Harvest’s here for Big Blue

India has emerged as a favored destination at IBM worldwide. By Faiz Askari

Big Blue’s journey so far in India needs little elaboration; a sprinkling of statistics serves to drive home the point. More significant is the fact that IBM India stands at a threshold with employees geared up, executives clear about their strategy.

IBM Corp. is looking at India as a market that has gone beyond merely emerging market status; it is eying India as something akin to a developed nation, almost. This statement can be authenticated by how IBM India has grown and emerged as a separate region within the Asia-Pacific. Till last year, most business leads of IBM India were reporting to Singapore; now the reporting structure has been changed.

Shanker Annaswamy, Managing Director of IBM India says, “We are growing in all directions, IBM India has registered as a success story at our worldwide headquarters.” The exponential growth of IBM India employees is not the only sign of the subsidiary’s overall growth. “We no longer look at India as a low-cost destination. IBM worldwide is looking at India as a great knowledge destination,” says Annaswamy.

Nanditha Krishna, Senior Research Analyst, ICT Practice, Frost & Sullivan, India says, “The company has been growing at a rate of 38 percent so far. With a huge $20 billion IT industry in place, India is considered to be the cradle of activities pertaining to IT services. IBM has taken advantage of this situation making India as an important Global Services Delivery Center.” IBM has opened new centers in Hyderabad and Kolkata.

Talking about the global image of IBM India, Krishna adds, “India is considered as a business center that will help IBM deliver its services strategy. India is looked upon as the center to execute the services part of any IT consulting work performed by IBM anywhere in the world. Therefore India serves as a critical center to enable IBM to provide end-to-end solutions at a low cost. One of the major indicators of this trend is the ever increasing number of employees in India. The employee headcount in India has grown at tremendous speed from 9,000 employees three years back to nearly 39,000 employees last year. This shows the level of emphasis that IBM places on India. The Indian centers located at Bangalore, Pune, Gurgaon and Kolkata serve around 250 clients globally and act as a global delivery center.”

Apart from being a service delivery center, the country also provides an environment conducive for research and development. Delhi and Bangalore serve as primary centers to set up research laboratories that assist centers worldwide to provide better quality services. Also, IBM has important tie-ups with institutes such as IIT to promote research, says Krishna.

Facing up to competition

The major competitors for IBM as far as the Indian market is considered are EDS and Accenture and major domestic IT players. The gamut of services provided by IBM excludes Sun and Oracle as major competitors in IT services. While Sun Microsystems focuses on Java-based products and hardware solutions such as servers, Oracle focuses on application-oriented solutions.

Going a step further, Krishna elaborates, “In addition to hardware and application solutions, IBM also offers consulting services based on a model popularly known as the ‘transformational model’ which includes Business Process Reengineering.”

IBM also faces competition from domestic players such as Wipro, Infosys and TCS. Again differentiating IBM from the rest of its competitors, Krishna adds, “What distinguishes IBM from the rest of the crowd is the breadth of services that it offers. Although other players are also focusing on providing similar services, the sheer size of IBM makes it possible to deliver end-to-end solutions a feature that many companies struggle to cope with.”

Frost & Sullivan identifies that IBM occupies the top position followed closely by EDS. While the Global Services of IBM alone contribute nearly $47 billion, its immediate competitor EDS earns only $20.1 billion in total revenue. Accenture’s revenue is around $16 billion. The contribution from local IT Players [India’s much ballyhooed software heavyweights] may be considered to be small and works out to around $8 billion in all. Despite their smaller size, the fact remains that local IT companies remain strong players in the local market. Earlier, local players stuck to deals valued at less than $10 million. However the trend is changing with domestic IT players competing with giants such as IBM, in bagging contracts that go well beyond $10 million.

Getting more insight into the competitive market, K P Unnikrishnan, Director-Marketing, Alliances & Teleweb Sales, Sun Microsystems discussed the status of their competitor cum ally organization. Unnikrishnan spoke about what he feels about where the market is heading towards and where he finds IBM in it.

