IBM is putting more money and muscle where its mouth is regarding its on-demand computing strategy by creating a new research division called On Demand Innovation Services. It plans to shift $1 billion in investment to the new division over the next three years.

The new services arm is to be located within IBM's research division and will be staffed by about 200 of its consultants, who are expected to work with the approximately 3,000 researchers IBM employs worldwide. Company officials said the division would work in partnership with IBM's Business Consulting Services division, the new consulting division it created after it purchased tech consulting giant PwC for $3.5 billion.

The goal of the new research group is to help bolster its own consultants' work with clients and help business customers adopt on-demand computing systems across their internal and external supply chains and IT systems.

IBM spends about $5.3 billion a year a year on research and development, much of it focused on the science of computing applications. That the company would shift $1 billion to invest in a consulting-related R&D division is one more sign of the importance of services to IBM's new strategy as well as its bottom line. Big Blue's global services division brings in about half of its annual revenues.

IBM said the On Demand Innovation Services group would initially concentrate their research efforts on four areas:

Advanced Analytics: applying advanced mathematics and computer models to understand and solve clients' business and IT problems, such as efficiency calculations for chips to managing risk. The techniques applied to IT infrastructure planning would include combinatorial optimization, computational complexity, control theory, integer programming, linear algebra, statistical learning theory and stochastic programming.

Business Process Transformation: Recently unveiled as a key component of IBM's Business Services consulting group, the focus is ultimately about reengineering a customer's IT system in areas such as customer relationship management, supply chain management, or enterprise resource planning.

Information Integration: This is where IBM's embrace of open standards and interoperability would be put through R&D rigors by working with diverse forms of data that exist across business enterprise systems.

Experimental Economics: Where arts and sciences would be integrated with a traditional technology research agenda by studying different business models, and how institutional design influences economic outcomes.

The new division is also the first time IBM has created a customer-facing research division. Not since the early 1990s when IBM shifted much of its R&D to software research has the company moved to realign its organization on an emerging set of technologies, said Paul Horn, senior vice president and director, IBM Research. "The role of IT research and the kinds of problems researchers should be solving must change as the industry enters a services-led on demand era."