Conference heron::euro_swas_ai

207.0. "FWD: IBM NEW FOCUS - SERVICES" by HERON::ROACH (TANSTAAFL !) Sat Jun 30 1990 07:14

Printed by: Pat Roach                                    Document Number: 012167
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                  I N T E R O F F I C E   M E M O R A N D U M

                                        Date:     29-Jun-1990 08:11pm CET
                                        From:     PAPAGEORGE
                                                  PAPAGEORGE@AITG@HERON@MRGATE@HUGHI
                                        Dept:      
                                        Tel No:    

TO:  ROACH@A1NSTC


Subject: FWD: IBM NEW FOCUS - SERVICES

From:	BOBBY3::NAISMITH "Bob Naismith - DTN 296-5584 - LMO2 K2 - Loc. 216  
29-Jun-1990 0801"   29-JUN-1990 07:59:56.00
To:	@AITC,STEPS1::Hopkins
CC:	@RJNStaff
Subj:	FWD: IBM NEW FOCUS - SERVICES





From:	NAME: JERRY MONTAGUE @AKO           
	FUNC: GIA EIS                         
	TEL: 244-6513                         <MONTAGUE.JERRY AT AKOV12A1 AT 
AKOMTS AT AKO>
Date:	22-Jun-1990
Posted-date: 25-Jun-1990
Precedence: 1
Subject: IBM NEW FOCUS - SERVICES
To:	See Below



It is extremely important that you focus your attention on the 
attached document.  It will describe a new marketing thrust from IBM 
which focuses on their efforts to become more of a service company.  
In order to affect a renewal effort it appears that IBM is 
increasingly turning to the services, both to generate revenue fees as 
well as increase demand for its hardware and software.  This should 
not be a new concept to EIS.  Our number one goal is to generate and 
support the sale of hardware and software solutions.

However, there is another very important concept in this article.  IBM 
is charging for some of the services that used to be bundled into the 
hardware and software.  This is just the beginning.  IBM undoubtedly 
will proceed to charge for many more of their services.  This will be 
a requirement for them to sustain their profit levels as well as 
return on revenue.  This will provide a significant umbrella for us to 
improve the margins of the Projects, Consulting & SIB programs.

Besides the above two principles, there are several key points that 
need to be internalized by EIS management.

1.  It appears that IBM is cutting its reliance on traditional 
    hardware and software sales to produce normal corporate margins.

2.  It is taking a renewed direction towards becoming a SERVICE 
    COMPANY.

3.  They are charging for services which used to be bundled.

4.  They are taking the above steps as a new beginning towards further 
    service content in their revenue stream.

5.  They are taking the step to initiate small low cost ($75,000 
    projects) to establish these as leads for further 
    hardware/software/service projects.

6.  The article analyzes that IBM is lagging in the Systems 
    Integration business and in fact is very uncomplementary to them 
    surrounding their efforts in the Systems Integration business.

Clearly, this is a mandate for a very aggressive push by EIS in the 
Systems Integration business.

If there was ever a document of stimulation for EIS management to 
assume the leadership in the Professional Services, as well as the 
SIB, this should be the document.  We have recognition in the 
marketplace and we have the capabilities to further drive the solution 
management/SIB management to provide the impetus for further 
leadership for Digital.

Regards.

**************************************************************************



From:	NAME: RUSS GULLOTTI @BTH            
	FUNC: EIS ADMIN.                      
	TEL: 264-6209                         <GULLOTTI AT A1 AT WOODRO AT MKO>
Date:	19-Jun-1990
Posted-date: 19-Jun-1990
Precedence: 1
Subject: IBM MEMO - SEE ATTACHED
To:	See Below




Please take the time to read what IBM is doing.  

They are learning to call "sales support", enterprise-alliance" and 
get paid for it.  When will we learn to do the same??

