1990s, executives began to see that Internet technology by itself could not significantly increase the company's bottom line. To do that required a significant investment in reengineering corporate processes to take advantage of automated supply chains and customer relationships. And, more importantly, in the new global economy--with so many new business challenges, partners, and customers--business reengineering could not be successfully implemented by IT on its own.

So, for the brief period of five years, client/server and Internet technologies were indeed strategic technologies for businesses and governments, helping IT (and IS before it) to sustain the mantle of strategic importance to the organization.

But that time has now passed, and the economic downturn within the IT industry during the last four years clearly indicates that companies no longer see IT as strategic to their mission success. Today, IT is considered to be an infrastructural "expense," like raw materials, labor, and basic plant utilities. This is, perhaps, the primary reason that companies today are so enamored with the concept of outsourcing IT: It's an expenditure that must be controlled, minimized, and--if at all possible--eliminated.

Strategic Death and Consolidation

This death of the "strategic IT department" within corporate America is where we are today. It has put programmers out of work, lowered wages, and sent many IT vendors into recession. At the same time, corporations have become focused upon the results of the automation effort: the global marketplace itself. The global marketplace is the single greatest challenge organizations are facing today. It impacts the supply chain, the customer relationship agreements, and the entire manufacturing and distribution tiers. It impacts IT by placing tremendous pressure on organizations to consolidate operations and services to the cheapest source--and that includes outsourcing IT services wherever possible. At the same time, IT is struggling to scale down, modularize, and make economically viable the large mission-critical legacy systems that IS once built. Every system IT and IS has built in the last 10 years is now up for reengineering, but the costs of doing so are staggering, and businesses and governments are unclear where to begin.

On Demand: IBM's Pathway to the Future

As technologists, we generally want to fix what's broken or build what needs to be built. We have a tendency to ignore the larger business challenges that the management of our organizations is facing.

If we grew up during the heady days of IS, we been taught to believe that building the best information system was the primary goal of the IS department. If we grew up during the beefy days of IT, we've been hounded to believe that corporate productivity is the goal by which we'll be measured. As a group, business-wise, we're in a state of denial.

Today, in our forums, in our periodicals, in our seminars, we hear the same lament again and again: "Why doesn't management just implement this one system or technology?" Maybe it's WebSphere. Maybe it's .NET. Regardless, we all chime in, "Don't they see the advantages it will bring to us? If only they would listen!"

But management seems deaf to our pleas. It's as though they've ascended into a corporate mist high up Mount Olympus and no longer understand the challenges that we in IS and IT are facing.

However, the truth may be much more frightening than we realize. The kinds of challenges facing businesses, corporations, and governments today are truly unprecedented. Small businesses are suddenly--by dint of technological advancement and geopolitical agreements--faced with unparalleled competition from invisible entities in distant countries where operating costs are lower and underlying business technologies are anonymous. Corporations are faced with new requirements for collaboration in their supply chains and in their customer relationship agreements, requirements that often challenge the very nature of the products and services that they have traditionally offered. Governments too are struggling with incredible requirements to provide mandated services while simultaneously battling staggering budget deficits.

Indeed, those organizations that have survived the wave of 20th century automation to arrive intact in the 21st century have truly ascended a mountain. But what their executives are seeing is a wholly changed vista of global competition and collaboration, most of which is shrouded with a mist of unknown requirements.

The Dyslexic Vision of e-Business

For its part, IBM bridged the millennium by touting the future as a world connected through e-business. However, as IBM began pushing its solutions into its customer base, it too began to see the significantly changed terrain of the global marketplace.

How could the organizations that represented IBM's customer base--in both the private sector and the public sector--function successfully in this new global computing environment? For instance, what does such an environment mean to legacy applications? Or more importantly, why do companies need to transform those legacy applications at all? What about the individual departments within an organization? Do companies really need a procurement department if everyone can find the lowest price online? And what about employee resources? How do you treat an employee who is virtually connected to the organization? What about that employee's requirements to collaborate? Or how about collaboration in general? Within government, how do you define collaboration between separate social service agencies in separate municipalities? What about the security of information?

In a world in which so many borders have been re-drawn by technology, how will individual organizations, departments within organizations, or employees within departments find the most economical means to productively interact? How does one even measure such productivity? What does this new global computing environment mean to the roles that individuals and organizations have played in the past? How do you define what these roles should be?

The Need for Business Transformation

The closer IBM looked, the more it realized that e-business was a great vision, but it was a vision that had a lot of dyslexic ramifications. More importantly, IBM found out that leaders in both industry and government were similarly challenged by the new nature of an interconnected world.

In its business study groups, in its customer research, and in its own experience as a global business, IBM came to believe that the traditional silos within most organizations could not successfully transition to the new global environment without significant business process reengineering. And, unlike the business reengineering that occurred in the late 1980s, the goal was not simple productivity. Instead, it was virtual collaboration.

To succeed, organizations would have to bridge the traditional islands of automation that supported departmental productivity in the past. Common processes and procedures would have to be standardized.

But the greatest challenge, from IBM's perspective, will be not the technical issues but the cultural issues within the organizations themselves. For example, how do you communicate a new vision of an interconnected world and translate that vision into a step-by-step process by which these public and private entities can transform themselves? Most importantly, how do organizations succeed in a transformation to this new environment in an economical fashion that makes good business sense?

These were the questions that IBM was asking last year at this time. And after significant wrangling and study, the On Demand business transformation plan was born. IBM touts On Demand as a "journey" that organizations have already begun, with measurable milestones, significant cost savings, and definable advantages. And, according to IBM, it's a journey that others have followed successfully in the past, and it points to its own corporate reinvention as a success story worth telling.

In the next installment of this story, I'll examine the On Demand road map, pinpointing where IT is today and what lies ahead in our consolidation efforts.

Thomas M. Stockwell is Editor in Chief of MC Press, LP