Are Your Good Instincts, Good Enough?

Check out this CNBC guest blog post by Steve LaValle, Global Leader of Strategy Services for IBM Business Analytics. LaValle discusses the cost savings and business value that can be achieved from greater analytics and optimization of information.

LaValle is just one of the 4,000 IBM personnel focused on the business analytics space. IBM has taken aggressive steps to remix our business so that we are positioned for leadership in the high-growth business analytics space, including a $10 billion investment in the past four years; the launch of a new service line (Business Analytics and Optimization Services); strategic acquisitions (e.g., Cognos, iLog), and the dedication of IBM personnel like LaValle around this opportunity.

Unlocking and extracting value from business information is a top priority for our clients. The good news is, IBM has analytics software that can capture, organize and process all of the data scattered throughout an organization, and turn it into not just organized information, or even knowledge, but actual intelligence.

IBM is making sophisticated business analytics happen today.

IBM acquisition strategy

By now you've seen the reports on IBM's intention to acquire SPSS for $1.2 billion - a move that will bolster our business analytics portfolio. Today IBM also acquired privately-held Ounce Labs, a small company headquartered in Waltham, Mass.

While the news of IBM's Ounce Lab acquisition is dwarfed by the public visibility of SPSS, the Ounce Lab acquisition sheds light on an interesting trend.

IBM acquisitions are a key part of IBM's growth strategy. In fact, IBM is increasingly relying on software as an engine for growth. IBM derives 43% of its profit from its Software Group, with revenues reaching $22.1 billion in 2008.

What's unique about today's Ounce Labs acquisition is that it is a result of IBM's strong relationships with the global venture capital community. Ounce Labs was introduced to IBM through its ongoing relationship with leading Silicon Valley and Boston-based VC firm Greylock Partners.


One third of IBM's acquisitions are driven by IBM's Venture Capital Group. As a result of partnering with leading venture capitalist firms, IBM is able to foster new partnerships and help to drive innovation in the marketplace. For the VC investing in the startup, it means a profitable exit. For IBM, it often means access to emerging technologies and business models to complement its software portfolio for partners and clients around the world.

These start-up companies provide a fresh perspective and reinforce the company's strategy of focusing on high-value, high-growth segments of the IT industry.

Strategic transformation of IBM

Last week, IBM announced its 2009 second-quarter results. Today Business Week's Gene Marcial discussed Why IBM Remains a Favorite stock pick.

On a call with the financial analyst community, Mark Loughridge discussed the strategic transformation of IBM's business and our ongoing shift to higher-value areas which has positioned us to better meet clients’ needs. Excerpts follow:

• "This performance (2Q 2009) is the result of the strategic transformation of IBM’s business. Since the end of the dot.com bubble, we’ve been moving out of commoditizing businesses, while investing in higher-value areas. This better positions us to meet clients’ needs, and drives a more profitable mix.



• [For nearly a decade] "we have been executing our strategy: shifting to higher-value segments, globally integrating the company, driving efficiency and productivity and investing to capture future growth. IBM is a fundamentally different company with a stronger portfolio of offerings and a more efficient cost structure, enabled by ongoing process improvements. Now in the current recession, we’re able to improve margins and profit – even with declining sales."



• "Since the 1990s, IBM has exited commoditizing businesses, including hard disk drives in 2002, PCs in 2005, and printers in 2007, (actions) which represent nearly $15 billion of annual revenue. In that same time, we acquired more than 100 companies for about $20 billion. This has clearly accelerated our shift to higher-value capabilities. This disciplined focus on shifting our business mix -- and our business model – has driven this turn-around in margins."



• "The shift in our business mix is even more apparent on a profit basis. From 2000 to 2008, the profit -- from Software and Services combined – has almost doubled … In 2009, we expect ongoing momentum in our Software and Services businesses."



• "We’ve also been globally integrating our company to improve productivity and efficiency. These transformational changes to our business have reduced our fixed cost base and improved the operational balance point, generating more profit from each dollar of revenue.



• "We’re using our strong profit and cash base to drive the significant investment needed to expand our base of opportunity, both organically and through acquisitions. This quarter we had great performance (from our acquisitions), with Cognos’ business analytics solutions, Telelogic's tools and ILOG’s business integration capabilities.

IBM's Software portfolio is built around high growth areas such as analytics, stream computing, instrumentation and monitoring of physical assets. The portfolio allows IBM to extend its software "footprint" beyond its traditional customer set to new, faster-growing revenue opportunities that are beyond the traditional IT industry.

Continued execution of a transformation strategy combined with a diverse software portfolio....its no wonder IBM's software revenue in 2008 totaled a staggering $22 billion.

Fortune Brainstorm: Tech

This week, two IBMers are speaking at Fortune Brainstorm: Tech, an event focused "on how technology companies, content creators and other institutions can thrive in the recession, and help lead the way to a new era of global prosperity."

The three day agenda is robust with sessions such as "Networking a Dumb Planet" and "Future Tech: Is the Risk Worth the Reward." The agenda concludes with Ashton Kutcher (actor/producer and Katalyst Co-founder) chatting it up with Fortune's Andy Serwer about the ways the entertainment industry can better use technology to advance business and social goals.

The theme of Fortune's event "Global crisis; global opportunity" dove tails nicely to what IBM has been evangelizing through its Smarter Planet initiative. IBM believes the opportunity and time for change is now. The technology -- cloud, stream computing, sensors -- is available and ready. People are ready for change. As a society, many of our current ways of doing things are inefficient and expensive, and eventually will not work.

If you find yourself in Pasadena this week, check out Fortune Brainstorm: Tech and say hi to Bill Pulleyblank and Alan Ganek from IBM who will be discussing how to build a smarter planet.