Russ


To Distribution List:

DAVID CREED @OGO,
KAREN HOWARD @OGO,
CAROL REID @BTH,
JERRY MONTAGUE @AKO,
BILL FERRY @MRO,
SHARON KEILLOR @OGO,
DAN THATTE @AKO,
DON HUNT @MLO,
PAT CATALDO @BUO,
SERGIO GIACOLETTO @GEO,
DICK SCARBOROUGH @BTH




From:	NAME: BOB JOHNSON @AKO              
	FUNC: GIA SWS                         
	TEL: 244-6707                         <JOHNSON.BOB AT AKOV12A1 AT AKOMTS 
AT AKO>
Date:	18-Jun-1990
Posted-date: 18-Jun-1990
Precedence: 1
Subject: RE: IBM Enterprise Alliance Service, FYI
To:	See Below
CC:	See Below





  George,
  
  I read the entire article and believe a key point that doesn't immediately 
  emerge is that IBM is CHARGING FOR THIS SERVICE.  This is somewhat new for 
  them since previously they've primarily charged for a "solution" (hardware, 
  software, services, etc.).  This has created the impression that the 
  services are "free".  We need to communicate this internally, especially to 
  field people who believe our services should be free.
  
  I've attached the entire article for reference.
  
  Regards,
  Bob

To Distribution List:

NAME: GEORGE STARR @OGO <STARR.GEORGE AT A1 AT BUFFER AT OGO>
****************************************************************************



Author:	LOIS CLARK @AKO               
Date:	14-Jun-1990
Posted-date: 15-Jun-1990
Precedence: 1


The Wall Street Journal Tuesday, June 12, 1990
CORPORATE FOCUS

         IBM, Seeking a Source of Renewal, Turns to Services

In Step Away From Hardware Sales, It's Offering Problem-Solving Skills

International Business Machines Corp. is rolling out a program to 
become more of a service company and cut its reliance on traditional 
hardware sales.

The computer giant has racked up five years of lackluster results as 
competition has slashed profit margins on computer hardware.  Growth 
in software revenue, once hailed as IBM's likely savior, has slowed 
too.  So IBM is increasingly turning to services - both to generate 
fees and to increase demand for its hardware and software.

The new program won't be a quick fix.  Most other companies in the 
industry have the same idea, and IBM's credentials in so-called 
professional services are a mixed bag.

Still, customers, consultants and even some competitors say the new 
IBM program, called Enterprise Alliance, will help IBM on its way.  
And IBM executives say they will be able to use some of the ideas 
behind Enterprise Alliance profitably in other areas.

"it's a very smart approach," says Mel Bergstein, a senior vice 
president in the consulting arm of Computer Sciences Corp., which 
offers systems integration and professional services.

Enterprise Alliance is simple in concept.  IBM sends a small team to 
talk about a specific problem - the difficulty that companies have in 
pulling together data stored in different types of databases on 
hardware from numerous companies.

Once the customer picks an instance of that problem that it wants 
solved, a handful of IBM programmers produce a prototype of a piece of 
software - usually in about a month.  The people who run the part of 
the business that will use the software then suggest changes, and 
IBM's programmers produce a finished piece of software.  The whole 
process takes about three months.  For its troubles, IBM collects a 
fee of $75,000.

But that's just the beginning.  The customer could then ask IBM to 
solve that sort of problem in other areas.  Because the inability to 
pull together data from different sources is one of the biggest 
problems in corporate computer operations, the projects could be 
enormous.  Even proceeding on their own, many customers, having been 
shown the way, will tackle the problem more quickly than they would 
have otherwise.  That, of course, means buying more hardware and 
software - and much of the equipment will have those big blue IBM 
logos on it.

"We're not doing this to get $75,000.  We're doing this to get that 
relationship." says Bob Berland, an IBM vice president involved with 
Enterprise Alliance.

RAPID GROWTH PLANNED

Marshall Balter, director of the program at IBM, says several hundred 
people are already involved int he project and the number will grow 
rapidly.  IBM has completed only a few pilot projects under Enterprise 
Alliance, but Mr. Balter says that number should hit 40 or 50 this 
summer.  And, while it's still too early to forecast precisely the 
program's impact, initial reports are favorable.

"I'm such a cynic when it comes to computer systems," says John Gunn, 
Executive vice president at Memorial Sloan Kettering Cancer Center, 
New York, site of one pilot project.  "It always takes five times as 
long to write as anybody budgeted and costs 10 times as much as 
anybody hoped."  But he says that IBM finished on time and that the 
$75,000 fee was one-half to one-third as much as it would have cost 
him to write the software himself.  "Quite frankly, IBM surprised the 
hell out of me." he says.

