Can IBM Build an Innovative Ecosystem?By John Hazard | Posted 2006-03-12 Email Print
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At IBM's Partnerworld conference, Big Blue will announce plans to give its partners access to its researchers who are cooking up new technology. The big question is whether partners will go along for the ride.
Vassar Brothers Medical Center had to think less like a hospital and more like Home Depot. It was a matter of survival.
The Poughkeepsie, N.Y., facility, part of the Health Quest chain of hospitals, had to manage a revolving door of doctors and nurses who would cover 5 miles a day, move tons of biomedical equipment to the right place at the right time, and improve efficiency and quality to comply with soaring patient loads and regulatory requirements.
It was at a Home Depot store, where Health Quest CIO Nicholas Christiano and Vassar Brothers CEO Dan Aronzon saw how the retailer used bar codes and RFID (radio-frequency identification) tags to track pallets and trucks, that the idea struck.
To achieve a manageable process, Vassar Brothers called on IBM and InnerWireless, a Richardson, Texas, wireless platform builder, which led to InnerWireless deploying a system to track and manage the hospital's staff, patients, equipment and processes.
IBM's expertise in project management technology and the ability to integrate multiple applications to run on the wireless platform allowed Vassar Brothers to re-envision the way it operated and keep pace, Christiano said.
"We had to reconsider the way we looked at how we did things," said Christiano. "You don't have to spend more than an hour on a modern hospital floor to realize what you're looking at. We have 515,000 square feet, plus 130,000 [square feet] at an ambulatory care facility nearby. Everything is moving. It's running more like a factory floor."
Welcome to the new face of the channel, one where innovation is becoming increasingly important. On March 13 at its PartnerWorld conference in Las Vegas, IBM was slated to announce a series of programs and organizational changes to bring its partners into its research labs to cook up more innovative fixes to the challenges facing businesses daily.
If successful, InnerWireless' work at Vassar Brothers can be replicated by hundreds of partners.
At PartnerWorld, IBM will announce two initiatives to drive innovation. A new business unit, Technology Collaborations Solutions, will lead collaboration on specific customer projects, and, beginning next quarter, IBM will grant partners access to researchers based on its PartnerWorld Industry Networks program to create what IBM is calling an ecosystem of "Innovation that Matters."
The 10,000-person-strong TCS unit brings together several IBM units to collaborate with VARs, ISVs and customers in an effort to solve business problems. Under TCS, IBM's former Microelectronics, Technology Development and Manufacturing, OEM Component Sales, OEM Systems Sales, STG Intellectual Property, Next Generation Telecommunications, and Engineering & Technology Services divisions will now answer to Adalio Sanchez, the former general manager of IBM's pSeries business unit.
Sources at IBM said the company hopes its focus on innovation will generate $10 billion in new business over the next three to five years as it opens the door for partners and customers to its 3,000 Ph.D.s and scientists, who created 2,941 patents last year alone.
Next Page: Innovation is the next big push.
While it's unclear whether partners will take advantage of IBM's program or what partners and customers are willing to pay for something such as innovation, Chris McCoy, senior vice president of corporate development at InnerWireless, said the program could solidify how he currently works with IBM and make Vassar Brothers' experience commonplace.
"The more we're able to leverage what everyone else knows, the better off the account is," McCoy said.
For IBM, innovation is its next big push, akin to the company's efforts to make on-demand computing commonly known.
On March 1, the company warmed up for its PartnerWorld announcements by releasing a study conducted by its Business Consulting Services unit. In the survey, 65 percent of CEOs polled said they will have to radically change their businesses in two years.
IBM opened its prolific $6 billion-a-year research division to business partners to collaborate on innovation for vertical markets such as health care, retail and automotive.
The Armonk, N.Y., company also expects to spend about $1 billion establishing the infrastructure to support the organizations and collaboration efforts, including $250 million for new Partner Innovation Centers worldwide, officials said.
The goal, said IBM officials and partners and customers who participated in pilot programs, is to drive technology that not only supports businesses but also enables change.
"If you just look at technology and products, you may be missing a big opportunity, which is innovation in the business processes," said Irving Wladawsky-Berger, IBM's vice president of technical strategy and innovation. "All of a sudden, the nature of innovation has shifted to what new business capabilities can you share."
Sanchez said IBM is moving from providing "system know-how to a broader value proposition at the core of what clients do."
At Mercury Computer Systems, it was the "what they do" that needed to change.
