Jan 26, 2003 (07:01 PM EST)
CEO Visions: Opportunity On Demand

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A question hangs over the information technology industry, and it's a big one: What catalyst will reignite growth?

In the past, we've always known the answer to that question. Growth was created by technical advances. Whether it was the mainframe, the microprocessor, the graphical user interface, or Internet protocols, new technologies sparked a new wave of demand. But that pattern isn't going to be repeated this time.

Don't misunderstand me. Technical innovation is as important as ever. Having just celebrated a decade of patent leadership, we at IBM understand the vital importance of sustained technical leadership. But today, we also understand that in an industry of this size and maturity, a single new gizmo, or even a bucket of them, isn't going to compel customers to invest the next trillion dollars in IT.

That's even more true in a cost-constrained environment. I can't think of a company or institution, regardless of size or industry or region, that isn't obsessed today with productivity. Where will it come from? Where are customers going to find the next source of cost savings and efficiency?

That's the near-term issue. In the long term, our customers are telling us that they're ready and willing to invest, but not in the next piece-part technology and not to achieve incremental gains. They'll spend only if the products, services, and thinking they get from our industry can help them transform their operations and build wholly new kinds of business models. They've applied technology to automate the back office. They've reengineered business functions and business units. They've flattened structure. They've outsourced noncore business activities. What's left?

What's left is the ability to get all that automation to work together so a business can respond quickly, flexibly, and at a lower cost to whatever the world throws at it. And goodness knows, the world's doing plenty of throwing these days. That's what I hear from virtually every customer I talk to, whether a bank, university, government agency, hospital, or manufacturer. They're facing changes in capital markets; changes in demand, supply, and pricing; a new labor situation; or the changing preferences of customers, employees, students, or citizens. They long for the ability to respond in real time, with all the resources at their disposal, including those of their suppliers, partners, and distributors.

What they want is to be what we at IBM call an on-demand E-business.

Let me clear up one misconception about what we mean by "on demand." It's not just about utility computing. No doubt, utility computing will deliver enormous customer value. If businesses are going to become more flexible and variable, they're going to need more flexible and variable ways to acquire and pay for information technology. A pay-as-you-go delivery model frees customers from the up-front investment of owning traditional IT assets. It lets them concentrate on their core business and tap into computing resources far beyond what they could reasonably own or manage.

But it's not the whole story of on-demand. It doesn't get you end-to-end integration. It doesn't encompass the idea of "autonomic" systems. And it certainly doesn't provide the answers to the challenging cultural, managerial, and ethical questions that must be addressed if we hope to realize the extraordinary opportunities before us.

No matter what you call it, our customers are moving to a new model of business supported by a new kind of computing infrastructure--one that's integrated, virtualized across disparate systems, and able, most of the time, to manage itself.

Creating that infrastructure will take a lot of work, a lot of cooperation across our industry, and a lot of new invention. It will take the integration not just of technologies, but of technology with business insight. And it will take a more consistent and committed embrace of open platforms and common standards.

Once we're finally able to take that step, to set aside proprietary architectures and let go of our controlling ways, we're going to find that we've opened a vastly larger opportunity. Whether we're talking about near-term growth, driven by cost pressures and the need for productivity, or the sustained growth that comes from unlocking new kinds of value, the next trillion dollars of IT investment will come from something basic: reorienting the IT industry around the needs of the customer.

Sam Palmisano is chairman and CEO OF IBM.

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