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HP SITAS: A Growing Focus on IT-Based Business Value

Sunday, May 15th, 2011

My March 20 blog, HP Hallelujah? , asked and gave a partial answer to the question of how Hewlett-Packard could diversify from its huge reliance on hardware by building more higher value-add, more solutions-based businesses without attempting to directly position itself against more established solutions-based competitors with whom it cannot directly compete.

That blog explained one approach, by which the company is attempting to tread a fine line between commitment and incrementalism, in expanding and solidifying its traditionally limited approach to providing comprehensive IT-based solutions to its customers’ business needs, in addition to their technology needs.

One of the four primary steps (see HP Hallelujah?) the company is taking to provide more industry-focused solutions is expanding the size and capabilities of its industry-based service offerings. While it is building most of these efforts around the company’s application and business process outsourcing services, the company’s infrastructure-based Technology Services group recently announced a new set of capabilities that promises to bring a new level of business relevance to the company’s IT consulting services.

SITAS as a Business-Based Front-End to HP’s Technology Services

These new services, which HP calls Strategic IT Advisory Services, or SITAS, add six new strategy-level services to the company’s already strong technology consulting services portfolio. The most important, and for HP, the most revolutionary of these services are:

  • IT Strategy and Transformation, which assesses a client’s IT environment in the context of the company’s business needs, recommends the type of environment that will best address these needs and crafts an IT strategy and associated transformation plan;
  • Strategic Service Management, which catalogues the services an IT organization must deliver to enable the company’s business strategy, identifies an appropriate funding model for each and crafts an organizational change strategy to facilitate the delivery of business value;
  • Business Value of IT, which delineates the business value of improved business processes, analyzes the risks of improving and not improving these processes and recommends a strategy to achieve these improvements;
  • Cloud Business Readiness, which evaluates the type of services that can be most effectively delivered as a shared cloud service, assesses the potential financial savings and works with CIOs to craft a business case for presenting opportunities to business executives; and
  • Mergers and Acquisitions, where it assesses the compatibility of a target company’s platforms, crafts migration and integration strategies, validates IT-related merger assumptions and calculates the impact on the financial value of the deal.

Delivering and Selling Business/IT Alignment Value

HP Technology Consulting recognizes the quantum difference between these business/IT alignment strategy services and the deep technology-focused services that the company has traditionally delivered. It also recognizes the synergies among these different offerings and presents them as part of a broad portfolio, with the strategy services effectively offered as a front-end to its more technology-focused offerings.

This being said, it also recognizes that not all clients need or want all of these services (or are ready to entrust HP with all their business/IT alignment consulting needs). It, therefore, offers these services separately, as well as integrated into a comprehensive engagement and allows clients to choose among many different entry points into its portfolio.

It also recognizes the need for a very different type of consultant to deliver these services. Therefore, it is recruiting “senior, partner-level” consultants from Big Four-class systems integrators, training them on HP methodologies and partnering them with senior HP architects and solutions engineers. Each of these consultants has deep domain expertise, extensive understanding of and years of experience in specific industries and the ability to work with C-level executives. It has also created a dedicated global sales force to sell consulting services to HP’s 1,800 largest, most strategic global customers.

I personally find HP‘s progress in moving toward more industry-aligned value propositions and business-aligned services to be particularly gratifying. First, I, along with a number of other analysts, have been urging the company to take such actions for the last decade. (See for example, my 2010 reports, HP Goes Vertical and Addressing HP’s Industry Solutions Talent Gap). True, it is taking the company much longer than many of us had wished to take such actions and some still believe it is far too little, too late. I, however, applaud these steps (although I wish HP had begun taking them years before) and even see value in its very gradual entry into the brave new world of IT-based business value. I anxiously await its next moves.

Posted in Hewlett-Packard, IT Industry Trends | No Responses »
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HP Hallelujah?

Sunday, March 20th, 2011

Hewlett-Packard is an infrastructure company. Always was and always with be. Its plan to retain this focus was emphasized in Leo Apotheker’s maiden public presentations on his objectives for the company. As emphasized and reemphasized over HP’s two-day recent Analyst Conference, its strategy consists of four objectives that are intended to provide a “seamless, secure, contemporaneous experience for a connected world. These are to:

  1. Optimize traditional environments;
  2. Build and manage cloud-based architectures;
  3. Enable seamless transformation to hybrid models; and
  4. Define and deliver the connected world, from the consumer to the enterprise.

On one hand, consistency is a virtue. HP recognizes its strengths and the danger of overreaching its capabilities and its franchise, as by presenting itself as a “business solutions company”—a positioning that a number of analysts, including myself, have long urged the company to aspire. HP, however, correctly understands that attempting to portray itself a business solutions company would create unrealistic expectations and invite customers to compare HP with competitors, like IBM and Accenture. This would, of course, be a losing proposition.

On the other hand, HP’s continued focus on infrastructure products and services presents some big risks. True, the rapid transformation from legacy, client/server and Internet-based IT environments to a Web-centric architecture will create big opportunities for trusted infrastructure providers who can help clients make the migration to tomorrow’s public, private and especially hybrid cloud-based environments. This focus, however, also presents a number of big risks. For example:

  • The continuation of Moore’s Law, combined with trends toward resource virtualization and the use of public, on-demand cloud environments will reduce result in the sharing of resources across applications and companies;
  • Purchases will be increasingly consolidated among fewer companies (especially huge service providers) who will qualify for bigger quantity discounts and enjoy great bargaining power (HP, for example, claims that the largest of these customers already purchase more servers than the entire country of Brazil!);
  • The growing commoditization of hardware (as with the proliferation of standards-based architectures), the emergence of strong off-shore competitors (such as Lenovo and Huawei) and the rapid growth of offshore IT services (due to emerging countries move into higher value services) will further intensify margin pressures.

What then is HP to do? How can it effectively navigate between the two broad risks of positioning itself against companies with whom it cannot directly compete and of becoming too dependent on a slower growth, declining margin infrastructure business? By proceeding very carefully

Toward an Industry Solutions Commitment

HP must tread a fine line between commitment and incrementalism. That’s where the “Hallelujah” comes in. After 30 years of following HP, I am, for the first time, beginning to develop confidence in the company’s subtle, still unspoken recognition of these risks and a broad—again unspoken—recognition of the need to address them by providing more comprehensive solutions to its customers’ business needs, in addition to their technology needs.

