Enterprise Applications Battlefield Mid-Year Scoreboard Part 3: IBM

Enterprise Applications Battlefield Mid-Year Scoreboard

Part 3: IBM

P.J. Jakovljevic - August 28, 2002

Event Summary

The market has recently witnessed a number of high-profile announcements of stalwart vendors in the enterprise applications space. Given the contrasting nature of these announcements, from impressive to disappointing financial performances on one hand, and from new acquisitions and/or job openings to massive layoffs on the other hand, it becomes painfully obvious that the overall picture largely consists of many shades of grey.

This is a four-part note covering large and small ERP vendors, scoring their progress during these unsettled times.

Part One discussed recent financial results of:

  • Microsoft Corporation

  • IBM Corporation

  • Siebel Systems

  • i2 Technologies

  • SAP AG

  • PeopleSoft

This part discusses the Market Impact on IBM. Part Two discussed the impact on Microsoft. Part Four will cover the other ERP vendors, CRM, SCP, and make User Recommendations.

IBM Corporation

Another 'larger than life' enterprise infrastructure contestant, IBM, although recently setback with the effects of business unit sell-offs and dilapidated hardware and services markets, was saved by the fact that its infrastructure business unit grew at a solid 8%. IBM remains the largest computer company involved in manufacturing or servicing almost everything in IT from mainframes, processors, servers, Unix, Linux, workstations, PCs, application servers, databases, Web services, e-business, directories, grid computing, IT services, content management, collaboration, and much more.

Its focus going forward, however, is on total and partnered solutions for complex, heterogeneous enterprise requirements that can be grouped into three primary growth areas:

  1. Higher-end (i.e., higher-margin and leverageable) business services - to create further opportunities in services and software

  2. Cross-platform software (with continued investments in Lotus Notes collaborative groupware and Tivoli enterprise management systems, and while maintaining heavy emphasis on middleware (WebSphere) and database (DB2) platforms)

  3. Technologies, to become the major component supplier (in an OEM fashion) to the IT industry
The PwC Consulting acquisition, while it will hardly help IBM with regard to profitability improvement in the short term, will nevertheless help it building additional capabilities and should address any IGS' weaknesses, especially in application management, consulting, integration and vertical areas. From an enterprise applications vantage point, this is a worthy accomplishment for IBM, which should gain a healthy number of Siebel, SAP and PeopleSoft implementations, and should also become the global leader in SAP implementations. PwC Consulting's Life Sciences and Pharmaceutical, Oil & Gas, Aerospace & Defense, and Automotive expertise will also be a welcome addition to IGS' traditional strengths in integration and IT outsourcing.

IGS will thereby extend its lead in the market in terms of outsourcing revenue, market share, and ever-broader geographic reach in over 160 countries. The IBM brand recognition (a lasting brand, well recognized worldwide that implies strength in business-oriented IT solutions), the sales and marketing expertise with the largest dedicated sales force in the industry, a large number of alliances, the broadest range of IT services and products, greatest geographic spread which can deliver full range of service solutions, the ability to control its customer base business and deny other vendors' access to it, and the ability to sell above and around the CIOs should help IBM continue to win outsourcing deals and likely further fuel growth and gain more channel control. IGS should also boast a complete service, including consulting, system integration, applications management, and Business Process Outsourcing (BPO).

Consequently, this merger will have far-reaching consequences down the track. It ups the ante for IBM's product-centric competitors, such as HP, Dell Computer, Sun Microsystems, EMC, Unisys, Siemens, and Fujitsu, some of them still being PwCC's partners, very questionable from now on. The merger also puts more pressure on independent IT consulting services companies such as Accenture, Deloitte Consulting (recently renamed Braxton), Computer Sciences Corporation (CSC), ICL, KPMG Consulting, CMG, and EDS, as well as on the large enterprise application vendors such as Oracle, Seibel, SAP, and PeopleSoft, whose larger services providers' pool to implement and run their software is now dwindling. As prospects increasingly shy away from custom applications built on proprietary platforms in favor of an increasingly open and heterogeneous environment composed of inter-connective (not necessarily customized) applications, vendors still have to rely on capable services providers for their products to be successfully implemented.

IBM's Challenges

Despite IBM's clout at selling its services, an ongoing challenge of executing well enough to keep customers happy enough to renew contracts remains. Some improvements seem to be needed in IBM's overall service, particularly at the desktop level and regarding problems in IBM's services complex delivery model and coordination of services. These problems might make IBM less competitive against pure-play services companies focused on specific segments, such as e-business. Therefore, IBM still needs to convince users that it is nimble enough to handle the smaller projects prevalent in today's cost-conscious market, which may be a concern that is aggravated rather than alleviated by the acquisition.

