IBM has never seen the need for an enterprise resource planning (ERP) software product. IBM says its strategy is about integration, rather than top level applications. So why is IBM buying up so many software companies?
"No one ever got fired for buying IBM" ran the advertising slogan. The implication being that stepping out of this comfort zone could be a serious career set back. Meanwhile engineers would refer to customers who dared to buy from rival suppliers as "infected sites". These days, however, IBM is leading the charge to legitimise open source software. It has single-handedly legitimised Linux, bestowing a confidence in open source software, and the modular approach to tailoring a cohesive enterprise software strategy for each client.
What users really want from IBM, according to Ray Titcombe, chairman of the IBM CUA and Strategic Supplier Relationship Group, is clarity about its intentions for future software platforms.
Titcombe believes long term customers of IBM want continued relationships with Big Blue, on their terms. "But IBM lacks the ability to meaningfully engage with the younger up and coming IT management people, who perceive IBM as a high cost supplier with little differentiation from any other software supplier. This lack of perceived flexibility and value for money from IBM is a major block to future continuation of business relations," says Titcombe.
Titcombe feels that IBM - globally - is inflexible to customer demands. Customers increasingly need to purchase products from several suppliers to meet their business requirements. However, customers deal with IBM via its channel partners and these channel partners are very often restricted in what products and services they can offer. As a consequence, "many existing and potential customers find another Tier one supplier," he says. Which could be Oracle or SAP's gain, perhaps.
In fact, IBM, has very little interest in offering business users an ERP system. Kevin Malone, IBM's software technical strategist executive, says, "Some people see enterprise resource planning as a package. We see ERP as a way of getting the right information into the right business processes."
In other words, he says, the software strategy for IBM is to stop making people work around software packages, and start making packages adapt to the way people naturally work. It is anathema to IBM to expect customers to install a major application (such as ERP) and spend the next 18 months trying to fit around the limitations of the package.
"We should be more service oriented, and the delivery of that strategy depends on three factors. The people involved, the fine tuning of business processes and the integration of information into those business processes," says Malone.
Analyst Rob Bamforth argues that IBM never needed an ERP product because it can take a more modular approach, and the company is "amazingly skilful" at bringing partners together to form one tightly integrated product. Who would have thought, ten years ago, that IBM - Big Iron, the proprietary direct seller - would one day be the champion of open systems and compatibility? "I always feel IBM has lots of pieces to be deployed in different ways, which is why they never went for ERP systems," says Rob Bamforth, principal analyst with Quocirca.
IBM's vast amorphous form might consist of three broad categories: hardware and servers, software, and consulting. But primarily it is a hardware company, argues Bamforth, with a typical hardware company strategy. It doesn't matter what software is running, as long as its running on an IBM platform. Its software and global services arms, meanwhile are more interested in partnering. And they are amazingly good at it, he says (given how isolationist the company used to be). "It's one of their hidden assets," says Bamforth. "They partner with a huge number of companies, ranging from the likes of SAP and Oracle to small software outfits. I thought Sun were good when I worked there, but IBM is something else."
Not everyone agrees with this approach. Mushtaq Shaheen, IT director of JJ Food Service, a food industry distributor that grew rapidly from an SME into an enterprise scale operation, says he found the modular approach impractical. "It's too complex to try and integrate all the best of breed products quickly. I don't agree that modular necessarily means scaleable." If you get the right ERP product - Microsoft Dynamix, in this case - you can get a workable solution to your needs a lot quicker, he argues.
That's at best an old fashioned idea, argues Andes Loukianos, sales director with IBM partner Touchstone. "Enterprise resource software is too cumbersome in most cases. It's so big and monolithic that frequently the company has moved on by the time all the loose ends of the system have been tied down," he says.
The IT industry used to be convinced that IT made the difference. Now there's a general realisation that it's actually the understanding of business, and the business processes that make the most difference. "Our software strategy is about flexibility," says Malone, "we want to tailor software to the way people work. For years it was the other way around." And still is, in some parts of the industry.
"The real challenge is to change with the business without incurring huge support costs," concedes John Crooks, MD of ERP vendor and IBM partner Agresso, "this sort of agility now is only achieved through a modular approach."
One IT manager expressed his rejection of big package mentality rather more strongly. "Enterprise resource planning software? I wouldn't touch it for an organisation like ours," says Peter Beckley, IT director for insurance company Kerry London. "I've heard it has the same effect on a company as pouring quick drying cement into a machine."
Analyst Rob Bamforth agrees. "The problem is that ERP is often seen as a huge log rolling thunder type investment. But for many organisations there are other priorities. People have learned that the big grand plan project often doesn't work."
If it's industry knowledge that's most cherished, then IBM's vertical market consultants (not to mention the pool of expertise it acquired with Accenture) is invaluable, says Banforth.
Better still, IBM's sales model is the complete antithesis of their original, aggressive strategy. These days IBM sales staff are encouraged to work through business partners. The Influence Revenue model even incentivises IBM's salesmen to push the sales out to IBM partners, as they only get commission if a partner signs a contract. The upshot is that IBM sales staff are a lot nicer to deal with than many direct selling organisations, and they've even been known to listen to the customer. Which is an astonishingly rare quality among IT sales-animals.
The advantage for the CIO or IT director , apart from fewer pushy sales calls from their supplier, is that they get a better solution in place, according to Peder Daxberg, VP of Global Alliances and Services at IFS, an ISV and IBM partner.
"IBM has fantastic vertical market specialists, who know their clients business processes inside out. We, the suppliers, tend to have generic software skills. So it makes senses that IBM's consultants manage the projects we get involved in, and integrate all the various elements," says Daxberg.
However, some partners wonder if IBM is having a rethink on ERP. Though IBM has long positioned itself as the best integration partner for ERP - its Global Services arm provides integration on Oracle and SAP projects for example - its technology agnosticism may be dissolving. It has spend billions on the acquisition trail recently. Filent, Arsenal Digital Solutions, Solid Information technology the shopping list runs into tens of billions. Why buy so many software companies if company policy is to partner?
"One thing we have done is to speed up the market by making acquisitions," explains IBM's Malone. "We lead the market in middleware, and all these acquisitions help us to strengthen our position as a provider of flexible, standards-based middleware."
The rationale, argues Malone, is to accelerate the development of the market, through its adherence to standards and its patronage of key new niches, which IBM invests in. The short term self interest, typified by sales target-driven IT companies, is shunned in favour of a more holistic approach that, by happy coincidence, happens to be good for the end user. "If the market gets bigger, we get bigger, because we're the market leader," says Malone.
For IT directors it looks like they have more choice than ever, because IBM doesn't show any signs of abandoning its policy to pick and mix the right products for the right circumstances. Proof of this, according to John Banfield, director of sales at Palo Alto-based IBM software partner SteelEye, is the continuing commitment to Linux. "IBM's presence in the open source market has legitimised Linux. It has established confidence in the suppliers and the IBM brand puts a stamp of quality on the solutions available. They would hardly abandon that legacy having worked so hard to establish it," he says.
Ultimately, IBM might not have an ERP software product, but is keeping its options wide open, and concentrating on its vertical market expertise, project management and hardware manufacturing. Applications won't be important in the future, argues Malone. Attention to business processes will be more important than big packages, which cannot be flexible enough to adapt to the needs of the modern enterprise.
Below the application layer, IBM leads the middleware market and has a successful range of computing platforms for applications to run on. "We're happy to sit below the application layer and bring the thousands of niche applications into play. And if they run on our hardware, all well and good," says Malone.