There are several examples of this recognition and, much more importantly, the company’s efforts to play more strategic, business-focused roles in addressing the needs of the company’s 1,800 global accounts with which the company has the deepest and most extensive direct relations. These include growing focuses on:

  • Formal organizational and P&L ownership of HP’s industry IP. While vertical efforts never had a formal home in HP’s horizontally-aligned business groups, HP has designated its Enterprise Services group (under Senior Vice President Sean Kenny) as the home for five of HP’s Industry-specific solutions and delivery efforts around which the company owns particularly deep application-level intellectual property (IP);
  • Industry-based sales. All client teams for HP’s 1,800 largest accounts are now led by industry veterans and staffed by representatives who are being specifically trained (at HP’s new Sales University) and compensated to engage in consultative discussions around customers’ unique industry and business needs and the sales of comprehensive, pan-HP solutions;
  • Industry-specific intellectual property. HP is making big new investments in enhancing and marketing IP-based solutions (such as its Agilaire airline passenger management solutions), adapting public sector solutions (like its defense command, logistics and smart card solutions) for use in commercial markets and extending geography-specific solutions (like its U.S.-centric MetaVance solutions) for use in other countries. Even IPG (Imaging and Printing Group) is going vertical, with its Open Extensibility Platform having attracted partners with more than 80 industry-specific solutions. HP Labs, meanwhile, is now working on some industry-focused applications of technologies including CeNSE (Central Nervous System for the Earth), as in its work with Royal Dutch Shell and probably, in the future, around smart, sensor-based buildings and public infrastructures; and
  • Industry-aligned services. BPO and application services (as opposed, say to ITO and Technology Consulting) have a particular need for industry-based expertise. The vast majority of BPO sales and project team members have particular industry focuses and Application Services teams are expected to be close to 100% industry-trained by year-end. While neither teams plan to create business consulting practices, both are actively hiring Business Analysts with deep knowledge of industry-specific business processes. Even the company’s traditionally horizontally-focused Technology Consulting organization now leads the company’s work in industry segments such as digital hospital.

That explains the “Hallelujah”, but what about the “?”

Ongoing Challenges

Although HP certainly appears to be making progress in upgrading its value proposition to provide higher-value-add and more industry-aligned services, HP has sung this song before. While remnants of previous industry focuses remain, few have resulted in significant IP, achieved critical mass or maintained strong corporate commitment.

One of the reasons for this is that HP is organized strictly as a horizontal organization. All P&Ls are organized by product line and the sales organization, until recently, has been overwhelmingly horizontal. While EDS used to have deep industry capabilities (sales, consulting and IP), much of this was lost during the 1990s, when EDS did not have the resources required to invest in them.

Even so, important remnants of HP’s industry focuses remain (as in communications, media and entertainment; financial services; and electronics manufacturing). EDS brought more (especially in Medicare, but also in areas including transportation, defense and insurance). HP has since consolidated five of these its industry efforts in which it owns particular application and business process assets [healthcare, financial services, transportation, CME (communications, media and entertainment) and public sector] under the company’s Enterprise Services group (in which the former EDS business is housed). Other, less IP-intensive, less services-led industry initiatives (including electronics, automotive, aerospace and retail/consumer goods) remain under product-based Enterprise Business groups.

Although HP had already been building an industry-aligned sales force for its largest accounts (see my May 16, 2010 and May 23, 2010 blogs and associated report), the EDS acquisition provided HP with sufficient depth and scale of industry capabilities to justify assigning a specific group (HP Enterprise Service) and executive (Kenny) responsibility for managing most of the company’s industry-specific consulting, delivery and IP development and maintenance activities. These industry capabilities are complemented by broad industry skills across HP’s Global and Corporate Account sales teams.

Giving these industry initiatives a specific home in the HP organization is certainly an important step in creating a sustained corporate commitment to industry solutions business. HP’s hiring of Leo Apotheker as CEO is another. While he does not have direct experience in running a hardware company, his previous career at SAP has certainly given him a deep appreciation of the value of deep industry skills, unique IP and industry-based go-to-market activities in creating a strong value proposition.

Creating a specific home for and providing executive sponsors for these industry initiatives is certainly a good start. But, if this commitment is truly to be sustained, these efforts must begin to pay off—as by generating significant revenue growth and margin—within two to three years. If not, executive commitment, not to speak of financial support, will wane.

IF HP does see success in these industry efforts, it will certainly expand them. This expansion will occur in two stages:

  1. Stage 1: Deeper and more comprehensive offerings in current industries; and eventually,
  2. Stage 2: Expansion into additional industries (including some of those currently under other parts of the HP organization), as Enterprise Services demonstrates success in current markets and as customers request additional HP offerings.

This being said, one cannot expect too large or too vocal of a commitment to industry solutions. Regardless of how successful HP’s new forays prove to be, HP must and will continue to be focused and organized around horizontals. After all, the vast majority of HP’s revenue will always come from horizontal markets, success in which requires huge scale and very tight financial management. Just as importantly,

HP’s long-term success in these markets will, therefore, depend on a gradual, focused entry into verticals, a long-term commitment to nurturing and funding this business and a champion with the power required to protect it from HP’s overwhelmingly horizontal corporate culture.

Posted in Hewlett-Packard, IT Industry Trends, IT/Business Consulting/Outsourcing, Vertical Strategies | No Responses »
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Elementary, My Dear Watson?

Sunday, February 20th, 2011

Don’t get me wrong. There was absolutely nothing elementary in IBM’s phenomenal work on Watson. The public debut of the machine (actually the real “magic” was in the software, rather than the hardware), was a triumph in a world that had been claiming, as far back as the 1980s, that “artificial intelligence” was just around the corner.

Still, there is indeed something about Watson that is clearly elementary: something that should give us great hope for the future—both Watson’s and ours.

The “Jeopardy Challenge” , in which IBM’s “Watson” computer handily defeated the two highest winning players in Jeopardy history, was only the latest in a series of Grand Challenges, in which IBM pushed the envelope of computer science to perform tasks that were previously considered beyond the realm of computers—the use of IBM’s Deep Blue in beating the world chess champion, Blue Gene’s role in decoding the human genome and even IBM’s role in enabling the U.S. the land a man on the moon.

Watson, however, went an order of magnitude beyond these previous triumphs of computer power. While the computer’s encyclopedic database and computational power certainly enabled its success, these capabilities were already available on off-the-shelf IBM hardware (2,800 cores and 15 TB of memory in 90 of its Power 750 servers and 20 TB of disk storage linked in a cluster).

Its real accomplishment was in its ability to interpret not just natural language, but the types of puns, metaphors and idioms that have come to characterize Jeopardy. This was enabled by a combination of off-the-shelf hardware and especially the secret sauce embedded in the Jeopardy-specific algorithms over which IBM researchers wrote, tested and tweaked over the last three years. And don’t forget the confidence rating and wagering algorithms which, while resulting in numbers that may have sounded strange to humans, were based on calculates of the odds for all types of contingencies.

Will the Real Watson Please Stand Up

Watson was certainly not perfect in its victory. In the first night’s contest, Watson modestly bested the score of one of its human competitors, and only tied that of the other. Night two, in the first round of Double Jeopardy, things got downright scary, with Watson being the first to buzz for, and correctly answer 24 of the 30 total questions. Watching the frustration of the helpless humans, one could be forgiven for thinking of 2001: A Space Odyssey’s HAL.