Talking about systems, he says, “Sun today has the broadest portfolio of products in the market today. Be it the new line-up of servers that hold the promise of dramatically reshaping the computing market by delivering mainframe-class reliability with the advantages of open systems or the new Sun Blade 6000 Modular System that provides customers the greatest versatility of any blade platform. The new UltraSparc T2 chip from Sun is the world’s fastest commodity microprocessor with eight cores and eight threads per core.”

Coming to the area where IBM and Sun are working together, Unnikrishnan says, “We continue to be the leader n the UNIX space both on the server and the storage front. We have been constantly saying that Solaris is the leading indicator of our server business and this is clearly demonstrated in our server market share figures. Further, Solaris has also resulted in us cementing a new relationship with IBM where Sun and IBM have struck a deal to support Solaris on IBM hardware. Through the relationship, IBM will become a Solaris OEM, and will resell subscriptions on their System X and BladeCenter hardware—in addition, we will both work on optimizations for drivers and system performance, and collaborate to serve customers that want choice.”

By working together, Sun can serve customers wanting to run Solaris on IBM hardware, and deliver a unique set of solutions (including IBM’s middleware, the majority of which is certified on Solaris, too). Unnikrishnan adds, “This is not about displacing partners or revenue streams, it is about growing both and as [IBM is] the first Tier 1 x86 system vendor to sign on as a comprehensive Solaris OEM, the announcement validates what we have been saying all along—the momentum around Solaris as a cross-platform, open source operating system is indisputable.”

Sunil Mehra, Director– Sales, Fusion Middleware, Oracle India Private Limited spoke about IBM, saying, “IBM has a good market image in terms of services but having said that it is lagging behind to a great extent when it comes to pure applications. I observe that IBM has around 80 percent of its business coming from services. However, talking about applications it is also one such aspect where IBM always likes to establish industry partnerships. Oracle has partnered with IBM on many such initiatives where it offers services on Oracle-based applications. We have to consider the priorities of our customers. It is like understanding their demand and acting upon the same. These industry partnerships are like creating a bundled and customized offering for the customer that is made available as a best in class offering backed by the expertise of various vendors.”

There are certain segments that have shown good growth for IBM India over the past couple of years. Services are a ‘unique selling proposition’ of the organization where it has made a mark in both the Indian as well as the global market.

Within services, Global Delivery is one division of IBM that has enhanced its presence in India. This unit has emerged as a big arm of the company and made its mark at the global level as well.

Krishna of Frost & Sullivan says, “IBM’s Global Services contributes nearly 52 percent of the company’s total revenue with India’s share being 2 percent.

“IBM aims to deliver high-end consulting while keeping costs as low as possible. As part of this exercise, IBM acquired the consulting arm of PWC. In addition, it plans to set up delivery centers in the BRIC Countries to reduce its cost of operations. IBM also plans to expand in India both organically as well as through acquisitions.”

As part of this strategy they acquired Daksh eServices and Networking Solutions Ltd, acquisitions that will help it provide end-to-end solutions in all industries. Krishna predicts, “To provide complete solutions, IBM India may also be involved in acquiring major IT firms that provide specialized IT services.”

On a roll

Big Blue’s Global Delivery business puts it on top of the consulting, systems integration, application services and business process outsourcing heap. The company has unmatched Global Delivery skills and a global resourcing model, especially in the cutting-edge areas such as Information on Demand and Service Oriented Architecture (SOA). However, “IBM is perhaps the only organization which focuses on Services research which leads to fine tuning the way services are delivered globally,” says Rajesh Nambiar, Vice President & General Manager - IBM Global Delivery, India.

IBM’s global delivery center network spans three dozen countries. India’s role in Global Delivery is multi-faceted:

• It is one of the company’s key locations with around 53,000 employees, 35 competency centers and a committed investment of $6 Billion over the next three years.
• The company has six global delivery centers in the country that are located in Bangalore, Chennai, Hyderabad, Pune, Kolkatta and Gurgaon.
• India is home to IBM’s largest global delivery team across application services, process outsourcing and Remote Infrastructure Management (RIM).
• India has one of IBM’s largest Application Services delivery teams globally; the Indian team is working with 250 unique clients, across 17 industries from India.
• Two of the world’s largest SAP implementations are being led out of India.
• IBM India’s Remote Infrastructure Management Services is the largest in the world and today serves 170 clients across AP, EMEA and the Americas.

