IBM's reorg shows shape of IT to come

IBM's recent folding of its hardware group into its software group is amazing. This shows much about what IT has become, and what lies ahead.

Jonathan Eunice Co-founder, Illuminata
Jonathan Eunice, co-founder and principal IT adviser at Illuminata, focuses on system architectures, operating environments, infrastructure software, development tools, and management strategies in networked IT. He has written hundreds of research publications and several books.
Jonathan Eunice
4 min read

I'm always wary of analyzing corporate organizations and reporting structures. They change frequently--every year or two, in some companies--so they're always in flux. And the details of who reports to whom, or what they want to call this business unit or that--those things matter, a bit, but not nearly so much as the products and services a company offers, how it goes to market, who its competitors are, and so on. Finally, company structures are very "inside baseball"--the kind of detailed who's-on-first, who's-warming-up-in-the-bullpen information that industry insiders may find interesting, but that isn't really all that useful to most customers or investors.

But I'm going to make an exception here because the changes going on at IBM illustrate important structural changes in IT overall, how vendors approach the market (and each other), and what customers can expect from IT providers in the coming years.

The news is as simple as it is astounding: IBM's Systems and Technology Group (STG)--the unit that makes IBM's mainframes, Power and x86 servers, storage, and microprocessors--will henceforth report into the IBM Software Group (SWG). Strictly speaking, IBM hasn't been "a hardware company" for nearly 20 years. Software and services have grown up to be, both in terms of revenue and industry footprint, what the company's about. Everyone who's looked at IBM or industry finances realizes this. Still, when you started thinking about IBM as "a computer company" all those years ago, it's hard to fully internalize the idea that it's no longer really "a computer company."

There was a time when IBM's hardware led all other activities, but that time is decades past. That's true even though some of IBM's gear--especially, System z mainframes--"drags along" enormous software and services revenue. Thousands of large enterprises around the world have truly mission-critical applications and business processes thoroughly intertwined with System z. But these enterprises--plus tens of thousands more--are at least equally entwined with IBM's software, services, and go-to-market functions.

And the world's changing. Enterprises are much more likely to start their IT planning and acquisitions with what they want and need to accomplish, not with pre-determinations of what hardware they'll run it on. That's a shift in customer thinking that benefits those focused on software and services. It similarly benefits those who consider non-IT issues such as financing, demand generation, and partner ecosystems equally important to products and services. IBM definitely thinks this way, about "the whole package," and not just about computers, or any other single element.

In fact, IBM has always done best when it has sold computing rather than computers. Sure, there's always been a lot of "we have the best blah-de-dah!" product marketing along the way. But compared to competitors, which have traditionally focused on having the best X, Y, or Z products, IBM's been more about business problems, processes, and outcomes. Historically, IBM was best equipped to engage enterprises at this higher level. But today, one finds virtually all of IBM's major competitors--for instance, Cisco, Dell, EMC, HP, Oracle, and VMware--all creating and exploiting systematic plays. They've even stolen the occasional march on the "it's about integration" or "it's about the outcome" themes that IBM pioneered.

Customers once wanted lots and lots of "choice," but found that having dozens of product and vendor choices made for a very messy and expensive "IT sprawl." The trend in the last 15 years has ratcheted toward fewer vendors, more standardized acquisitions, and less homegrown integration. As a result, vertical integration is back in IT in a powerful way. Essentially all major IT vendors have steadily increased their scale and scope; as a result, acquisitions and industry consolidation--once rare in IT--are now commonplace.

Oracle's purchase of Sun and subsequent "Software. Hardware. Complete." campaign will be cited as the competitive initiative to which IBM's software + systems move is most directly responding. But it goes much deeper than a simple competitor or tit-for-tat response. The rise of VMware and cloud computing, SAP buying Sybase, Dell buying a major services capability, HP's major software and services expansions and Converged Infrastructure, Cisco's Unified Fabric and Unified Computing System--these show the tectonic realignment ongoing in IT. IBM's STG + SWG move is the next logical step in a consolidating, integrationist environment--as is putting Steve Mills, IBM's best and most successful portfolio manager, in charge. There's a lot more "inside baseball" in the move, but what does this mean from the customer perspective?

Enterprises now have to expect that they'll be dealing primarily with behemoth vendors pitching significantly integrated stacks. While there'll still be choice and ability to swap out parts of the stack here or there, vendors rather than users will be making more of the decisions about what pairs with what. The default choices for IT will increasingly be these increasingly integrated stacks. With fewer vendors, IT needs to further sharpen its understanding of what outcomes it targets, how much (or little) choice and control it will demand around individual component selections, and how it will manage its dwindling list of vendor and platform choices.