In IBM's biggest foray in business consulting since it acquired PricewaterhouseCoopers Consulting in 2002, the company announced on Apr. 14 that it is setting up a 4,000-person organization focused on helping corporations analyze data better and make smarter decisions. The consultants will mine IBM's research and software divisions for innovations. They'll also incorporate products from other companies.
The new business unit, IBM Business Analytics & Optimization Services, is the first major move by Frank Kern, who had run IBM's sales force until January, since he was shifted to lead the $19.6 billion Global Business Services division. "We're at the beginning of a new wave," Kern says. "We're beginning to instrument the world, but we have to take the data and analyze it to make a better bank, a better electric utility, a better planet."
Business consulting has become a mainstay at IBM (IBM) since the PricewaterhouseCoopers deal. In 2003, GBS delivered $184 million in profit. Its contribution swelled to $2.3 billion by last year.
Picking the Data Apart Faster
Analytics is a potentially lucrative target since it's emerging as one of the most strategically important fields in corporate computing. Executives analyze their sales patterns so they can do a better job of targeting customers with product offers and advertising. They pick apart and modify operations to make them ever more efficient. And, increasingly, they want to slice and dice data as quickly as it comes into their computing systems, and to make more accurate forecasts of future sales and shifting market conditions.
Business analytics is a bright spot in an otherwise subdued technology market. While overall demand for corporate technology is expected to shrink this year, market researcher IDC forecasts a relatively healthy 3.45% growth for the $23 billion market for business analytics software in 2008. It forecasts 2% growth in the $45 billion analytics consulting business—which until now has been focused on installing software rather than helping companies transform the way they use data. "Now more than ever, leaders need to know what's really going on in their businesses," says IDC analyst Dan Vesset.
The business analytics software market is divided into three pieces. Business intelligence software provides dashboards showing key metrics of business performance on a computer screen, and allows managers to pose questions about the business and receive reports detailing the answers. Data-mining software allows companies to analyze transactions and customer information to glean insights into customer behavior. Business-process optimization software helps companies find ways to improve operations.
IBM faces stiff competition in the software end of this business from Oracle (ORCL) and SAP (SAP) and from SAS, a data-mining specialist. But experts in the area say no other company can match the capabilities of IBM's new consulting service. "They have the scale and the combination of technology and business consulting," says James Taylor, an expert in the field of enterprise decision management and chief executive of the consulting firm Decision Management Solutions.
Some software competitors are actually cheering IBM on. Russ Cobb, vice-president for alliances at SAS, says IBM consulting installs a lot of SAS software, and this move could drive additional sales. "We see this as a great partnership opportunity," he says.
The consulting business may drive sales for a lot of IBM's own technologies, as well. The company has built up a strong position in business analytics software in recent years, partly through acquisitions. In 2007 it paid $5 billion for Canada's Cognos, a leader in business intelligence. Last year, IBM broke into business-process optimization with a $340 million acquisition of ILOG, a French company.
One of the key technologies in the new consulting unit's portfolio comes from IBM Research. In the largest project ever conducted at the research labs, a team of more than 70 scientists and engineers has been working for more than five years on a new approach to data analysis called "stream" computing. Using the technology, companies can create systems that spot patterns in data as it's received—without having to place it first into a database.
Gunning for Arbitrage
IBM built a test system for financial-services company TD Securities that lets it analyze options trading data in real time and make adjustments in microseconds. The system, run by IBM on one of its Blue Gene supercomputers, improved the performance of the trading system by a factor of 20. "In financial services, firms are competing for the best arbitrage," says Nagui Halim, chief scientist on the Stream Computing Project. "It's a technology race, and it's better to be faster."
The analytics consulting unit will be run by Fred Balboni, formerly the head of IBM's retail industry consulting practice. He's placing strategists inside each of the 17 industry-specific groups at Global Business Services. Some of the consultants will be new hires, but many will transfer in from other parts of the company. Kern says analytics expertise will spread through all of the GBS consulting services, including supply chain, customer relations management, and human resources. "It will permeate our consulting business," he says. "In the future, we don't think you can bring value to clients without this deep capability."