Vertical Vision

IBM's industry focus reaches beyond software to include all parts of the business, from consulting to sales

Paul McDougall, Editor At Large, InformationWeek

December 5, 2003

7 Min Read

York International Corp. will begin testing next month remote diagnostic systems on the industrial heating and air-conditioning equipment it makes. It's initially rolling out the service to just one customer, but York ultimately wants to introduce the system to all its major accounts, some of which boast more than 20,000 locations. That's when things can get ugly: Performance data from diagnostic tools running at thousands of customer sites will have to be integrated in real time with Siebel Systems Inc. customer-relationship-management software used by the company's service department. "How do you manage that?" asks IT director John Wood.

For help, York is working with IBM, which next month will introduce tools preconfigured to let businesses deal with integration challenges unique to their industries. "Customer expectations have changed completely," Wood says. "It used to be OK to send a service rep out in a day or two. Now, if it's beyond a couple of hours, that's too late. We need systems that can deal with that."

IBM plans to invest millions of dollars adding more industry-specific capabilities to its middleware, representing the biggest shift in its $13 billion-a-year software business since 1999, when it exited the applications business. But the industry-oriented strategy goes beyond reorienting the company's software to focus on particular markets. Its Global Services arm has long had practices in areas ranging from retail to government, and now IBM also can count on its 60,000 business-process experts, courtesy of its acquisition last year of the consulting arm of PricewaterhouseCoopers, and its stable of 3,000 researchers to help customers in specific industries use advances in software technology to change the way they do business. "We're building a matrix that connects research, consulting, technology, and sales," says Dave McQueeney, VP for technology assets at IBM. McQueeney heads up a new program that gives IBM Global Services customers direct access to company researchers to help them solve business problems.

Part of IBM's master plan includes training 13,000 salespeople to give them more in-depth knowledge in the industries they serve. A dozen new software connectors due next month will be customized for health care, banking, insurance, automotive, and other tech-intensive industries. The manufacturing-oriented version of IBM's WebSphere Device Management Software that York plans to use to integrate the company's diagnostics and CRM software is vital to its efforts to meet customers' insistence on fast service, Wood says. Among its capabilities will be the ability to push service-call requests to technicians armed with Palm and BlackBerry wireless devices.

Changing business conditions mean customers' projects are more focused on urgent requirements, IBM VP Sweeney says.Photo of Paraic Sweeney by Ken Schles

York's situation isn't unique. Customers' projects "are becoming more focused on urgent requirements," many of them brought on by rapidly changing business and regulatory demands, says Paraic Sweeney, VP of industry solutions and business integration in IBM's software group. One of IBM's new connectors will let WebSphere communicate directly with applications that control hardware devices used to capture data from radio-frequency identification signals in order to turn that information into business intelligence. "This is a top priority if you're in the [consumer] packaged-goods industry," because Wal-Mart Stores Inc. has demanded that suppliers become RFID-compliant, Sweeney says. "That's not about IT efficiency or optimization; it's about business survival."

Competitors also are taking a vertical approach. Microsoft has added industry-specific functions to its .Net middleware. Extensions to its BizTalk integration server help health-care companies more easily meet Health Insurance Portability and Accountability Act reporting requirements, and financial-services firms deal with the Swift international transactions network, says Mike Maas, Microsoft's general manger for industry marketing. "We believe the industry-specific approach is very valid, but we're already there," he says.

BEA Systems Inc. has been moving in the same direction. And it has a reputation for better middleware technology than IBM, says US Bancorp Piper Jaffray analyst David Rudow, who attributes growth in WebSphere sales to IBM's aggressive discounting. BEA is rounding out its line with industry-tuned middleware such as its WebLogic Service Delivery Solution for wireless telecom carriers that must meet the Federal Communications Commission's recent mandate to provide phone-number portability. IBM's software shift might ruffle feathers among some of its software partners. Officials at iWay Software, one of seven IBM partners that make and sell a range of connectors for WebSphere, question the industry-specific middleware approach. "IBM often wants to control everything, but we're specialists," says Jake Freivald, director of marketing at iWay. "They'll come back to us when they need something in a hurry, and all of a sudden find they can't do it." IBM says it wants partners like iWay to continue to build general-purpose WebSphere connectors.

No other vendor could match IBM's mix of technology and services to build a real-time dispatch system, BostonCoach president Cooke says.Photo of Russ Cooke by Jason Grow

New business requirements--as well as opportunities--present challenges that can't be addressed by software alone, IBM says. At limousine and transportation company BostonCoach, the most-critical process is dispatching its fleet of hundreds of vehicles as efficiently as possible. BostonCoach needed a partner that could help it build a real-time dispatching system, and no other vendor was able to match IBM's mix of technology and services, says Russ Cooke, president of the company. Researchers at IBM's Thomas J. Watson Research Center recently built a mathematical algorithm for a custom dispatch system that combines data about weather and traffic conditions, driver locations, and customer pickup requests into a system that tells BostonCoach dispatchers which cars to assign to which customer calls.

The system is so efficient that BostonCoach was able to launch service in Atlanta without having to hire additional dispatchers, Cooke says. One of the assets IBM brought to the project, he says, was a significant amount of knowledge from similar work its Global Services staff has done in other transportation industries such as the airlines, for which the company has developed a number of scheduling applications. "They shared with us the technologies and approaches they have experience with," Cooke says.

Canadian Pacific Railway last week inked a seven-year, $200 million infrastructure outsourcing contract with IBM Global Services. One factor in its decision to go with IBM was that the deal gives Canadian Pacific access to researchers at IBM's Center for Transportation Innovation in Boulder, Colo. There, Allen Borak, VP for information systems at Canadian Pacific, will work with IBM to determine, among other things, how RFID technology will affect the railroad business.

The outsourcing deal will cut Canadian Pacific's IT costs by 15% to 20%, leaving it better positioned to explore opportunities, Borak says. "We can drop the savings to the bottom line, but if there's an attractive business case for some of these new technologies, we can reinvest in those areas," he says.

The merger of services and research gives IBM an edge over the competition. "It's giving them more traction in the market because it's difficult for competitors like EDS to match that," says Bob Sutherland, an analyst at Technology Business Research.

The formula seems to be working for customers. "Combining outsourcing and collaborative research creates some very significant possibilities," says Rick Donahue, senior VP for strategy and business development at New York University Medical Center. The health-care organization stands to cut business-technology costs by 20% through an outsourcing deal with IBM. More significantly, NYU and IBM are discussing an extension in which researchers in IBM's life-sciences unit would work directly with mathematicians at NYU's Courant Institute, a mathematical research institution, in an effort to solve some of the more vexing problems in genetics research, Donahue says.

How far can IBM take its vertical-industry strategy? Maybe all the way to the bank--figuratively speaking. The company's Global Financing division last week debuted offerings that let health-care, life-sciences, and pharmaceuticals businesses lease or finance both IT and medical equipment that hooks into IT systems, such as MRIs and CT scanners. You can't get more industry-specific than that.

About the Author(s)

Paul McDougall

Editor At Large, InformationWeek

Paul McDougall is a former editor for InformationWeek.

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