IBM invests $1 billion in research on consulting & computer services

Over the next three years, IBM will spend $1 billion in a new services group whose staff will research consulting and computer services. This shift in IBM's research-and-development spending priorities is in an attempt to turn part of its large research organization into a high-end business consultancy, and reflects the rising importance of services: in 2003, about half of IBM's revenue is expected to come from advising customers on how to use technology to improve business performance.

IBM's largest business is Global Services, which accounts for about 45 per cent of revenues. The company expanded this group with the recent $3.5bn acquisition of PwC Consulting. It is also attempting to transform its chip business along the services model, by offering manufacturing services and chip design.

The new group will operate with a staff of 200 consultants inside its research division, and will be called 'On Demand Innovation Services' (ODIS). IBM confirmed this is the first time its research group, the largest in the computer industry, has created a business arm. ODIS will work with IBM's 3,000 scientists and engineers and with the company's Business Consulting Services division, which includes the former PriceWaterhouseCoopers Consulting group, which IBM bought for $3.5 billion last month.

One project that On Demand Innovation Services is piloting involves developing infrastructure to gather and analyze information from as much as a billion Web pages. IBM sees this technology applying to business intelligence, product marketing and demographic analysis. ODIS is also working on research projects that include new methods of sifting through large volumes of "unstructured" business data to help decision-making. Unstructured data is information contained in notes, e-mails and other areas but is very difficult to access and organize.

The new services operation breaks ground for IBM's research division in offering a formal, direct channel to customers. Some IBM executives also expect it will have a far-reaching impact on the computer industry. Paul Horn, senior vice president and director of IBM research, said the new group's activities represent "a fundamental shift in the ICT industry's research agenda, much like the emergence of software as a critical research discipline in the late 1970s." IBM built much of its $13 billion software group from a base of technologies invented in its research division, the company said.

20 November 2002



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