Over the next 10 to 20 years, the IT industry is predicted to grow at a steady but unremarkable 5% to 6% pace.  IBM Corporation, the world's largest information technology company, is positioning itself to grow at a much bigger clip.  In terms of revenue, IBM is the world’s largest provider of IT services ($46 billion), hardware ($31 billion) and financing ($2.9 billion), and second in software ($15 billion).  The company’s 2004 revenues topped $96.2 billion.  

What do you do when you’re a $96 billion company and you want to deliver growth ahead of the market?  “You have to keep on gaining share in every market you play in—hardware, software, services—you have to keep taking share day after day after day and the great news is we’re doing that,” says Val Rahmani, IBM’s vice president of Corporate Strategy.  Rahmani spoke to alumni and participants in an executive education course at Emory University’s Goizueta Business School.

The challenge for IBM is it already claims a large share in many of its businesses, which doesn’t allow for much additional growth. 

Undaunted, Rahmani and her IBM cohorts are busy identifying new, potentially profitable spaces that surround the areas in which IBM already operates.  Once identified, the company will figure out ways its technology can help customers in those spaces run their businesses more efficiently.

“Somewhere in these last 10 years the IT industry got so enamored with technology for technology’s sake that we forgot that it’s actually about solving business problems,” Rahmani told the audience. “We’ve got to start thinking about this from the customer point of view.”

So what is it customers really want?  According to Rahmani, they want to link their business strategy and their IT, and—in an ideal world—they want it to be plug and play. Not that Rahmani believes IT will deliver plug and play tomorrow (there is the issue of standards to deal with), but she does believe that’s where the industry should set its sights.

Once open standards are the rule, and IBM strongly supports this kind of openness, Rahmani says services will “unbundle and rebundle.”  This means companies could pick “pieces” of IT offerings rather than trying to vertically integrate everything.  “Increasingly, our clients are saying, ‘I want to have the flexibility.  I don’t want to be locked into proprietary technology.  I want to think of IT as a continuum across my business.  It’s all got to be about what makes sense to my top and bottom line.’”

That type of thinking was behind the launch of IBM’s “On Demand” vision a few years ago.  On Demand, which integrates business processes across a company and across industry value nets (such as partners, suppliers and customers), also allows for business processes to be responsive to customer demands, market opportunities and external threats.  Rahmani believes the success of On Demand is a sign of things to come.  “We’re making investments now to start getting ourselves on that curve,” she says.

To illustrate where these investments are being made, Rahmani explained that IBM operates on three layers: components (such as chips and operating systems); infrastructure (including hardware, software, and IT services); and thirdly, business value (such as consulting and business transformation services).  And it’s this third category that has the company eyeing new growth opportunity. 

Roughly defined, business value is a combination of services, software and technology that truly makes a differentiator to that business.  “If I want clients to continue spending money with me, I need them to be able to see—very clearly—what the linkage is between what we’re doing and how that’s going to affect their business,” Rahmani says. 

According to both company and industry research, the IT industry’s profits are trending up significantly at the business value layer, while IT industry profits at the infrastructure and component layers, as mentioned earlier, are either starting to plateau or decline.  This doesn’t surprise Rahmani.  “Clients don’t want to spend money on items like component value and server storage unless they can see how it’s going to lead to business value at the top,” Rahmani says.  “It doesn’t mean there’s still not profit to be made in these other layers.  What it means, though, is that across the industry over time, we’ll shift into that business value layer.  You can see it across the industry; everybody’s trying to get into that layer because that’s where the profit is migrating to.” 

IBM’s existing industry opportunity (via infrastructure and component value) is $1.3 trillion, notes Rahmani.  However, IBM believes it can broaden its market by $1.4 trillion by offering what it terms Business Performance Transformation Services (BPTS).  “It’s a layer above what we traditionally think of as IT, at the process layer.  It’s about transforming a client’s processes,” Rahmani says. 

This isn’t a new idea, but it goes farther than before.  BPTS isn’t about outsourcing company payroll or IT services.  “It’s about working with a client to re-architect his processes and re-think how companies run their business in a way that makes more sense,” she explains.  “This is not about ‘Give us the money and leave us alone and we’ll do it for you.’  It really is, quite often, about them paying for what you deliver for them.”

