IBM Europe Highlights
- IBM has moved from its regional IOT structure, setting up Europe with an HQ in Madrid
- It is implementing its worldwide strategic priorities and investing to meet detailed, specific and public 2015 revenue targets
- Has set up a Smarter Cities lab in Dublin and has included many European locations in its 2013 Smart Cities Challenge
- Key Business Analytics reference customers include KiddiCare.com, Rissoli Orthopaedic Institute and Vestas Wind Systems
- Cloud reference customers include the university of Bari, Sunderland City Council and ESB ecars
- Will be supporting the EU’s Horizon 2020 project with its deep long-term, regional resources
- Growth countries in Europe include 30 in CEE – 15% of the worldwide growth markets opportunity
- Is well positioned to withstand the Euro Crunch recession
We enjoyed a couple of days of presentations, panel discussions and breakout sessions at IBM’s Analyst Insights conference in Madrid a few weeks ago. You’ll be interested to read about the view that Rich Hume – the head of IBM’s Europe region – holds and how the company is executing its 2015 strategy.
IBM’s Strategy, Resources And Investments
IBM moved back from its dual North East and South West Integrated Operating Team (IOT) structure in January 2012, selecting Spain as the headquarters of ‘Europe’ and Rich as its first general manager.
During his presentation he illustrated the consistency of IBM’s strategy with references to its resources and customer success stories in Europe.
IBM has three ‘strategic beliefs’ – namely that it should drive:
- A constant shift to higher value – demonstrated by its withdrawal from the PC market and investments into consulting and analytics
- A new era of computing – witnessed by its development of Smarter Planet, Watson and development of ‘cognitive computing’
- New markets and new buyers – demonstrated by its focus on ‘growth’ markets
IBM is currently – and publicly – working towards achieving a number of financial targets, including a target EPS of $20 on its ‘roadmap’ to 2015. It has also called out four areas. In particular:
- Smarter Planet – it is looking for a contribution of $7b of growth over the roadmap period
- Business Analytics – here it is looking for a $6b contribution over the same time period
- Cloud and Next Generation Data Center – a $7b revenue contribution, including $3b of incremental growth
- Growth Markets – an aim of this approaching 30% of IBM’s total revenues by 2015
Rich then went on to talk about each of these areas in turn.
Smarter Planet, Smarter Cities And The New Era Of Computing
Sam Palmisano (IBM’s CEO at the time) introduced the Smarter Planet concept in 2008. These projects are based on the extension of IT to previously analogue processes, giving local and central governments and enterprises the ability to monitor, control and integrate their resources. Rich noted that IBM has now moved forward from its status as an infrastructure provider – having added a consulting business and being able to optimise and make business processes more efficient. He used some ‘scary numbers’ in his discussion, predicting 1 trillion connected devices worldwide by 2015, 450 billion transactions per day over the Internet by 2020 and an 800% growth in unstructured data over the next 5 years for instance.
Smarter Planet customer references included:
- Amsterdam’s Schiphol Airport, where IBM has implemented a baggage management with an increased capacity of 9k bags per hour (up from 5k) and based on its services, Rational software, as well as System p and x servers
- Repsol (a Spanish oil company), where it has implemented a High Performance computer based on BladeCenter servers and TotalStorage products, improving its ability to understand its drilling risks and opportunities
He also talked about IBM’s Smarter Cities Challenge. It is investing $15 million over a 3-4 year period and choosing around 100 cities as pilots of its Smarter Cities approach. In Europe it started projects in Birmingham, Dortmund, Malaga and Siracusa in 2012 and is adding Belfast, Copenhagen, Faro, Lodz and Stavanger in 2013. Later in the conference we heard from Marc Sanderson from the City of Malaga and Francois Grosse of the environmental services company Veolia as part of a Smarter Cities panel, chaired by Sylvie Spalmacin-Roma – IBM VP Smarter Cities Europe.
Business Analytics Brings IBM Higher Value
Rich was very positive about IBM’s Analytics business, pointing out its $16 billion acquisition spending, 20k client engagements, its extensive internal resources (including 9k consultants, 10k technical professionals and over 500 patents) and relationship with 27k partners and 5k universities.
