Online Extra: Consulting, With A Research Twist

IBM Research Director Paul Horn explains why Big Blue now has its reknowned researchers working hand-in-hand with its consultants

As IBM's senior vice-president and research director Paul Horn has a unique perspective on the future of the technology industry. Horn, who sports a ponytail, presides over a research empire with a $5 billion budget that underwrites the work of 3,000 of the world's brightest minds. Over the last decade, IBM (IBM ) researchers have helped make Big Blue's hardware and software products more competitive. But Horn is far from complacent. Now he has a new focus: Trying to reinvent the technology-services business through research. BusinessWeek's Spencer Ante recently spoke with Horn about this challenge and others facing IBM. Following are edited excerpts of their conversation:

Q: Late in 2002, after it acquired PricewaterhouseCoopers Consulting, IBM formed a new group with 200 researchers to focus on working directly with more consulting clients. How's that going?

A:

We've been going for about a year. We've got 11 micro-practices: These are small consulting-services practices that we hope will some day grow to become major components of the Business Consulting Services business.

Q: Such as?

A:

Text analytics, which is about getting value from heterogeneous data and text, security, and optimization are a few.

Q: How does the researchers' work with customers differ from past efforts?

A:

The new part is that they're actually out consulting as part of the team.... We're actually working with the [PricewaterhouseCoopers Consulting] team. We did very little of that before. Before, it was more working on an IT-implementation solution. Now, we're often working on real business problems.

Q: Are more customers getting access to researchers?

A:

I think so. [IBM Chief Executive] Sam Palmisano sees that number growing. So I guess I can't argue. He's looking at us as the chance to differentiate our consulting services from all of our competitors. This year, we had 300 customer visits just to the T.J. Watson lab alone. Much of past interaction has been short interactions defining problems. There were far fewer deep interactions.

Q: What's the result of all this new work?

A:

We're actively involved with 75 different engagements. Last year, we closed about $100 million of contracts. That's still small compared to IBM Global Services. It's pretty good. We've got to do a lot better.

Q: What's the hardest part?

A:

[The new emphasis] changes the research culture. It was a huge cultural change in the early '90s, when we built programs with the product divisions.

Q: What's your biggest goal?

A:

The biggest thing is growth. I have to do a lot better than [doubling growth] this year. We have to get a lot more than that.

Q: Are you confident that you can grow more?

A:

We had to get into the deal flow more closely. We had to get connected to industry sectors more. We've got the links now to make that happen. We could easily blow this out of the park. For example: We had to train all the consulting principals about what [the services-research group] can do. Then we got a research representative in all of the major subpieces of the consulting group and in six solutions areas such as supply chain, strategy, etc.

Q: What are you excited about for this year?

A:

We made a lot of progress last year in increasing customer understanding. We better prove it in the marketplace by continuing to grow faster than our rivals. And if you see it, you'll know our on-demand strategy is working.

Q: So you don't think IT is mature?

A:

If we're right that you can use technology to optimize business, then this is gonna just make a mockery of that thought. Tech's value is expanding. It's not a new device, but its potential for making a difference is growing.

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