The Chelmsford, Mass., OEM, which participated in IBM's TCS pilot, was grossing more than $250 million annually manufacturing high-end embedded devices and systems for defense agencies, health care and high-tech manufacturing. But the company found its products becoming commoditized by blade servers, said Randy Dean, vice president of business and technology development at Mercury.
"We knew we wanted to serve a broader market in a horizontal fashion if we were going to make it," Dean said. "But we knew we needed to change."
Through acquisitions, Mercury gained several new software and hardware capabilities, but it didn't find its niche until IBM, as part of a pilot for the collaborative program, approached the company to help find a use for IBM's Cell microprocessor technology, originally designed for game systems.
Since June, Mercury has been using the Cell chip to build computer systems for data-intensive applications, driving down the space, time and cost normally associated with implementing those applications.
"This expands the market we serve," Dean said.
For IBM to be successful, the company will have to create what Donn Atkins, general manager at IBM Global Business Partners, calls an ecosystem of innovation.
"It is creating a mind-set that says the organizations within contribute to the health of the overall body," Atkins said. "All bring their capabilities [to the table] in a manner that serves the party and solves the problem."
IBM's CEO survey found that businesses count on partners and solutions providers for new ideas 38 percent of the time, almost as often as their own employees (42 percent) and far more often than internal R&D programs (16 percent).
Next Page: Good ideas come from partners.
Increasingly, IBM's partners will be the ones cultivating that ecosystem.
"That's where so much of the innovation in the market comes from," said Scott Hebner, vice president of marketing and business partner programs in IBM's software group. "It's rarely the big guys. It's the guys who have a focus, who understand the industries they work in."
RJS Software Systems, a business information management VAR that worked frequently with insurance companies, was able to leverage its business knowledge to streamline customer service operations at AAA Carolinas, an American Automobile Association affiliate and insurance provider in North and South Carolina.
The problem: increasing competition for insurance customers from giants such as Geico and Progressive. AAA Carolinas found its customer service operation was too cumbersome to be competitive.
"In insurance, it's all about $5," said Bill Whalen, sales and marketing manager at RJS, based in Burnsville, Minn. "You don't really care where it's from: If it's $5 cheaper across the street, that's where you're going. So we had to find a way to streamline costs in a way that could pass savings on to customers."
Together with IBM, RJS constructed a paperless office on IBM's iSeries platform that allowed customer service and sales representatives to access information more rapidly. The speedier delivery allowed AAA Carolinas to service customers and sign new ones 23 percent faster. The company saved $20,000 annually on filing cabinets alone.
Partly as a result of its success with AAA Carolinas, RJS launched an Information Management for Insurance practice and has reapplied the solution to other insurers.
Hebner said that by allowing partners such as RJS to access IBM's labsaccess that customers have had for more than a yearthere's the potential to "blow open the door on innovation." Under IBM's PartnerWorld Industry Networks program, which organizes ISVs and solutions providers into 14 industry categories (including the yet-to-be-announced Electronics and Energy and Utilities categories), partners will gain access one by one for consultation on industry solutions, in an order yet to be determined, said Hebner.
In these consultations, partners in specific industries will be able to consult with IBM researchers working on similar solutions targeted for release three to five years in the future.
How successful IBM is at distributing its researchers remains to be seen. The company did not identify any U.S. partners that had participated in a pilot for the program but cited the experience of Beijing-based eFuture Information Technology, which developed a supply chain management program based on the collaboration and helped YanSha, a Chinese department store, morph into an online supply chain company.
The ability to innovate is driven in large part by the on-demand trend that allows customers to reach technology previously out of reach of their budgets, as well as by the proliferation of the Internet worldwide, said IBM's Wladawsky-Berger.
Before the rise of such technologies as SOAs (service-oriented architectures) and Web services to deliver many of these applications, the company's talk of an innovation ecosystem could be viewed as academic, he said.
"All of a sudden, IT has the ability to touch companies in ways it never has and businesses it never did before," said Wladawsky-Berger.
If IBM pulls off its plan, there may be more success stories such as those found at Vassar Brothers, since partners such as InnerWireless would have more access to IBM research.
In 2003, Health Quest reached out to IBM, which connected the hospital chain with InnerWireless.
The hospital now delivers medication shrink-wrapped and with bar codes; doctors, nurses and patients communicate with VOIP (voice over IP) wireless phones and PDAs; and equipment traffic is managed like air traffic, Christiano said.
The solution has already saved Health Quest thousands of dollars in equipment expenditures, and administrators have documented 168 cases since July where the system protected patients from receiving incorrect medications, two of which might have been fatal.
"We imagined an assembly line," Christiano said. "We ended up with a safer hospital."
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