IBM’s reference customers for Business Analytics included:
- Danish Vestas Wind Systems – to which it has supplier the ‘Firestorm’ supercomputer and BigInsights software to help it maximise the performance of its wind turbines by reducing analysis time from weeks to less than an hour
- KiddiCare.com in the UK – to which it has supplied Enterprise Marketing Management software to enable a 20% growth in online sales in what it describes as a ‘CMO CIO play’ – also described later in the conference
- Rissoli Orthopardic Institute in Italy – to which it has supplied software, System x servers and services from its Haifa lab to help it understand the interplay of genetics in hereditary bone diseases; as a result the institute expects to reduce surgery-related hospitalisations by 30% – we can think of no better ROI than reducing the time patients spend in hospital
CFO Mark Loughridge’s recently reported a 14% revenue growth in IBM’s business analytics over first 9 months of 2012 over the same period in 2011, led by its GBS consulting practice.
Cloud And Next Generation Data Centres
IBM has a full-range approach to Cloud Computing of course – its SmartCloud offerings embrace enabling technologies for building private and hybrid Clouds, Managed IaaS and PaaS services as well as SaaS and BPaaS solutions. See our view of its Cloud architecture.
Rich provided 3 IBM Cloud Computing reference customers in Europe. In particular:
- The University of Bari and the Puglia Fishing industry – where IBM has supplied System z servers, software and services to connect fishermen at sea to buyers, allegedly improving their income by 25%
- Sunderland City Council – where IBM is supplying services on top of Juniper Networks kit to provide low-cost secure Cloud Computing services to local businesses; it is reported to be making £1.4 million savings for the Council and will ‘pay for itself’ as a project over a 5 year period
- ESB ecars in Ireland – with which it is partnering to provide an IT system and payment platform for charging batteries based on its SmartCloud Enterprise, BladeCenter and services
IBM’s SmartCloud Enterprise revenues in 2012 to the end of September had been greater than in the whole of 2011 according to Mark Loughridge (see reference above).
European Competitive Differentiators
Rich’s Europe region includes the 30 countries in Central and Eastern Europe (CEE) which account for 15% of its worldwide ‘growth’ market opportunities. While most of the growth markets remain outside his region, IBM continues to invest in growing its market presence in these: its priorities are to increase its footprint in high-growth cities and regions through its ‘Geographic Expansion’ initiative, to target banking, government and telecommunications industry sectors and to ‘drive growth from long-term transformational engagements’. Its largest country presence is in Russia, Poland, Turkey (which we count in our Middle East region) and the Czech Republic. Its resources in CEE include 10 Global Delivery Sites and over 20 centres for Industry Solutions, Innovation and Research, Smarter Planet, Analytics and Cloud (among others).
Also in EMEA, but not Europe, IBM is investing in Africa (an area we are particularly interested in). Other growth markets include Latin America and Asia (minus Japan).
IBM is strongly backing the EU’s Horizon 2020 project, which will run from 2014 to 2020 with a €20 billion budget and the aim of creating new growth and employment. IBM’s credibility as a player within the project includes its $60 billion investment in R&D worldwide since 2000, its 5k R&D staff in Europe, its well-established labs in Böblingen, Zurich and Hursley (as well as its Haifa and recently-opened Smart Cities lab in Dublin) and its software development labs in Prague, Hoisy-Le-Grand, Cork, Galway, Dublin, Rome, Krakow, Geneva and Manchester.
Rich’s presentation ended with his prediction that IBM’s Watson and developments in cognitive computing will come to Europe. We note that most developments to date have been US-based.
Some Conclusions – IBM Is Well-Positioned For Withstanding The Euro Crunch Recession
IBM has succeeded in putting more of its resources in front of customers – a key aim of its decision to walk away from its Paris-based EMEA structure many years ago. Its decision to set up a Europe region with Rich at its head should help it improve its co-ordination of resources from its regional IOT structure, which we found difficult to understand. His presentation demonstrated however that IBM remains a top-down organisation and he was at pains to demonstrate the close fit between its global strategy and his regional implementation. We often think about the STG group in our research – but he reminds us of how Global Services have helped expand IBM’s relevance into new areas. Smarter everything, Analytics and Cloud are driven more by users’ business objectives than their technical choices – especially in Europe, where IT is often under-represented at the board level than in the US.
We don’t envy Rich’s job in 2013 because, despite IBM’s deep resources, experience and relevance, we’re in the middle of a difficult Euro Crunch recession. It will need to stress its ‘spend to save’ credentials to win business beyond the 5-year payback expected by Sunderland City Council.
It will no doubt take advantage of investment funds governments will make in economic growth (especially in its support for Horizon 2020 and its Smarter City activities): however these will be hard to find in 2013 as austerity and cuts continue in the attempt to beat down sovereign debt.
This was an impressive statement of direction, illustrating the fantastic consistency of IBM’s approach. As always we will be following how things go in 2013.