What is Happening? While there are a number of important software industry trends that ebb and flow through time, the advent of the Cloud is clearly encouraging many technology providers to go vertical and emphasize solutions – as technology decisions are increasingly made at the functional and business unit level (where the underlying technology infrastructure will often be hidden from the buyer). This trend was clearly in evidence at IBM’s annual Software Analyst Connect event at the Hilton in Stamford, CT earlier this week – which was entitled “Smarter Software: Driving new capabilities, new markets, new models & new buyers.” To net it down, IBM is increasingly focusing its selling message and product development around customer business objectives, required capabilities and outcomes, rather than on technology products per se.

Saugatuck believes that this broader trend toward business outcomes and vertical go-to-market strategies applies across many software and solution provider categories. For example, recent briefings with offshore outsourcers and system integrators clearly supports this trend (click on reports here and here, published Nov. 29), as well as refreshed go-to market approaches by major application providers such as Infor, who are now emphasizing a vertical market value proposition (thus reducing the complexity of their legacy brands). In the case of IBM, it is clearly putting investment weight (in the form of significant M&A activity) behind this important shift in go-to-market strategy and position, at the same time that it aligns the broad range of internal teams required to successfully support the change in direction.

Why is it Happening? Continuing a theme presented last year at the annual IBM Software Group analyst event, IBM clearly emphasized that it has re-organized itself so that it can more effectively develop and sell vertically-targeted solutions and outcomes, rather than its historic focus on selling branded technologies. This is not to say that it will not continue to develop and market a variety of technology “capabilities” – across the broad range of middleware, systems and information management, analytics and social technology categories. It is now focusing on providing technology within the context of industry business requirements (see Note 1 for list of key IBM Software capabilities). Thus a major thrust of their positioning is clearly away from emphasizing the sub-brands, and instead toward “IBM Software” as THE brand – with vertical solutions and outcomes being front and center (and the big new money maker) going forward.

In our opinion, this makes good business sense. The shift to the Cloud is clearly driving a need for technology-centric software providers to package up their offerings in such a way that they are attractive not only to traditional IT buyers, but to operationally-focused buyers and LOB executives (e.g., marketing, supply chain, finance, HR, product development, operations, sales, customer service). In this regard, IBMs evolved solution- and outcomes-centric positioning helps to hide the technology complexity that resides under the covers. And boy oh boy, IBM certainly has plenty of complexity. We might be wrong, but we are pretty sure the sub-brand “Lotus” was never mentioned in the main tent sessions (even if the broad range of collaborative “capabilities” were), with “Tivoli” cited only when we were presented the business card of the divisional CTO who we had a scheduled 1-on-1 session with – with the executive sharing that these were “old” cards.

No doubt, IBM will continue to deliver industrial strength software infrastructure technologies, driven by both organic innovation and acquisition (e.g., Q1 Labs). Yet at the same time, it is becoming increasingly clear that it’s M&A focus is equally if not more focused on supporting its evolved mission of delivering functionally- and vertically-targeted solution capabilities than its historical focus on acquiring important enabling technologies. Just look at the investments made over the past 2 years to support the growth of its Enterprise Marketing Management business (e.g., CoreMetrics, Unica), or the $14 billion it has spent over the past 6 years on “capability” acquisitions in support of its emerging business analytics and optimization unit.

Given the size and scope of IBMs services business, focusing on traditional horizontal business solutions where it makes a ton of money deploying SAP and Oracle on-premise application was never seriously in the cards. Given this, going vertical and building sophisticated solutions that leverage the broad range of assets it now has assembled looks to be a recipe for success. We especially like the “Smarter Commerce” initiatives (announced last year, around which it has made a number of acquisitions with a focus on B2C commerce), as well as its “Social Business” offerings (which they emphasized is “at the intersection of social technologies and business process” – and which will ultimately lead to a “platform for business transformation”).

IBM also emphasized their “Smarter Cities” initiative – where it is helping to instrument systems and provide analytics to help make better decisions, and to create better insight to manage an array of civic responsibilities (e.g., Intelligent Transportation, Intelligent Water, Intelligent Public Transport, Intelligent Public Safety). And lastly, IBM unveiled the newest solution area – called Watson Solutions, which will leverage the power of the massively parallel evidence-based architecture that its Watson technology can bring to bear, across a range of vertical domains such as healthcare and financial services (generating and evaluating hypothesis for better outcomes).

No doubt, IBM is “all in” as it concerns the Cloud. However, interestingly, IBM views it not as an end objective, but instead as a delivery vehicle for its functional and vertical solutions. We heard a lot about SmartCloud, but primarily within the context of how it plans to deliver outcomes.

Market Impact

While IBM Software is not alone in its quest to go vertical, and sell outcomes, what is interesting to Saugatuck is the amount of work that clearly has gone into aligning the myriad internal interests within IBM to help make this strategy potentially succeed – as there are clearly a large number of landmines that it must overcome to execute in a meaningful way.

Find below some of the considerations and challenges that any firm would face in shifting from a product-centric to an outcome-centric go-to-market strategy. While IBM has navigated some of these already, no doubt it is still a work in progress with other.

  • Requirement for tight coordination across product development units to work jointly toward “solutions” to enable outcomes.
  • Need for a complete restructuring of all go-to-market elements (e.g., marketing strategy, advertising, sales “talk tracks”) to be in terms of customer objectives and desired outcomes.
  • Training of sales personnel to teach them to sell solutions for outcomes rather than feature/function technology.
  • Re-missioning / compensation of sales personnel – to ensure that they are incentivized to sell solutions and outcomes.
  • Internal revenue recognition issues – how much revenue does each component product get from an outcome?
  • Overcoming traditional product group turf ... who owns what?
  • Overcoming potential customer objections and “permission to sell” issues – especially given historical relationship that IBM has had with the IT organization (when most outcomes are for functional user organizations). Some CIOs will strenuously object to IBM selling directly into the business.

Lastly, a major challenge for both vendors (including IBM) and customers is how to transition from historical / traditional techniques for evaluating / comparing products (i.e., benchmarking “speeds and feeds”) to judging the relative value of the solution within a specific business outcome.
This blog originally appeared at Saugatuck Lens360.

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