Elaborating upon some of IBM India’s core strengths in this market, Nambiar says, “In-depth technical competencies as well as other technology products let us blend this rich experience to bring value to customer projects across a wide spectrum of industries.

“The market is in a mature stage now. It is not just about doing the job anymore; it is about providing real and tangible value. By giving an example, we have witnessed huge interest and excitement about SOA—our clients, partners, industry everyone is talking about it. Clients are looking to improve business performance not just by optimizing operating processes but by applying innovative and sophisticated business models and solutions. The problem is that this results in constant change.”

Through Global Services’ business and technology expertise, IBM is working to help clients move toward a service-oriented architecture. This means creating flexibility by simplifying underlying IT infrastructures and aligning IT with the overall goals of the business.

Nambiar adds, “Today, our clients are looking beyond the immediate cost benefits of outsourcing application services to long-term business performance improvements.”

IBM has also announced the establishment of a new capability center which will fortify the company’s existing remote IT infrastructure services and management portfolio; and will strengthen IBM’s position as a leader in the Global IT Infrastructure Outsourcing industry. Remote Infrastructure Management has been identified as a ‘megatrend’ by IT industry analyst firm Gartner, and as the ‘third wave of outsourcing’, after software and BPO, by NASSCOM. In its initial phase, the new capability center will offer server consolidation and middleware services for IBM’s global clients. Once established, it will be a center for IT strategy and architecture; network services; business continuity and resiliency; security and privacy; storage and data services; and site and facilities services. This center will largely operate out of the new GD center in Chennai

IBM’s Small and Medium Business division is the fastest growing sector in IBM India. The Global Small & Medium Business (GSMB) unit accounts for about 20 percent of the company’s total revenue worldwide, and over half of its business in India.

Ramesh Narasimhan, Director – GSMB, IBM India/ South Asia, IBM says, “We are planning on continuing our expansion into Tier 2 and Tier 3 cities throughout 2007 including Nashik, Surat, Bhubaneswar, Jamshedpur, Jaipur, Ludhiana, Dehradun, Vizag and Madurai.” The current team consists of 6,000 people and a network of 90,000 Business Partners, organized in 243 local sales territories around the world.

IBM invests a great deal in designing and developing solutions–products and services–that are designed specifically for the GSMB marketplace; these customized solutions have been categorized under the brand name, “IBM Express Portfolio”. “IBM via its Express portfolio will enable GSMB players across government, healthcare, retail, banking, hospitality, travel and transportation sector to achieve their already clearly identified business objectives. These solutions will help GSMBs track, manage and streamline all their business processes. To name a few benefits, these solutions will speed up the manufacturing process, significantly reduce customer transaction times, and cut down on inventory costs,” says Narasimhan.

Recent work @ IRL

IBM India Research Lab (IRL) has over 3,200 professionals working towards some cutting edge innovations. This Indian lab is the largest outside the US. A few examples of the lab’s work are:

• IRL has developed its Desktop Hindi Speech Recognition technology which transcribes human speech with little use of keyboards helping people unfamiliar with computers or the Hindi language. Explaining this development, Dr Daniel Dias, Director- IBM India Research Lab says, “Since there are various keyboards in use for Indian languages, speech recognition eliminates the need to learn different keyboard mapping. The technology could be also useful in voice-enabling ATM kiosks and in car navigation systems.”
• IRL has also developed “Resiliency Maturity Index (RMI)”, an innovative framework for building a resilient enterprise. With the RMI framework, a company’s end-to-end organizational resilience can be assessed and its resiliency score be computed. Dr Dias also says, “The framework and information helps organizations make investment decisions by viewing the impact of an investment in a specific area on the overall resiliency score of the organization.”
• IRL has also announced a list of Five on Five innovations—remote healthcare access, real-time speech translation; 3D Internet; technologies the size of a few atoms will address areas of environmental importance and advanced ‘presence technology’ in our mobile phone.
• IBM India research lab announced a new virtual IBM Business Center offering a place for IBM sales people, clients and partners to meet, learn, collaborate, and conduct business together. “Accessible through Second Life, it will be unique because it is staffed by real IBM sales representatives from around the world, not robots or kiosks, who can chat with visitors in several languages and build business relationships.” Dr Dias quoted.