Other challenges attributable largely due to resulting unwieldy combined organization (which may give heads up to competitors such as Accenture, Deloitte Consulting, KPMG Consulting, EDS, to take advantage of this inevitable time of merger confusion and to win away business) include the following bullet points (some of which have been excerpted in part from the Analyst Views' Weekly Report dated August 5, 2002 - The IBM-PwC Deal):

  • It has been well publicized the fact that IBM and PwCC have quite different corporate cultures given PwCC is organized as an entrepreneurial partnership (with partners holding equity in the firm), while IBM is a top down corporate hierarchy organization where PwCC partners will become regular salaried staff members. Retaining quality people will thus be a major challenge, particularly if the company will mainly rely on the poor job market situation as a main attrition deterrent.

  • Combined sales forces can create problems in terms of whether service or product leads the sales effort, leading to inconsistent service delivery tied to program management

  • Bolstering already too many existing management layers impacting customer satisfaction related to problem resolution, and also leading to difficulty in partnering with other firms due to too big and account-controlling setup.

  • Overcome market perception that IBM pushes its own products, which sometimes leaves customers wondering if they got the best overall solution available. IBM will have to preserve PwC's objectivity without coercing its consultants to sell IBM-based solutions.

  • Business strategy consulting — not related to technology adoption — remains underdeveloped in most geographies, and will not improve soon with the acquisition. Another cultural disparity between IT service-oriented IGS and business-centric PwCC will have already been experienced in the Cap Gemini and Ernst & Young merger, yet to met the expectations that were flaunted when the deal was unveiled in 2000 (see Meiosis, Mitosis: Cap Gemini's Mating with Ernst & Young).

  • IGS brand is still not as well-known as the IBM brand, and IBM will not be able to make use of the well-known PwC brand. As a result, the new organization's brand will remain completely IBM.

  • There are few low-cost, pre-integrated solutions, causing IGS to still struggle with small/midsize business market. IBM must find a way to drive out costs by operating large-overhead PwCC within the IBM infrastructure. This may be a major hurdle as IBM's overhead add-ons make IBM Global Services bids too rich for all but the largest organizations.

IBM Software Developments

On the software front, IBM is expanding the range of application areas for DB2 with version 8 with a number of new features relating to XML integration, ready for the inevitable world of web services. This includes automatic XML schema validation and automatic transformations via eXtensible Stylesheet Language (XSL), while all XML documents can be stored (as XML columns in a table) and recomposed when required. By bundling this with the various content management capabilities that are already in the DB2 portfolio, it is a small wonder that IBM has been lately usurping the database leader title, although the challenges of assimilation of Informix, limited presence on HP-Unix, limited DBA skills and services, administrative complexity at high-end, and possible advanced management features gap compared to Oracle may remain.

IBM Middleware Developments

As for middleware, recent acquisition of Metamerge should provide IBM with integration technology that complements IBM's growing line of integration products, including those acquired from CrossWorlds and licensed from Extricity. Should IBM combines Metamerge's directory-oriented architecture (Metamerge Integrator integrates directory services, databases, and messaging systems) with the application connectors and workflow rules of Extricity and CrossWorlds, IBM will have a flexible integration framework that can provide business process management across data management technologies (directories and databases) and applications.

Recently released WebSphere Business Connector centers on trading relationships and automating interactions using a combination of modules including the CrossWorlds process engine, an LDAP server, and the Web services gateway, forming an interesting approach to dealing with several Web service issues such as security and the differences in service consumer and generator protocols while exposing internal Web services to trading partners. WebSphere therefore gives IBM the worldwide domination of the market for enterprise computing in large enterprises, with broad platform coverage and interoperability, strong global services business and leadership in application server and integration middleware markets. The caveats still remain — like market perception of IBM as a legacy technology vendor, the improvement of third-party products support (i.e., reducing interconnectivity and features gap with Microsoft, Oracle AIS, Sun One and BEA Systems), and reducing complexity due to the need for competitive, easy-to-use packages for the lower-end of the market.

Consequently, the battle for the dominance in Web services/enterprise platforms has so far largely been a war of words without the clear winner yet (and not any time soon), as many underlying standards have emerged only recently. Still, the bitter enemies, at least agree on the future of Web services, and have been building similar technology frameworks for developers. Both .NET and Java camps also rely on the same set of established standards such as XML, Universal Description, Discovery, and Integration (UDDI), Web Services Description Language (WDSL), and SOAP.

While interoperability seems to currently be the motivation for bigger players to suspend hostilities and focus on standards adoption, the desire for domination will tempt them to weave dependencies on their products into their strategies. There is also the possibility that WebSphere and .NET, while competitive offerings, will end up in a peaceful coexistence given their amenability to satisfy needs of different ends of the market, higher and lower respectively (see Liberty Alliance vs. WS-I; J2EE vs. .NET; Overwhelmed .YET?).

This concludes Part Three of a four-part note scoring the ERP vendors in these difficult times. Part One was an overview of recent developments. Part Two discussed the Market Impact on Microsoft. Part Four will cover the other ERP vendors, CRM, SCP, make User Recommendations.

Editor's Note:
This article has been modified from its original form since the original publication date.

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