By: Bill Warner, Paladin and Associates
RESEARCH TRIANGLE PARK, NC – “Invest now, this too will pass,” said Dr. John Kelly, IBM Senior Vice President and Director of Research, while speaking with a small group of executives and entrepreneurs at the Council for Entrepreneurial development in Reseach Triangle Park recently.
Kelly was quite bullish on the possibilities for new opportunities for IBM premier offerings in information technology services and products.
He gave a broad perspective of where IBM is today, and contrasted it to a very different profile as little as a decade ago. A $100B company with 10 percent market share, IBM is predominately an IT services company with 55 percent of its revenue coming from worldwide services.
The remainder is split evenly between software and hardware. They spend about $6B annually in R&D which fuels a broad array of new technologies.
Kelly is quite cognizant of the economic impact we are now feeling with the downturn of the public markets resulting from the credit crisis. He says those with the strongest balance sheets will weather this storm, and views this as a time to grasp new opportunities.
He has no crystal ball as to when the recovery will come, but knows that IBM is in a strong position to invest in profitable growth and become much more competitive in the process.
Refreshing bullish attitude
He cited several examples of industry growth areas, such as financial services and healthcare to name a couple. He believes that the future growth will be fueled by the ever increasing use of computer technology to improve efficiency and competitive advantages in all industries.
Actually, this is no different than it has been since the dawn of the computer age, but his bullishness to accelerate growth was refreshing.
Kelly reflected with great respect on the transformation that IBM has made since its “near death” experience in the early 90’s. The culture has changed, the company is leaner and meaner, and all said and done has transformed itself into the leading professional services company in the world.
IBM has been managed brilliantly, not taking the bait in the late 90’s dot.com boom. It stuck to its guns by achieving business success through a focus on profit growth and earnings growth.
Just growing revenue doesn’t cut it, as did many companies in the late 90’s and early 2000’s. Most of them are now gone. IBM remains strong, because it focused on keeping a strong balance sheet. Go look for yourselves.
U.S. competiveness a concern
He is deeply concerned about US competitiveness, and highlighted his disappointment with the lack of congressional action to fund the America Competes Act in 2007, which would have called for significantly increased investment research.
He cited several examples of other countries leaping forward in this area and producing large numbers of highly qualified university graduates that will very quickly have a material effect in making those countries, like China, much more competitive.
He was of course asked about the importance of protecting intellectual property (IP). After all, we were talking to the person who manages one of the largest patent portfolios on the face of the earth.
His perspective was very balanced, in that IBM certainly makes over $1B annually in licensing fees but also gives away for free the use of patents that could easily make 4-5 times as much for IBM. Their view is that much of their technology will help fuel the growth of industry in general, and as other “boats rise, so will IBM’s.”
Success requires hiring the best
Acquisition is still a key strategy for IBM which has recently spent $5-10B on acquiring innovative companies that fill out their product line and broaden them into new markets. This is all driven by the business units within IBM who identify acquisition opportunities as IBM tries to reach further into the IT industry.
Of special note is Kelly’s healthy perspective about people and the fact that business success is really dependent on hiring the best of the best. He spends a lot of time focused on IBM’s hiring practices, the universities they are coming from and the industry expertise they bring.
Whether or not they are in research, product development or professional services, IBM still goes after the best people it can find and believes they are the key to their own competitiveness.
He confirmed IBM’s commitment to RTP and was very supportive of the work being done by the IBM team which is now predominately software development and services. Don’t be fooled when you drive by all those buildings that look like manufacturing facilities or warehouses. There is a lot of software development going on in RTP.
Speech recognition next breakthrough
During the Q&A period, he speculated on the future of communications devices (like cell phones), saying that speech recognition, including language translation, technologies is the next break-through that we should see.
So, those of you who cannot type, you will soon be able to speak into your cell phone and have messages automatically written for you in most any language. Of course, this is one simple example of the endless possibilities that effective speech recognition can bring us.
Kelly’s closing comments called for us all to focus on the global economy, and achieve global reach in our businesses. He left us with a positive view of the economic situation we are in by saying that this is the time to invest in growth opportunities.
About the author: Bill Warner is the managing partner of Paladin and Associates, a business consulting firm in the Research Triangle Park area of central North Carolina, and is the chairman of the Triangle Accredited Capital Forum, an angel investor network with over one hundred members throughout the southeast.
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http://paladinandassociates.com/
Paladin and Associates
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