Then, with its blunder on its first round Final Jeopardy (Did Toronto recently secede from Canada and join the U.S.?) and its “merely human-level” performance (although it did reach a number of correct answers, but not in time to beat the other contestants) in round two, I got really scared. I began asking myself whether Watson consciously “backed off”, avoiding running up the score, either out of empathy for its flailing competitors, or out of fear that a machine that so dominated humans would be feared and shunned by society. While Watson did end up winning the three-night competition, the ultimate outcome wasn’t really determined until the last Daily Double, and the wager (that ensured it could not loose) that it made on the last Final Jeopardy question.

Why did I find this so frightening? Because I, who have been in the IT industry for more than 30 years, actually began to attribute human feelings to a hunk of silicon!

It is Indeed, Elementary

But I digress. As I discussed above, there was absolutely nothing in IBM or Watson’s Jeopardy performance that was “elementary.” It was, by any account, a stellar achievement.

So, what was so elementary about Watson’s triumph? The comparison of its success in winning a television game show, to:

  • The enormous challenges that civilization faces (and, not coincidentally, that IBM is attempting to address with its Smarter Planet initiatives); and
  • The contributions that Watson technology and learnings have the potential of making to addressing these challenges.

First, let’s recognize—Watson is a room size machine, residing in a specially designed and extensively cooled data center and that even its off-the-shelf components (without even accounting for the cost of developing the algorithms that were so fundamental to its success) cost hundreds of thousands of dollars. But, as Computer Intelligence guru Ray Kurzweil explained in his February 17 Wall Street Journal editorial, at the current rate of computer price-performance advances, Watson’s power is likely to fit within single server in about seven years and within a PC in a decade.

Just as importantly, a “real-life” system would not have to contain the sum total of world knowledge. These systems will be:

  • Tailored to the needs of a specific discipline (such as medicine or finance) or the needs of a specific company;
  • Will have access to the Internet, third-party search tools and external databases, rather than having to operate as a self-contained unit; and
  • Will not be required to devise answers that meet its minimum confidence levels within the three seconds that are required for Jeopardy.

Watson-like capabilities, will, in other words, be available to the public (or at least some segments of the public) within the next couple years. Meanwhile, IBM has already partnered with Nuance Communications to bring speech recognition capabilities to Watson (initially, specifically for healthcare).

Watson’s Next Careers

After Watson’s first (albeit brief) stint as a television star, it is ready to explore more “mundane” careers. But what are these careers likely to be?

While the Star Trek computer was a model for at least some of IBM’s researchers, most of Watson’s opportunities will be much more down-to-earth. Many are based on the coupling of Watson’s “Deep Question Answering” technology and deep analytics in decision support applications. Possibilities—or indeed, probabilities—may include:

  • Customer Service, which could improve service time and quality while simultaneously disrupting a business model in which so many call center jobs have moved to low-cost countries;
  • Financial Analysis, such as in the combing of huge quantities of structured data and unstructured information to identify likely acquisition targets;
  • Travel, such as in a new-generation navigation system in which drivers can ask for best ways of avoiding traffic, or more interestingly, to suggesting routes from X to Y that take one past attractions that best meet your profile, such as museums, restaurants or wineries that make 90+ point wines; and
  • C-suite assistant, to identify and assess business trends, evaluate a broad range of contingencies or running what-if analyses, such as the impact different product and advertising mixes may have on revenue and profitability.

This leads to what is probably the most important and imminent of applications for Watson Technology—its use in health care. Although the potential applications are numerous, the first and highest-impact application is likely to be in diagnostics, such as where a doctor can input lists of symptoms, medical histories, and a broad range of other relevant information to identify possible illnesses.

Better yet, it could be used to review individual electronic medical records to identify symptoms that a doctor may miss or large volumes of electronic records to identify linkages that have not previously been discovered. Longer term, it could even be used to bring first-line diagnostics to remote, emerging country villages that do not have access to doctors, such as by allowing nurses or technologists to input systems into a computer, to a remote Watson-based diagnostic system.

Many potential applications, as in health care or engineering, could face big legal questions. What if Watson made a mistake in diagnosing an illness or in calculating tolerances for a bridge? Or what if Watson correctly suggested an option, which was dismissed by the doctor or engineer? Or have we taken the first step into the science fiction era, where computers may obviate the need for humans in even some of the most demanding of professions?

While the answers to such questions will have to wait, the application of Watson technology to these challenges will not. The day after Watson’s Jeopardy victory, Columbia University Medical Center and the University of Maryland Medical School announced a plan to work with IBM on health care analytics research, with a goal of launching a commercial diagnostic and treatment offering over the next 18-24 months.

We will have to wait to see whether Watson will be as successful in its future careers as it was in its first. My guess, however, is that Watson’s descendants will have as great an impact on society, business and the nature of knowledge work, as the Internet.

Posted in IBM, Innovation/Entrepeneur, Job and Career Opportunities, Technology's Impact on Job Skills | No Responses »
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Shared Value Creation: The Next Evolution of Corporate Social Responsibility and of Capitalism

Sunday, February 6th, 2011

Corporate social responsibility (CSR) and corporate philanthropy (CP) used to be managed separately from the business. They consisted largely of cash contributions that companies viewed, at best, as an effort to give back to the communities in which they operated and their employees lived. At worst, they were seen as a subtle form as extortion that companies had to pay to appease and demonstrate their “commitments” to their communities.

This is changing. A growing number of companies now recognize that:

  • CSR and CP initiatives can deliver big business benefits to their organizations; and that
  • They can often deliver much greater value to society by contributing technology and expertise than they can by contributing just money.

Many companies, for example, now recognize that reputations for social responsibility can burnish the company’s brand, attract new customers, aid in recruiting employees and improve employee commitment to the organization. Some even claim that their CSR and CP activities have increased their share prices by attracting incremental new investments from the growing number of Social Investment Funds.

This, however, is only the tip of a value proposition that can go much deeper—a value proposition that can directly help the corporation enter new markets, improve economies in existing markets and create totally new business opportunities. In fact, Michael Porter and Mark Kramer, in their January 2011 Harvard Business Review article, argue that companies must recast narrowly defined CSR and CP programs around a proposition for creating shared value—an approach designed to deliver as much value to the company as to society. They insist that a structured approach to Shared Value Creation (the latest non-intuitive buzzword for efforts intended to deliver both business and societal value) can, for example, yield:

  • Big cost savings, as in the $250 million savings (a $2.71 return on every dollar it spent on these programs from 2002 through 2008) that Johnson & Johnson attributed to its employee wellness programs (not to speak of demonstrated improvements in employee attendance and productivity);
  • Big revenue gains, as in the $18 billion that General Electric derived from the sale of Ecomagination products in 2009, a category of offerings that is expected to grow at twice the rate of total company revenues over the next five years (an issue that I will discussed in my February 20th blog on GE’s Smart Grid strategy); and
  • Big improvements to employee leadership development and retention, as with IBM’s Corporate Service Corps (as I examined in my January 23 blog and accompanying report), which deploys teams of high-potential employees on 30-day projects to help emerging countries address some of their most pressing societal needs.

