Big Blue Moves to On-Demand ‘Fast-Track’

IBM on Thursday unveiled another element of its “computing on-demand”
strategy with a fast-track program to help software vendors Internet-enable
software applications.

Although the latest release sounds like an application service provider
model (ASP ), IBM has dubbed it an “application enablement
program.” Working in partnership with software companies, IBM plans to help
host customers’ applications in a shared network infrastructure, as well as
in its own 150 data centers around the world. Software partners would
deliver them on-demand over a network to customers using a variety of
licensing models.

Four corporate software vendors have signed on as partners with IBM in
the program. They are supply chain software management company Adexa,
Internet security software provider Entrust, asset management software
company MRO and customer management and billing provider Portal Software.

The release comes on the heels of IBM’s annual meeting with analysts in
which executives from IBM’s major business units discussed how, both
internally and externally, they were adapting to its “computing on demand”
strategy. It was unveiled last month in a speech by
CEO Sam Palmisano.

While steering clear of discussing the company’s outlook for
the fourth quarter, John Joyce, IBM’s chief financial officer, said that,
over the long term, he believed technology spending would grow faster than
the country’s gross domestic product rate after the current two-year dip. He
also said he felt confident that IBM would gain more market share in major
tech categories such as hardware and software, as its “computing on-demand”
approach to the market unfolds.

To that end, Joyce and other executives said, IBM is beginning to discern
some real shifts with customers and in how they’re deploying technology.

“Merely buying best of breed (products and applications) and attempting to
integrate them has not proven as valuable as one would have thought,” said
Mike Lawrie, senior vice president for worldwide sales.

Instead, institutions are looking at their internal “silos,” or vertical
alignment of divisions such as ordering, fulfillment and other supply chain
functions; now, they are looking at laying their organizations’ vertical alignment on their side in a horizontal orientation in order to link different divisions with business partners, suppliers and customers, they said.

“That’s where the technology is being applied to specific horizontal
business processes where we are seeing significant gains in productivity and
the ability to transform institutions,” Lawrie said.

IBM’s latest piece of its “on-demand” program is also a chance for Big
Blue to show the world the pace of its integration with PwC, the technology consulting group it purchased for $3.5 billion. The acquisition closed last month.

The combined consulting units from IBM and PwC have been integrated into a Business Consulting Services unit. Consultants from that group are expected to work with the four software vendors in testing and deploying the “application enablement
program” before bringing applications “live” over their networks.

Research firm IDC has forecast that global spending on ASP and
similar “rented” application services would reach close to $20 billion
within four years. In a research report earlier this year, IDC said spending
on ASP and AM services is expected to rise as companies of all sizes look to
outsource tactical maintenance and management activities in order to focus
on strategic activities.

“A critical mass of ASP adopters are helping that
industry move into the mainstream, while an influx of new suppliers such as
application vendors is reinvigorating traditional (application management),”
said Amy Mizoras, program manager, ASP and Applications Research analyst for

And IBM is clearly adding its mass to the trend. During the analyst
briefing Wednesday, Bob Moffat, a senior vice president of IBM’s integrated
supply chain,
said IBM’s internal adoption of “on-demand” would eventually cut about $5
billion from the company’s internal cost structure.

Although the key to cutting internal costs includes driving efficiencies
across all aspects of a company’s supply chain, “the key is you must be able to capture them,” Moffat

And that includes knitting together its supply across all divisions, such as
product development, procurement, distribution, support and financing. In so
doing, “it changes internal cost structures from fixed to variable,” he

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