Mr. Gunn says the software IBM wrote lets physicians at one site 
easily get all sorts of information - lab reports, billing 
information, some medical records, pharmacy records and so forth - 
even though that had proved difficult in the past and even though not 
all the information is stored in IBM computers.

David Roberts, senior vice president of corporate information services 
at the Federal National Mortgage Association, another pilot site, 
says, "We've found the program to be very productive."  He's cautious, 
saying that he doesn't expect the association - a reseller of 
mortgages that is commonly known as Fannie Mae - to buy any more 
hardware or software because of the project.  Still, he says that he 
may make the purchases more quickly than he would have otherwise and 
that he's more likely to buy from IBM.

As IBM prospects for more business, potential corporate customers and 
some competitors say it will face significant hurdles.  For one thing, 
while corporate customers are increasingly trying to turn over  their 
headaches to consultants and systems integrators, many are leery of 
dealing with a company that also makes hardware or software.  They 
fear they would wind up buying a piece of IBM equipment even if it 
isn't the best available for the job.

"That is a significant disadvantage for IBM," says Jim Fischer, 
managing partner of technology services at Andersen Consulting, one of 
IBM's biggest competitors.

ROLE OF CUSTOMER BASE

In addition, companies that do systems integration work need to really 
understand the problems at, say, the bank or manufacturer that is 
doing the buying, and IBM is newer at that game than some of its 
competitors.

"This all boils down to how good the people are, and IBM hasn't yet 
developed the skills that they need." says James Sutter, vice 
president of information systems at Rockwell International Corp.

But at the same time, IBM has plenty of close relationships with 
customers that it can use to build the business.  Mr. Sutter, for 
instance, says IBM "certainly has the staying power and the presence" 
to be a force in systems integration.  In addition, access to capital 
is becoming increasingly important for companies in this field as the 
projects they undertake become larger, and IBM can beat just about 
anybody at that game.

IBM also has plenty of experience with the technology.

IBM's computer guys "are actually using a lot of their systems within 
their own manufacturing operations." says Ace Hall, general manager of 
General Dynamics Corp.'s data systems division.  "They have real-life 
experience, whereas the consulting people [at many other firms] don't 
have that kind of thing."

Some corporate customers even like dealing with a hardware company on 
systems integration.  They say they think it gives them additional say 
on future products.

"I want to influence the products and services that IBM provides as 
they go down the road rather than sitting back and hoping they provide 
what I want." says Mr. Roberts of Fannie Mae.

Somehow or other, IBM needs to become a bigger factor in systems 
integration and other services arenas.  Market-research forms say 
systems integration is a $20 billion-a-year market that is growing 
some 20% annually.  Yet the computer industry as whole is growing less 
than half that fast, and IBM is feeling pressure on all fronts.

IBM said in the late '80s that it wanted more than half its revenue to 
come from software and services by the early '90s, but progress has 
been slow.  IBM's revenue from software, maintenance services and its 
systems integration business with the federal government totaled $17.5 
billion last year, or less than 30% of its total revenue of $62.7 
billion.  And that $17.5 billion wasn't much higher than the 1988 
figure.

Whatever happens, Mr. Berland of IBM says he hopes Enterprise Alliance 
will be "a paradigm for the '90s."  Mr. Balter says that for one 
thing, IBM thinks the production of software ought to be faster, with 
ultimate users getting a change to see an early prototype and adapt it 
to their needs.  The huge backlog of requests for software at 
corporation is widely considered to be one of the biggest impediments 
to the growth of the computer industry.  In additions, much of the 
software misses the mark because there is often little communications 
between the people writing it and those who will use it.

Mr. Berland says he hopes Enterprise Alliance will also be an example 
of how IBM should approach its customers.  Traditionally, IBM has 
dealt with data-processing departments, but under the new program, it 
is trying to deal more with the people who actually run the 
corporation customer's business.

"Many companies are talking abut closer partnership with customers.' 
says Sam Albert, a consultant in Scarsdale, N.Y., "but this is a real 
demonstration of that.  This could potentially mean a great deal of 
revenue."