Porter and Kramer, in fact, go further, much further. Not only do they view Shared Value Creation as the next evolution of CSR and CP, they also view it as the next evolution of capitalism—a more sophisticated form of capitalism that “arises not out of charity but of a deeper understanding of competition and economic value creation.” It is a form of “self-interested behavior” that creates economic value to the company, by the very process of creating societal value. A form of behavior that will also help mend badly frayed corporate and capitalist reputations and facilitate a more productive relationship between business and governments.

This “Harvard School” view of Shared Value Creation appears diametrically opposed to the “Chicago School” view in which Milton Friedman famously equated the spending of shareholders’ money for any purpose other than to advance the interests of the business as a form of “theft.”

Perhaps, however, these views are not as philosophically opposed as they may appear. After all, even Friedman was not opposed to all corporate giving. He admitted that corporate philanthropy could be justified if it served a business objective, such as increasing customer loyalty, improving employee teamwork and motivation or strengthening the marketing of a company’s brand.

But whichever side of the supposed philosophical divide on which one may fall, the issue is becoming increasingly moot. A rapidly growing number of very large, and very influential corporations (including virtually all of the largest technology companies) have instituted large CSR and CP programs and most have conceived and are managing these programs in way that is intended to create shared value. And this does not include the hundreds of small companies that have built their entire business models around addressing societal needs or the growing number of social entrepreneurs who are creating hybrid organizations that blur the line between for-profit and non-profit organizations.

In other words, regardless of whether you consider social value creation to be a new generation of capitalism, or just a new generation of corporate social responsibility, one thing is clear. More and more companies—and especially technology companies—are becoming convinced that they can, do quote another well-known economic philosopher, Benjamin Franklin, “do well by doing good.”

Posted in Corporate Social Responsibility, IT Industry Role in Education | No Responses »
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IBM Corporate Service Corps: Integrating Business Objectives and CSR

Sunday, January 23rd, 2011

This is a summary of my January 2011 report “IBM Corporate Service Corps: Integrating Business Objectives and CSR”. For more information on this report or to purchase it for $995, click here.

IBM has one of the strongest talent development programs and one of the strongest corporate social responsibility (CSR) programs in the technology industry. What do you get when you combine them? IBM’s Corporate Service Corps (CSC)—a great example of how companies can do well by doing good (see my May 2010 report for a view of another IBM initiative, this one or integrating its university CSR and internal talent development initiatives.)

IBM’s Corporate Service Corps is a leadership development program, inspired by the U.S. Peace Corps. It is intended to put IBM’s most valuable resource—its people—in places that can most benefit from their expertise, and provide these employees with experiences from which they can gain broad leadership and cross-cultural experience. It provides select, high-potential employees with intense experience in working with global teams on short-duration, high-intensity projects in emerging countries. It is also a big expansion of IBM’s CSR efforts that turns social volunteerism into a life learning experience.

CSC Objectives

The program, which was launched in 2008, deploys small, 8-12-person multi-disciplinary teams to provide pro bono consulting—helping emerging country government, nonprofit and non-governmental organizations develop specific plans for addressing some of their most pressing societal needs. These can range from upgrading a government agency’s IT environment and processes, to developing a supply-chain management process for getting agricultural products to market, to improving the quality of a community’s public water supply. While each project is different, each is intended to result in practical blueprints for solving problems that are limiting a country or a community’s growth and their peoples’ ability to contribute to that growth.

Although CSC is absolutely intended to deliver broad societal benefits to emerging countries, it is first and foremost a corporate leadership development program. Its goal, however, is not so much to teach specific business skills as it is to instill the qualities individuals require to become leaders in a globally integrated business. Participants are given deep, intensive exposure to emerging markets and diverse cultures and experience in forming and working in multi-cultural, multi-disciplinary teams. They are expected to return with improved cultural literacy, better appreciation for the strengths and limitations of different cultures and work styles, and especially greater adaptability and global teaming skills.

Although the program entails a lot of additional work (30-day in-country assignments plus extensive preparation and post-return requirements) in addition to the employee’s day job, participation is seen as both a privilege and a reward. It is a validation of one’s accomplishments in the company and as a steppingstone to advancement within the company. This makes the program extremely popular and selective—attracting about 10,000 applicants for the first 400 positions.

CSC Results

Although there is certainly plenty of anecdotal evidence to validate the program. IBM, being IBM, requires more formal evidence that its goals are being met. Harvard Business School assistant professor Christopher Marquis designed and conducted a formal survey of participants and recipients and evaluated the results as part of a case study on the program. His findings: CSC is “effective and executing on its goals and mission” (of providing a unique—and highly scalable and cost-effective—leadership development experience, societal benefits to emerging countries and improving employee’s perception of and commitment to IBM). IBM claims the program also delivers some additional side benefits, as in improving IBM’s brand in new and emerging markets and even in creating some new sales opportunities for the company.

In some ways, there is little that is really new in CSC. It combines two relatively common corporate practices—the use of overseas postings as an executive development tool, and encouraging and funding employees to perform volunteer work. The big difference is that IBM has integrated them into a fundamentally new form that delivers these experiences to far more executive candidates than would be previously possible, and does it in a cost-effective way that delivers additional benefits to the company.

CSC Futures

IBM will absolutely continue, and modestly extend the program. Its ultimate value, however, is likely to transcend IBM. Some of IBM’s customers, including Novartis, Federal Express and Dow Corning are already learning from and have begun to implement similar programs. Meanwhile, the U.S. Agency for International Development (USAID) recently signed a Memorandum of Understanding with IBM to create the Alliance for International Corporate Volunteerism (ICV). The alliance will expand upon the CSC model to facilitate participation by many other companies and create corporate responsibility networks that integrate activities of corporations, governments, international organizations, foundations and other participants. USAID will also serve as a delivery coordinator for some of these projects, thereby increasing the chances that CSC’s consulting recommendations will deliver their intended value.

Posted in Corporate Social Responsibility, IBM, IT Industry Role in Education, IT Industry Trends, Skills Requirements, Workforce Trends | No Responses »
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Partnering Strategies for a Smarter Planet: Developing Win-Win Partnerships with IBM

Sunday, January 9th, 2011

This is a summary of my new January 2011 report “Partnering Strategies for a Smarter Planet: Developing Win-Win Partnerships with IBM”. For more information on this report or to purchase it for $995, click here.

IBM’s Smarter Planet initiative is the foundation of what, if successful, may represent one of the most fundamental corporate transformations of all time—transforming IBM from a provider of IT solutions into an architect of solutions to some of the world’s biggest, most pressing needs.

