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IBM Partnerworld 2007 Photo Gallery & Notes

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St. Louis, Missouri, Day 2, May 1, 2007

Lowering Center of Gravity

IBM Chairman Emphasizes SMB, Echoes Our January SMB Headline But in Different Context: "It's All About Collaboration"

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Partnerworld participants were welcomed back to the St. Louis Dome by an energetic group that played Eagles' and other favorite classic rock hits.  And then IBM chairman and CEO, Sam Palmisano, took the stage...

ST. LOUIS, May 1, 2007 - "Our strategy is all about integration, collaboration and innovation," IBM chairman and CEO, Sam Palmisano, told some 4,000 business partners assembled at the St. Louis Dome (football stadium) on May 1.  He added that, "a globally integrated enterprise is inherently an architecture of partnership."

Palmisano also said that the SMB (small and medium size business) market is "the biggest IT growthPartnerWorld5_01_07 025.jpg (158597 bytes) opportunity in the world today" in which IBM "partners play a central role."  The global SMB market is a $487 billion opportunity, growing at 6.5%, he thinks.   And 47% of IBM's SMB revenue is driven by the business partners, he added.

When the IBM chairman talked about the transformation of multinational companies into globally integrated enterprises (see the red banner above), he talked about "lowering the center of gravity" - the very term we used back in January to describe the reasons for IBM STG (hardware) group creating a separate unit dedicated to SMB (see "IBM Lowers Its Center of Gravity," Jan 2007).  But he put in in a slightly different context.  He said the global integration was about increasing speed in the marketplace.  Here's an excerpt from what he said, along with accompanying slide:

"IBM has been a classic multinational for many decades.  We are well on our way toPartnerWorld5_01_07 015.jpg (150350 bytes) becoming a globally integrated company.  We have been flattening hierarchies all over the company.  We’ve restructured regional headquarters and directed more resources out into the field.  We’ve created new operations, such as deal hubs, to better integrate our capabilities.  We are capitalizing on skill and expertise everywhere in the world, increasing capability in emerging markets in India, China, Brazil and Central Europe, even as we continue to hire in advanced skill groups in the U.S., Western Europe and Japan."

Palmisano added that about 60% of IBM revenues come from outside the U.S.  "Emerging markets are a large opportunity for all of us," he said.

Over the next four years, Palmisano expects the IT markets in China, Brazil, India and Russia alone to grow revenue more than twice as fast as the worldwide economy as a whole.  Which should produce a market opportunity of more than $150 billion by 2010.

The IBM chairman also recounted the company's successful track record in 2006.  And then he got a little defensive.

"Everyone loves to obsess about revenues, but what drives a company is profitability and cash flow," he said.  By "everyone," we suspect Palmisano was referring to Wall Street that has kept the stock price from rising more rapidly because of IBM's relatively slow business growth rates.

Palmisano then pointed out that last year, IBM achieved record profit, record earnings per share and record cash performance.  "The IBM margins are the highest they’ve been in the past 10 years," he added.  "Cash generated from every dollar of revenue has increased 18% since 2003."

Emphasis on Innovation

What actually drives success in IT is innovation, we think.  And IBM evidently does, too.  The company has been investing heavily in it, both directly - through R&D, and indirectly - through collaborative developments with its partners and customers (see "An IBM Seedling: Technology Collaboration Solutions," Nov 2006).

Last year, IBM commissioned a survey of over 750 global CEOs and government leaders, Palmisano said.  It asked them how innovation takes place today?  

"They said that the best innovators don’t do it all themselves," Palmisano said.  "They collaborate... In today’s global economy, no one stands alone.  Every one of our organizations is part of an ecosystem of business partners, government agencies, universities and research labs, customers and competitors."

Furthermore, a vast majority of CEOs realized their companies must change, but a scant one-fifth of them thought they were good at changing.  Here are some conclusions IBM drew from that survey: 

Ø  83% of CEOs recognize that their business model has to change -- but only 20% say they havePartnerWorld5_01_07 013.jpg (155074 bytes) a good record of managing change.

 Ø  76% see the value of collaboration to achieve innovation -- but only 51% are actively collaborating now.  

