IBM Shifting $1 Billion to Services R&D

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IBM is putting more money and muscle where its mouth is
regarding its on-demand computing strategy by creating a new research
division called On Demand Innovation Services. It plans to shift $1 billion
in investment to the new division over the next three years.

The new services arm is to be located within IBM’s research division and
will be staffed by about 200 of its consultants, who are expected to work
with the approximately 3,000 researchers IBM employs worldwide. Company
officials said the division would work in partnership with IBM’s Business
Consulting Services division, the new consulting division it created after
it purchased tech consulting giant PwC for $3.5 billion.

The goal of the new research group is to help bolster its own consultants’ work with clients and help business customers adopt on-demand computing
systems across their internal and external supply chains and IT systems.

IBM spends about $5.3 billion a year a year on research and development,
much of it focused on the science of computing applications. That the
company would shift $1 billion to invest in a consulting-related R&D
division is one more sign of the importance of services to IBM’s new
strategy as well as its bottom line. Big Blue’s global services division
brings in about half of its annual revenues.

IBM said the On Demand Innovation Services group would initially
concentrate their research efforts on four areas:

Advanced Analytics: applying advanced mathematics and computer models to
understand and solve clients’ business and IT problems, such as efficiency
calculations for chips to managing risk. The techniques applied to IT
infrastructure planning would include combinatorial optimization,
computational complexity, control theory, integer programming, linear
algebra, statistical learning theory and stochastic programming.

Business Process Transformation: Recently unveiled as a key component of
IBM’s Business Services consulting group, the focus is ultimately about
reengineering a customer’s IT system in areas such as customer relationship
management, supply chain management, or enterprise resource planning.

Information Integration: This is where IBM’s embrace of open standards
and interoperability would be put through R&D rigors by working with diverse
forms of data that exist across business enterprise systems.

Experimental Economics: Where arts and sciences would be integrated with
a traditional technology research agenda by studying different business
models, and how institutional design influences economic outcomes.

The new division is also the first time IBM has created a customer-facing
research division. Not since the early 1990s when IBM shifted much of its
R&D to software research has the company moved to realign its organization
on an emerging set of technologies, said Paul Horn, senior vice president
and director, IBM Research.

“The role of IT research and the kinds of problems researchers should be
solving must change as the industry enters a services-led on demand era.”