IBM intends for its application of IT tools to real-world “where digital meets physical” needs to enable it to leverage its strong position in the maturing, “relatively small” IT market into an entirely new role—that of being the primary digital enabler (and, in some cases, the centerpiece) of solutions for dozens of other much bigger markets, from healthcare to energy and transportation to government. The company’s contributions to solutions to some of the world’s most pressing problems could also provide very nice side benefits, including enhancing the company’s already strong brand image.

The benefits of IBM’s Smarter Planet focus, however, are likely to transcend society and the IBM Corporation—they are also likely to benefit a number of IBM’s partners. Maximizing these benefits, however, can require some careful balancing.

Smarter Planet Ecosystem Benefits

IBM bases its entire Smarter Planet vision on an obvious (at least to those of us in the IT industry) proposition—traditional real-world infrastructures and processes can be made much more effective and efficient by making them more:

  • Instrumented, as through the use of sensors;
  • Interconnected, as by the Internet; and
  • Intelligent, through the use of analytics.

Since all these of these capabilities are already available, IBM and its partners have opportunities to begin providing real value around them today. And since all of these capabilities will be ubiquitous in the future, these markets will grow rapidly into huge opportunities. Companies that develop, tune and develop proof points around their current offerings have the potential of establishing themselves as leaders in these markets of the future. And, oh yes, their solutions also have the potential of providing big societal benefits in the normal course of doing business.

But how can companies achieve the market traction required to establish themselves in such new markets? Individual ISVs typically lack the visibility and the scale; large physical market vendors (like Eaton and General Electric) have little experience with sensors, Internet enablement or analytics; and IT system vendors (including IBM) lack the experience, not to speak of the brand permission and customer relationships, required to build smart buildings and power grids.

The solution, of course, is to build an ecosystem that seamlessly integrates the products, expertise and brands of thousands of complementary companies into compelling solutions to pressing needs. And while a number of vendors are building their own ecosystems around specific classes of solutions today, IBM’s Smarter Planet is, by far, the broadest (encompassing 25 different initiatives), the biggest (consisting of thousands of partners) and the most highly visible (with 35-40% customer recognition).

Dancing with Elephants

While IBM is building both standards and go-to-market ecosystems around each of its 25 Smarter Planet initiatives, those for Smarter Buildings and Cities are currently the most developed, followed by those around Energy and Sustainability. But even within these, IBM’s own offerings, much less its brand and customer relationships are limited. This leaves plenty of white space for partners.

Consider, for example, Smarter Buildings. While all partners must, at a minimum, provide products and services that contribute to an end-to-end solution, IBM particularly values partners that can deliver additional capabilities. Partners like Honeywell, Schneider and Eaton, for example, have established relationships with real estate developers and construction companies and can provide IBM (and other ecosystem partners) with the brand permission and deep customer relationships required to play in areas like smart building design and operations. They also have deep expertise in areas such as HVAC and lighting and may often offer performance-based energy contracts (which IBM does not). IBM not only encourages, but depends on such partners to take the lead in many accounts.

IBM, in turn, also provides considerable value to these companies. First, as mentioned, the Smarter Planet brand provides considerable market recognition and an established base of partners. IBM, of course, is also more likely to have IT and C-level contacts among companies looking to build new buildings and retrofit older buildings and can bring partners into Smart Data Center contracts. It has the IT skills required to integrate all building systems into a seamless network, the digital dashboards required to monitor and manage them and the analytics software to optimize performance and anticipate and prevent disruptions. Just as importantly, it has a huge, established ISV program with well defined processes and a library of Industry Frameworks that greatly reduce ISV’s work in building applications.

IBM certainly provides partners with new opportunities to expand into new and vastly larger markets than most could hope to enter alone or with their own smaller ecosystems. Meanwhile, its extensive technical and market development assistance programs can proactively help its partners capitalize on these opportunities.

But while all participants can value from participation in Smarter Planet ecosystems, such relationships are not without friction. There are risks to dancing with IBM, as there are with any giant. Although the company has relatively few products that compete directly with those of its ecosystem partners, IBM has huge technical, consulting and outsourcing services organizations and it values account control at least as much as any other company.

Partners, therefore, must tread carefully. On one hand, in order to gain the greatest value from the relationship, they must understand the types of value they can provide that will make them most valuable to IBM at different stages of the market and of specific customer engagements. On the other hand, they must simultaneously ensure that their brand, their value adds and their customer relationships are not subsumed by or eventually subjugated to those of IBM.

The bad news is that uncertainly and jockeying for position is inherent in all new markets. Maneuvering is always difficult and sometimes imposes great stress in the relationship. The good news is that as markets grow (and those for Smarter Planet solutions inevitably will) relative roles always seem to sort out, go-to-market relationships are solidified and coordination processes are formalized. Partners will increasingly recognize and agree on when and how they can work together, and when they will not. These relationships have become so common in the IT industry that a word has been coined to describe them. The word is “coopetition.”

Posted in Business Trends, Corporate Social Responsibility, IBM, IT Industry Trends, Smart Infrastructure, Societal Forces, Technology's Impact on Job Skills | No Responses »
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Accenture Contributes Its Professional Development Skills to Non-Employees

Sunday, October 3rd, 2010

Accenture has always considered professional development to be one of its core competencies. It recruits tens of thousands of new employees each year, puts them through intense training programs and follows up with ongoing, career-spanning, personalized professional development and mentoring regimes. In 2009 alone, it dedicated nearly $800 million to these efforts.

The company is now extending its commitment to and skills in training and professional development beyond the walls of its own company to thousands of people—250,000 by 2015 to be exact—who do not, and probably never will work for Accenture. Its newly announced Skills to Succeed initiative is intended to help disadvantaged people from all around the world to develop the skills they will require to get good jobs or to start and build their own businesses (and thereby create jobs for themselves and others).

Accenture, both itself and through its foundations, is funding this initiative through a commitment of more than $100 million in cash, in-kind donations and employee time, over a three-year period. It considers this effort to be so important that it has developed a global operating model to align all aspects of the company and foundations’ corporate citizenship efforts around Skills to Succeed. In fact, it has established a goal that 80% of all the company’s corporate citizenship activities will be aligned around this initiative by the end of 2010.

However, while Accenture itself manages and delivers training to its own employees, Skills to Succeed training will be delivered almost exclusively through independent non-profit partners that have proven skills in and share Accenture’s commitment to skills training, and that can “drive change and achieve scale” across multiple countries and continents.