Ø  80% recognize the need to create a culture of innovation -- but only half say they have implemented the business and technology integration necessary for innovation to thrive (right thumbnail).

PartnerWorld5_01_07 018.jpg (136637 bytes)"I think this represents an obvious opportunity for all of us," Palmisano concluded.  "Together we can be our clients’ innovation partner – 'the innovators’ innovator'."

But at the end of the day, "you have to be trusted to supply innovation to society or business," the IBM chairman said as he went on to talk about new IBMers values (left thumbnail).  

Dedication to every clients' success, and taking personal responsibility in all relationships is how that kind of trust is built. 

Select Other Palmisano Slides...

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Emphasis on SMB

Steve Solazzo, the head of IBM SMB business, had the unenviable role of following his leader on stage and putting a spin on chairman's words.  Here are some slides and charts from his talk and the business partner panel that followed:

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Solazzo stressed the "simple solutions to tough problems" - a stated goal of IBM "Express" offerings, a Big Blue euphemism for its SMB solutions.  He said IBM would be investing $200 million in support of this campaign."

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Of the three business partners that participated in the SMB panel (above), the comments by the Dynax president (a small systems integrator from the Northeast - second from left above), were the most illuminating.

This IBM partner said that after listening to the Big Blue CEO's speech, he thought... 

"Right... (but) IBM is too big, too expensive and they don't know the SMB customers market."  He said that they had the same doubts when Dynax first considered becoming an IBM partner.  But after signing up as such with both IBM and SAP, they did nearly $1 million worth of business in less than 20 weeks.

"We went from zero to multi million dollars in software and services," he said.

So his message to other companies considering doing business with IBM was: "Be patient!"  And good things will follow...PartnerWorld5_01_07 043.jpg (154909 bytes)

We also found very interesting the comments by Hank Hughes, an IBM account representative from the St. Louis area.  Hughes talked about the community and media outreach programs that helped IBM be recognized as a bona fide player in the SMB market in St. Louis.  IBM could use that experience as a good model to deploy elsewhere around the world (see right thumbnail).

Emphasis on Innovation, Act II

Rod Adkins, the head of development at IBM hardware (STG) group, who followed the SMB panel, tried to reinforce his chairman's message about the importance of developing a culture of innovation.

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Adkins started with a long list of markets in which IBM hardware is ranked as No. 1 in terms of revenue market shares (third thumbnail above).  He followed up with some examples that he said illustrated IBM's technological leadership (rightmost thumbnail)...

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... as well as some applied uses of it (the three slides above).  Adkins then brought on stage Tom Bradicich, an IBM fellow and vice president of its blade business, for a live demonstration of this technology in a CATIA (manufacturing automation) environment.

Adkins said that there are three components to IBM's hardware strategy: 1. Technology Leverage; 2. Infrastructure Optimization; 3. Technology Collaboration.

Adkins finished up with what he called the "coming attractions" - a preview of the next generation of the System p Power6 chips, the new entry blade servers and other products IBM has planned for release in 2007.

New Chip Technology Breakthrough

Two days later (May 3), IBM made a splash with an announcement of a application of a breakthrough self-assembling nanotechnology to conventional chip manufacturing, borrowing a process from nature to build the next generation computer chips.Airgap_1.jpg (31278 bytes)

"The natural pattern-creating process that forms seashells, snowflakes, and enamel on teeth has been harnessed by IBM to form trillions of holes to create insulating vacuums around the miles of nano-scale wires packed next to each other inside each computer chip," IBM said in a release.

In other words, IBM has been able to realize a scientists' old dream - bring a space age technology to Earth, and apply it in real world manufacturing environment.

As a result, Big Blue researchers have proven that the electrical signals on the chips can flow 35 percent faster, or the chips can consume 15 percent less energy compared to the most advanced chips using conventional techniques, IBM also said in a release.

"The compound itself is the secret sauce," Adalio Sanchez, general manager of IBM's global engineering solutions, systems and technology group, told the Los Angeles Times (May 3). 