Big Green

The Big Green project is an initiative that is part of the global intelligent energy campaign that kicked off during June 2007 aimed at helping economies cope with the existing and impending energy crisis.

“Businesses around the world are consuming extreme amounts of energy through their use of information technology –over 100 billion kilowatts per year globally—furthering today’s energy crisis. The fact is that the data center energy crisis is inhibiting our clients’ business growth now and in the future,” says Jyoti Satyanathan, Country Manager, eServer pSeries, IBM India. According to Morgan Stanley, the energy used to power and cool today’s data centers represents 44 percent of a data center’s total cost of ownership—and for a company of any size today, this can be a huge saving, besides it being a great contribution towards protecting the environment.

Satyanathan adds, “IBM currently runs the world’s largest commercial technology infrastructure, with more than eight million square feet of data centers in six continents. The savings are substantial—for an average 25,000 square foot data center, clients should be able to achieve 42 percent energy savings. Based on the energy mix in the US, this savings equates to 7,439 tons of carbon emissions reduction per year. IBM expects this will also help save more than five billion kilowatt hours of energy per year, globally.”

The Middleware drive

IBM’s Software Group is the world’s second-largest producer of business software worldwide. Headquartered in Somers, New York, IBM’s Software Group employs more than 50,000 professionals including 25,000 software developers and 15,000 sales and technical support personnel in more than 150 countries. Working with a network of more than 100,000 business partners worldwide, IBM creates leading business applications and embedded OEM software for clients spanning all industries. Further describing the market scenario, Pradeep Nair, Director, Software Group, IBM India/ SA says, “Software is the largest contributor to IBM’s profits and the company’s most stable source of growth. Software generated 40 percent of IBM’s segment pretax profits in 2006.” In the second quarter of 2007, IBM’s software segment revenue totaled $4.8 billion, up 13 percent year-to-year, and 9 percent at constant currency. IBM’s key branded middleware, which grew at twice the market growth rate.

IBM believes that Middleware services span the lifecycle of IT infrastructure. Middleware software enables clients to integrate systems, processes and applications across a standard software platform. IBM middleware is designed on open standards.

Talking about his respect for the competition, Sunil Mehra of Oracle adds, “I respect IBM for its strength in services. As far as Oracle’s approach towards this market is concerned, we are more known as a product-oriented organization.” Sunil added, “The way the market is evolving, the number of players in it is shrinking. So as a result of this, the customer will get the best deal and a more professional approach will be required in the market to maintain a long and sustained leadership position.”

Nair says, “IBM’s comprehensive software portfolio, which provides the foundation for business infrastructure, is the result of more than 30 years of proactive investment. The company is committed to translating technology and industry know-how into client value. IBM’s software is found in virtually all aspects of the middleware marketplace, from the common relational database, to transaction processing on the Web, to new social networking capabilities for enterprises. IBM’s Software Group portfolio has also been significantly enriched by the more than 40 acquisitions completed since 2000. Acquisitions have created new revenue streams for the company, expanded the company’s range of offerings and captured share in existing markets where we compete.”

Of the worldwide software market, estimated at $222 billion, a huge part of it—about 40 percent—is estimated to be middleware. The need to integrate systems is driving middleware which could account for about 40 percent of IT budgets, according to IDC. Another factor driving middleware is the increase in mergers and acquisitions activity that is, in turn, driving the need for a flexible infrastructure.