Building the Skills to Succeed Initiative

Accenture launched the first stages of this program in mid-2009, with a $48.3 million contribution—primarily of in-kind skills (such as consulting, hardware, software and office space), secondarily cash and, to a small extent, pro bono contributions of employees’ time (as in teaching, mentoring and so forth). It aligned its efforts around three primary objectives:

  • Employment Building, which is the initiative’s primary focus and is intended to train and prepare disadvantaged people for secure jobs that pay well above local average salaries. It begins by providing training in skills required for these jobs to employment-ready individuals (generally, from high-school juniors and community college students to unemployed workers who are looking to be retrained for new jobs and industries). While much of this training focuses on IT skills (an area in which many NGOs have current programs and skills), Accenture plans to address many types of skills that are “at the intersection of business and technology”. These may include IT operations, programming, engineering drafting and accounting/finance. The program also helps prepare these trainees for actual jobs (such as by placing them in part-time jobs or internships while they are still in school) and actually capture new jobs (as by helping them develop resumes, plan job-search campaigns and secure and prepare for interviews).
  • Business Building, which is intended to help entrepreneurs create new employment opportunities such as by helping them strengthen their leadership skills, develop business plans and strengthen capabilities including financial operations, hiring and customer service; and
  • Market Building, in which Accenture helps governments, NGOs and companies build access to markets where current market infrastructures are not sufficient. Examples include a partnership with the U.S. Agency for International Development to improve rural farmers’ access to information on agricultural and marketing practices.

One of the first and largest efforts was in Brazil, where Accenture partnered with two local agencies (Rede Cidada and the Committee for the Democratization of Information) to establish Conexão (the local membership organization of Youth Business International), which provides free technology training to unemployed people and free consulting to small, promising entrepreneurs. The program was a huge success, training 13,500 young people (3,500 of whom have already been hired) and supporting 124 entrepreneurs.

This success led to more than 80 additional programs so far, with more than 15 NGO partners in both developed and developing countries. Examples include:

  • United States, where Accenture is working with Genesys Works to train inner-city high school students in skills including IT, engineering drafting and accounting and is placing them in part-time jobs during their senior years. Accenture executives also teach business preparedness skills to students in community colleges;
  • United Kingdom, with Youth Business International, to help disadvantaged young people find and get appropriate educations or occupational training and mentor them on skills required to become successful entrepreneurs;
  • India, with the Dr. Reddy’s Foundation, to train disadvantaged young people in business process outsourcing and technology skills;
  • Philippines and Cambodia, partnering with Passerelles Numériques to help underprivileged students build the skills they need to obtain IT jobs; and
  • Several countries in Africa, where it is working with Enablis to build the skills of young entrepreneurs.

Accenture’s Objectives and Methods

The concept for Skills to Succeed was born about 18 months ago during a full-scale assessment of the company’s corporate philanthropy efforts. It was looking for a single unifying effort that addressed a critical, global societal need; that reflected the company’s values, culture and character; and in which Accenture had skills that would enable it to contribute unique skills and expertise, in addition to money.

Its initial efforts in partnering and launching the program, combined with the successes it achieved and the lessons it learned, validated its commitment to the initiative and prompted it to set an ambitious goal—that of training and preparing 250,000 disadvantaged people (anyone from high school juniors to older people who need retraining for or who hope to create their own sustainable, well-paying jobs). Although Accenture is open to all types of NGO partnerships and skills training programs, it assesses each opportunity in terms of its ability to:

  1. Cost-efficiently achieve significant, sustainable, demonstrable and measurable results;
  2. Harness the energies of Accenture and the enthusiasm of its people; and
  3. Be scaled to train large numbers of people and leveraged across multiple states and countries.

But while Accenture is open to examining many different types of programs and partnerships, one thing is not negotiable—its objective. Accenture and its executive committee are fully committed to Skills to Succeed. The company is wrapping virtually all of its corporate philanthropy programs and contributions into this program and is committing all levels of Accenture employees to actively contribute to these efforts. It is also beginning to engage customers and partners in this program, as by working with them to place interns and program graduates.

But for all of Accenture’s commitments and efforts, the company understands that that achieving its 250,000-person objective within five years is a big challenge. It is committed to investing $100 million or more of its resources and the capabilities of its people to the program and is rapidly scaling its efforts. It has, for example, already added 80 new initiatives and is actively evaluating others. The means of accomplishing its goals are flexible. The objective, of preparing a quarter of a million people for rewarding jobs, is not.

Posted in 21st Century Careers, Accenture, Community/Other Colleges, Corporate Social Responsibility, Education System and Institutions, IT Company Strategies, IT Industry and Companies, IT Industry Role in Education, IT Industry's Role, Skills Requirements, STEM Careers | 2 Responses »
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Funding the Community College Solution

Sunday, September 19th, 2010

Okay, perhaps use of the term “Solution” is a vast exaggeration. But two things are clear. First, as described in my August 8 blog, The Community College Contribution, community colleges play a vital, probably irreplaceable role in our society and our communities. They give millions of people, particularly lower-income minorities and immigrants, unprecedented opportunities to climb the socio-economic ladder and provide many of the office workers required to man administrative and supervisory ranks, the health-care workers required to ensure broad and economical delivery and the manufacturing workers needed to manage today’s computer-controlled processes.

Second, as I discussed in my August 22 blog, The Community College Crisis, this system is in a state of crisis. Many of these challenges are attributable to the tremendous expectations we have of the system and burdens we place on it to address the limitations of the country’s secondary education system. These pressures are being exacerbated by the Great Recession and especially by the huge cutbacks in government funding of these schools.

The county, as President Obama explained in July 2009, has no choice. The community college has suffered through “decades of federal neglect” where “community colleges are treated like an afterthought—if they’re thought of at all.” We MUST find a way of addressing these challenges—and of paying for them.

Better Colleges Require More Money

The bad news is that nobody really knows how to fix our community college system. The good news is, there is no shortage of ideas. Recommendations as to how to address these challenges and help community colleges deliver on their true potential come from a range of sources and cover virtually every aspect of these institutions’ missions.

Some, such as the American Association of Community Colleges and especially the Community College Research Center, focus exclusively on and provide detailed research on all aspects of the colleges’ missions. Others, including the American Enterprise Institute, the Brookings Institution and the Kaufman Foundation address a broad range of policy-based issues, but each have designated education research focuses.

These, along with a wide range of other research organizations, universities, government bodies and NGOs have published numerous studies with specific recommendations for helping community colleges improve governance and better address one or more of their five core missions:

  1. Transfer Education, to educate students who plan to transfer to a four-year institution to pursue a BS/BA degree;
  2. Career Education, to prepare Associate Degree graduates to directly enter the workforce;
  3. Developmental Education, to provide remedial education for high school graduates who are not academically ready to enroll in college-level courses;
  4. Industry Training, which is contracted for by companies to provide training for specific jobs; and, to a lesser extent
  5. Continuing Education, which typically consists of non-credit courses for personal development and interest.