With its latest announcement, "IBM is hoisting a flag on Moore's Law," said Bob Djurdjevic, president of Annex Research, a market research and consulting firm in Scottsdale, Ariz. "What it does immediately for IBM is earn it some bragging rights"
(a quote from the Los Angeles Times, May 3). 

Economist Warns of Dangers of Globalization

The final speaker of the May 1 morning session at the IBM Partnerworld 2007 was Dr. Laura Tyson, an economist who is a senior advisor at the McKinsey Global Institute.  She was introduced as "one of the top 25 most influential women in the world."

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Dr. Tyson noted that global trade has been growing faster than output for the last 40 years as globalization economic effect.  The trade's share of the world GDP is now 30%, she said.  So clearly, globalization is on the rise.

Furthermore, everybody seems to be taking the globalization as axiomatic goodness.  But as has often been the case in the past, those who do not learn from history are doomed to repeat it.  Some of the thing Dr. Tyson said should be heeded by today's business leaders, including IBM's, as a warning that the globalization they are pushing may lead to some undesirable results.

"Globalization can lead to 'creative destruction'," she warned.  

She pointed out that during a part of the industrial revolution (1870-1914), the world experienced another period of intense globalization.  Just as this is now happening under the leadership and the strength of the American economy, back then the Britain and its Commonwealth were the catalysts and champions of that global trend.

"The world was about as integrated back then as it is now." Dr. Tyson noted.  "Cross border flows of people were even greater back then."  It was a world of rampant and practically unrestricted immigration that fed the insatiable need for labor that the industrial production created. 

But as is the case with all major economic changes and disruptions, there were winners and there were losers.  The losers fought back.  Worker revolutions, protective tariffs, and two world wars followed. 

"That round of globalization ended badly," Dr. Tyson noted. "It wasn't until the mid-1950s that the world began to (re) globalize slowly again."

She said she is more optimistic about a positive outcome this time around.  But she is worried about the deadlock on the DOHA round of trade liberalization talks, and some indices of discontentment back home, in the U.S.

"Only 35% of Americans with four-year college degrees believe they are benefiting from globalization," she said.  

Which means that, if most of the best educated people in a country that benefits from globalization the most are against it, the globalization proponents have done a very poor job of selling it to the American public at large.  And since, Americans account for a mere 4.5% of the world's 6.7 billion population, this also means that less than 2% of the people in the world want globalization.

So before the elites among global business and political leaders continue to shove globalization down the masses' throats, they had better dust off some history books to learn what happened during the previous global integration phase, 100 years ago.  And then they'd better either back off, or start SELLING the idea's BENEFITS to the people before proceeding.  Unless they want this globalization period also to "end badly."

And how can they convince so many people around the world that globalization is good for them?

During the industrial revolution, people in developed countries could expect 50% to 75% increase in living standards during their lifetime, Dr. Tyson said.  Now, in places like China, for example, they are looking at 100 times that.  So that's clearly a big carrot.

No such carrots exist for citizens of developed countries.  During the last 10-15 years of rampant globalization, when China, India, Brazil, Russia and other emerging countries entered the global trade, "there has been a four-fold increase in global labor supply."

What that means, of course, is that the wages back home have come under sever pressure - both from export of domestic jobs to developing countries, and from high immigration, both legal and illegal.

That's nothing new, of course.  This writer has been warning about this side-effect of globalization for over 10 years (see "When Cultures Collide," Washington Times, Aug 1996; "Dumbing Down of America," Washington Times, Aug 1997, and  "Toward a Nation of Morons," Washington Times, Jan 2006).  What's new is that a respected scholar and economist, and "one of the top 25 most influential women in the world," shares some of these concerns.

Still, Dr. Tyson remains optimistic that we will manage to muddle through.

"I am an optimist about the future of globalization," she said.  "The scale of interdependence of national economies is unprecedented."

But so is the number of people who may be feeling disenfranchised.  Dr. Tyson acknowledged that the labor's share of the U.S. GDP has been declining, while the corporate profit's share has been rising.  So as a society, we'd better start taking care of our disenfranchised citizens before the "natives start getting restless."

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Above is the view of the stage from high up in the St. Louis Dome stands as the participants were filing out after the May 1 morning session.

THE END

Click here for PDF (print) version of Day 2

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