In 2004, IBM launched its “Center for Business Optimization,” whereby IBM research scientists look at ways to solve clients’ business problems.  One of the company’s clients, BostonCoach, a transportation company in New England, saw its fleet utilization increase up to 20% after it began using IBM-scientist-created algorithms to help with dispatching and scheduling.  “It’s not just the outsourcing of services,” added Rahmani.  It’s the pieces that go around that as well—new business processes, software and so forth.”

Recently, IBM entered a deal with a major electronics company.  If you own one of their devices and it needs servicing, an IBM employee will fix it.  “It crossed our minds that if we can mend PCs, why wouldn’t we be able to mend appliances?  At the end of the day, the disciplines and the processes are exactly the same,” explains Rahmani.

Speaking of the business value space in general, Rahmani added, “As we all see this space emerging, I think we’re going to see some really different kinds of partnerships and cooperation and competition and partnering from anything we’ve seen in the past.” 

Rahmani predicts pricing models will change as well.  “What you’ll see us doing more and more is actually pricing things based on the value we deliver and literally sharing some of that risk with the client,” Rahmani says.  “Because at the end of the day, that’s where we ought to be; we ought to be partners with our clients.”

Until five or six years ago, the mindset of making numbers and worrying about weekly and monthly pipelines drove IBM to act incrementally rather than “to think big thoughts.”  To give the company room to do just that, IBM launched its Emerging Business Opportunities (EBO) program and sat down to clearly define the businesses it would operate.  Those included its core mainframe/hardware business, as well as growth businesses and the newly instituted emerging businesses. 

With its core business, IBM knew measurements like productivity, revenue, profit and share gain would remain appropriate.  When it came to growth businesses, the measurement tools would need to be different. “You’re going to give them a little flexibility in terms of profit; what you’re really looking for there is growth,” Rahmani says. 

With emerging businesses, hitting milestones is a better gauge of success.  “Let’s agree that in the first six months you’re going to truly understand the market, and then in another six months we’re going to have the first six pilots out there,” Rahmani explains.  “They’re almost like little venture capital-run businesses within IBM.” 

If successful, EBOs mature into growth businesses and continue along the pipeline until they settle in as standard businesses.  For example, IBM’s Healthcare and Life Sciences business, once an emerging business, has now become a multi-billion-dollar business in its own right for IBM.  (Rahmani notes that knowing when to cut an unsuccessful EBO loose is also critical.  “If it doesn’t work that’s fine, we can learn from it,” she says.)

How is IBM doing in terms of impacting the business value space?  According to a recent IDC/Gartner, Inc. market share survey, IBM leads most of the market share categories.

“It doesn’t matter how much you talk about integration; it doesn’t matter how much you talk about business value.  In the end, unless you have the best hardware and the best software to create the infrastructure behind it, and the best consultants, you’re not going to win anything,” Rahmani says. 

This shift towards business value means companies like IBM need employees with new skill sets.  “Skills that can link industry and IT are not very prevalent,” she told the audience.  The 2002 acquisition of the consulting and technology services unit of PricewaterhouseCoopers Consulting (PwCC) gave IBM instant access to 30,000 PwCC consultants and was a step towards addressing that issue.   

“These guys brought an incredible set of skills around truly understanding industries and the processes in those industries.  And they’re now influencing the way we think about the offerings we develop.  This is leading to the fusion of IT and business, which is what our customers need from us.”  

Can IBM transform itself into a growth company?  Wall Street isn’t sure yet, and Rahmani doesn’t blame them.  As she told the audience, “You can stand up there and pitch and present and talk, and no one cares.  What they want to see is solid quarter-after-quarter-after-quarter growth.  I don’t know any other way you convince someone you’re a growth company but to do it.”

In order to make that happen, Rahmani and her IBM cohorts are busy identifying new spaces where IBM’s IT offerings can not only be a differentiator, but where the company can position itself to lead the market.

Rahmani, who holds a doctorate in chemistry, began her career at IBM as a systems engineer and held various positions in sales, marketing and general management before moving into her current role as vice president for Corporate Strategy.