Although recommendations differ for each of these areas, there tend to be common treads across virtually all. Many recommendations, for example, entail some combination of:

  • Better and more systematically integrating academic and technical curricula in conjunction with apprenticeship programs that provide real world experience (as pioneered by so-called “career academies”;
  • Increasing and improving counseling programs to improve career planning and help students select courses that are most appropriate for their goals. (This, however, assumes that classes are available, which is becoming increasingly rare.)
  • Greatly expanding the use of IT tools to improve pedagogy and learning outcomes, engage students through multimedia and educational games, facilitate distance learning and give students much greater flexibility in when and where they learn;
  • Creating specific goals and success metrics and continually measuring progress toward achieving these goals; and
  • Increasing funding and increasingly allocating these funds on the basis of success in achieving and making progress toward defined, measurable objectives.

Money is becoming increasingly problematic. As discussed in my last blog, The Community College Crisis, state and local governments—which typically account for about 60% of community college funding—are slashing public school funding and contributions (which account for less than 5%) are also generally falling. This leaves three funding sources.

  1. Tuition. While rising, tuition account for only 20% of school budgets. Moreover, increases are constrained by the need to keep community colleges accessible to lower income students;
  2. Business funding of specialized courses. Given that business contracts currently account for less than 10% of community college revenues, it will be difficult to grow contracts fast enough to make a meaningful dent in funding shortfalls. Even so, private sector partnerships can yield an additional, even greater benefit, as by allowing colleges to continually track emerging business needs and adapt their programs to ahead of these needs; and
  3. The federal government. The federal government currently accounts for only 10% of community college funding and provides  less money per student than it gives to public four-year schools and in some cases, even for-profit colleges. Surprisingly, however, the feds are stepping up to the plate.

With a Little Help from Government Friends

There is no question that the federal government has short-changed the nation’s community colleges over the last several decades. For example, it allocates only 10% of its total post-secondary education funding budget to community colleges. This is despite the fact that these schools enroll 35% of all post-secondary students. Moreover, since many of these funds are based primarily on enrollment, without regard to whether their students earn degrees or get good jobs, this funding often skews community colleges’ incentives toward inputs and processes, rather than outcomes, like student success. A February 2009 Brookings study called on the federal government to address these deficiencies by instituting four primary reforms:

  1. Institute a new focus on national goals guided by an accountability system that tracks and reports outcomes, such as completion of a minimum number of credits, earning a degree, and landing a good-paying job;
  2. Double federal funding from $6 billion to $12 billion (from about 20% to 30% of their total budgets) to help community colleges achieve these goals and fund much needed upgrades to their infrastructure, technology, and faculties.
  3. Reformulate the basis on which federal funds are awarded so that, over time, the majority of funds will be based not on the basis of enrollment, but on the colleges’ performance on the above goals; and
  4. Stimulate greater innovation in community college policies and practices to enhance educational quality.

The federal government seems to have gotten the message. In July 2009, President Obama highlighted his commitment to addressing these needs by announcing his Community College Initiative. The $12 billion plan is intended to improve educational facilities, increase and improve the utilization of technology and boost graduation rates—producing 5 million more community college grads by 2020. This is big money, considering that the feds have traditionally provided community colleges with only $2 billion in direct support per year—about one-tenth what it spends on public four-year schools.

Although the plan will eliminate the role (and an estimated $9 billion in costs) of private banks in managing the federal student loan program, it will dramatically increase the role of the private sector in other ways, as by encouraging them to help colleges improve remedial-education and counseling programs, and develop online curricula. The proposal would also increase funding of, reduce barriers to qualifying for and increase student access to Pell grants. Congress, meanwhile, is considering legislation that could pump an additional $500 million into the creation of open, online courses.

Moreover, as I mention in my previous blog, community colleges are also likely to benefit from new Department of Education rules that will free up additional aid dollars by cutting aid to a number of for-profit schools.

The community college crisis is also attracting attention and help from other sources. Although charitable contributions are generally falling along with the economy, a growing number of charitable foundations recognize and are seeking to at least partially address community college shortfalls. The Bill & Melinda Gates Foundation, in particular, has pledged up to $110 million (of its $3 billion overall education fund) to community colleges and has recently earmarked $12.9 million to organizations that that are having success in improving community college graduation rates, developing tools to facilitate Web 2.0-based faculty collaboration and creating new IT-based learning tools. And this is in addition to the Foundation’s participation in a twelve-foundation group that has committed $500 million to improving learning outcomes—largely through the use of IT-based tools—across all types of educational institutions. Hopefully, such investments, combined with foundations’ growing focus on quantifiable results, will impose some of the discipline that community colleges will need to succeed in a world that will be characterized by tighter and tighter budgets.

Posted in Community/Other Colleges, Creating the 21st Century Workforce, Economic and Political Forces, Economic Forces, Education System and Institutions, IT Industry and Companies, IT Industry Role in Education, IT Industry's Role, Political Forces, Societal Forces | 1 Response »
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HP’s CEO Dilemma: How to Rebuild HP’s Culture While Growing its Business

Sunday, September 5th, 2010

Hewlett-Packard has had some bad luck with CEO’s. Carly Fiorina and especially Mark Hurd have certainly made contributions to the company. Although I am still not convinced that Fiorina’s acquisition of Compaq was best for HP, she certainly created a marketing vision and boosted the visibility of a company that was generally lacking in both. Hurd meanwhile, provided the financial discipline and accountability that HP so desperately needed and approved some key acquisitions that have dramatically enhanced the scale and value-add of HP’s software, networking and especially its services businesses (see my 2009 report, “Can HP TSG and EDS Transform Each Other?). This being said, I still puzzle over the recent acquisition of Palm.

But while both CEOs provided their own types of value, both proved to be largely incompatible with—and fundamentally disruptive to—the HP culture. Fiorina was too shameless of a self-promoter for the traditionally collegial organization and did not provide the type of discipline the company so desperately needed. Hurd provided discipline in spades. Unfortunately, his no-prisoners style alienated and demoralized employees and his lack of focus on—and lack of funding of—marketing perpetuated one of the company’s greatest, oldest weaknesses.

There’s no question. HP’s culture certainly needed disruption. The company had become too bloated, complacent and sclerotic. But was it really necessary to destroy so much that was good in the company? So much that defined a unique organization?

I don’t know the real answers to these questions and I don’t intend to dwell on the past. But the questions of HP’s needs and culture do bring up a number of other questions that are fundamental to the board’s critical decision as to who to select as the company’s next CEO.

We have heard all types of speculation on the most likely candidates—everyone from Mark Andreessen to Steve Mills and Ann Livermore to Vyomesh Joshi. Such speculation, however, is putting the proverbial cart before the horse. Before HP can even begin decide who it wants for a CEO, it must decide what it needs from a CEO.

To decide this, it must first ask and answer a number of fundamental questions. Among the most important are:

  • What kind of company does HP really want to be in the future?
  • What are the qualities that it most needs in a CEO?
  • Where should it look for its next CEO—and the one after that?

