Arik Hesseldahl

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IBM Opens a Research Lab Devoted to IT Services

This Saturday will mark an anniversary of sorts for IBM. It will be nine years to the day since Big Blue offered to pay $3.5 billion to buy PwC Consulting. The 2002 deal came only two years after Hewlett-Packard walked away from an $18 billion bid to buy PwC in 2000, saying it was too expensive.

It was part of a long-term strategy at IBM to build out its business in services, and it has really paid off. In 2010, 57 percent of IBM’s $100 billion in revenue was derived from services. And the profit margins aren’t bad, either. One business segment, Global Business Services, reported 2010 profits of nearly 29 percent; the other, Global Technology Services, reported margins just shy of 35 percent. The move has since made IBM the envy of the IT services industry, and as IBM’s most recent quarterly results show, the services business is growing, too.

IT is complicated and costly, and when you’re in the business of building something or shipping stuff around the world or doing pretty much anything that’s not IT itself, there’s a certain amount of economic sense in hiring someone to run your IT for you and take some of the burden off your books.

In that nine years, IBM has learned a thing or two about services. It has 15,000 patents around the delivery of services and software, and has since coined the phrase “services as a science.” You can’t treat something as a science unless you’re dedicated to researching it. And today IBM announced that it is throwing its considerable research muscle behind services: It has opened a new research lab devoted to services only.

Dubbed the Services Innovation Lab, or SIL, it will boast 200 technology experts from around IBM. Their brief will be simple: Push the expansion of cutting-edge computing processes like real-time analytics and software automation more deeply into IBM’s service offerings.

Scott Hopkins, IBM’s general manager for global technology services sales, told me that other companies in the IT services business try to grow by squeezing costs by moving assets or the workforce into less expensive locations. “Some try to do the same thing with a little for a little less cost. Others squeeze and cut the labor base,” he told me. “That’s basically how the industry operates. We’re coming to our clients with our base of experience from research and with our ability to leverage our software, and give them a service that changes their business model. It’s not just taking over their mess for less.”

The lab’s director will be Mahmoud Naghshineh, an IBM vice president who joined the company in 1988. He says that IBMers have been doing this research in the course of IBM’s normal services business for more than 20 years. “What we’re trying to do with this research lab is take it up a notch,” Naghshineh told me. “The idea is to really help our business and our clients by accelerating growth in the services area.”

For example: Cloud computing. Clearly, businesses are looking seriously at ways that cloud computing can reduce operational costs but also efficiently add new computing resources to the available mix. “But when we talk to our enterprise customers, there’s huge complexity involved in moving the computing workloads to the cloud. There’s diverse infrastructure, there are concerns about security, and it all has to be reliable,” Naghshineh told me. One of the major research topics at the new lab will be finding ways to make that transition easier.

Another classic problem in IT outsourcing is planning for service outages, or what I like to call expensive, unwanted surprises. Traditionally, Hopkins says, the primary focus on the problem is on how to get systems recovered and running normally after an outage. “The focus has been on how you react.” IBM put the problem to a team of mathematicians. They captured real-time operational data from numerous data centers in order to come up with a way to predict an outage and head it off before it happens. “I can now go to a client and say that if we don’t do certain maintenance jobs, we’re going to have an outage,” he says.

The lab will operate out of IBM’s worldwide network of research labs, including New York, California, China, Israel, Japan, Switzerland and Brazil. Aside from cloud computing, its initial focus will be on analytics, the automated delivery of services and helping companies adapt to mobile technologies.


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