Questioning HP’s Future

HP is really multiple companies. It currently divides itself into three separate, essentially product-focused groups, each based on different classes of technology and solutions. One is focused on enterprise computing products and services (primarily servers, switches/routers, software and services), one on printers (from consumer through commercial) and one around personal systems (primarily PCs, and a dabbling in PDAs). I, however, look at the company’s divisions a bit differently—more as a 2×2 matrix (see below figure), with the:

  • Horizontal axis representing whether the value-proposition is based primarily on product features and price (as it is for PCs, PDAs, industry-standard servers, basic printers and so forth) or a service-based solution to an underlying customer need (as with enterprise servers, enterprise services and commercial printing and imaging systems); and the
  • Vertical axis representing the target market and whether the people that influence and make the purchase decision are individual consumers or businesses.

The HP Business Matrix

When you look at it this way, HP must decide whether the company’s real value-add and differentiation lies primarily in:

  • Being a products company (such as Dell) or a solutions company (like IBM);
  • Focusing primarily on business customers (like IBM) or consumers (like Apple), and/or
  • As a technology portfolio company (like IBM used to be, or what GE has long been).

Although each model certainly has advantages and drawbacks, I (of course) have very definite opinions as to:

  • Which is best suited to HP’s current strengths—products (primarily business products, with consumer a distant second); and
  • Where its greatest opportunities lie—all classes of business solutions (from SMB through large enterprises).

But whichever model HP selects as its primary strategic focus, it should decide before it begins compiling a list of CEO candidates. It must then identify the qualities that are required for a CEO of that specific type of business and identify a pool of candidates with the inclination, skill set and perspective that are best suited to that business.

It should then measure these candidates against such critical filters as:

  1. Who best shares—and can most effectively communicate (both to HP employees and customers)—the vision of what HP aspires to become and how it will get there;
  2. Who has the experience in and a unique ability to effectively market and organically grow this business; and
  3. Who can best maintain the discipline imposed by Mark Hurd while simultaneously identifying and fostering a new unifying corporate culture and reviving the morale that was lost over the last decade. [The original HP culture is too far gone to resurrect. The new culture must somehow integrate the remnants of what is left to the old component cultures (HP, Compaq Digital, EDS and so forth) into something that is totally new.]

The need to redefine HP’s culture and morale all brings up some even more fundamental questions:

  • Why, when each of HP’s last three CEOs were forced to leave, did the company have to go back to square one to identify a successor; and
  • Why, after assessing all the options, could the board not find anybody within the company who was capable of taking the reins? Why was it forced to run the risk (realized in both of the previous cases) of introducing a “foreign antibody” who did not understand, was generally incompatible with and who ended up diminishing the company’s culture and morale?

Has HP’s board ever heard of the concept of succession planning? Why does it not practice the type of functional and geographic rotations that are so central to the employee development practices of other world-class corporations? Will the company ever again be in a position to choose from a list of highly qualified internal candidates who truly understand and are compatible with the company’s culture—whatever that culture is determined to be?

This all leads to an even more fundamental question about succession plans. Is it time for a succession plan for the HP board?

Posted in Hewlett-Packard, IT Company Strategies, IT Industry and Companies | 3 Responses »
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How SAP Can Derive Maximum Value From Its Sybase Acquisition

Sunday, June 20th, 2010

SAP’s proposed $5.8 billion Sybase acquisition has generally received rave reviews for potential synergies, but big question marks loom relative to its ability to achieve a sufficient return on its investment. SAP, after all, offered Sybase shareholders a 44% premium over the market and, to make matters worse, SAP made its offer immediately before the current market correction.

No question, these factors, combined with normal execution issues and SAP’s scant experience in integrating big acquisitions, will certainly complicate matters. Even so, the acquisition has the potential of producing big gains.

In generally declining order of importance, product synergies include SAP’s access to Sybase’s:

  1. Industry-leading SQL Anywhere mobile database and its entire Sybase Unwired Platform suite, which will allow SAP to mobilize its applications, as well as allow SAP customers and partners to mobilize and connect their own applications to those from SAP;
  2. IQ analytical database, as a state-of-the-art analytical engine for SAP’s applications and foundation (especially with a Business Objects front-end) for a much-needed integrated analytics appliance; and
  3. ASE database, which will provide the bulk of initial revenue and profit attributable to the acquisition, eventually provide SAP with an additional database platform, and may possibly (although this is a long shot) allow it to reduce dependence on competitors’ RDBMS platforms.

(Deeper, much more comprehensive discussions of SAP/Sybase product synergies have been written by analysts including Merv Adrian, Paul Hamerman, Dana Gardner, Dave Kellogg, Curt Monash and Dennis Howlett.)

Access to Sybase’s mobility suite will almost certainly deliver the first, and probably the greatest technology-based benefits. Additional products such as IQ and, to a lesser extent ASE, will provide somewhat lesser benefits and will take longer to integrate into the SAP line.

Sybase, however, will also provide SAP with a number of critical, albeit less tangible benefits. These include Sybase’s:

  • Strong position in global-scale financial services, and to a lesser extent telecommunications accounts, into which SAP can sell its software;
  • Rapidly growing inroads into the Chinese market;
  • Infrastructure technology portfolio which SAP can integrate with its growing portfolio of mid-market and hosted applications into turnkey solutions to smaller customers; and its
  • Strong and incredibly stable management team.

This last point merits particular attention. The Sybase management team has been one of the most stable in the IT industry. Much more importantly, it has done a phenomenal job in first stabilizing and then transforming a company that had a confused product line and over-reliance on an aging RDMS with declining market share. Operating on a relative financial shoestring, it stabilized, upgraded the technology of and significantly expanded the market for its legacy ASE RDBMS and developed IQ into industry’s leading columnar analytics database.

Most importantly, it was one of the first companies to recognize the need for—and the first to dedicate itself to building—a comprehensive, enterprise-level platform for mobile applications. From hindsight, this may appear to have been a sure bet. In reality, it was anything but. During the early years, the growth of the enterprise mobility market was far from certain and much larger, better positioned competitors—companies including Microsoft, Oracle and IBM—were talking of making major pushes into the market. And all the while, Sybase had to find the resources required to fund this speculative business while simultaneously struggling to stabilize its legacy RDBMS business.

Not only did John Chen and the Sybase management team successfully navigate the dangerous tradeoffs inherent in reinvigorating a declining legacy business while building the foundation for a still speculative new business opportunity, it did so while slowly, but steadily, growing revenues and operating income. And don’t forget total shareholder value, which it grew from less than $500 million in the late 1990s, to $5.8 billion (which SAP will pay). Best of all, its execs did all while continuing to be some of the nicest, most open people in the industry.

There is no question. SAP must certainly capitalize on the extensively discussed product synergies and the lesser discussed market synergies if it is to derive value from its acquisition. The greatest value, however, may well come from an ability to harness and leverage the chemistry of Sybase’s management team.

Posted in IT Company Strategies, IT Industry and Companies, IT Industry Trends, Other IT Companies, SAP | No Responses »
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