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IBM's New Hook

IBM's New Hook

If CEOs buy on-demand the same way they bought ERP and CRM — over 19th hole cocktails with consultants — the consequences could make the bloated expectations and cost overruns of the ERP and CRM era look like best practices by comparison.

IBM's pitch that on-demand e-business will reduce IT costs and make everything work better sounds good, especially to CEOs who don't understand that the technologies to make it happen just don't exist.

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A CEO watching a football game or a golf tournament on TV today is reminded during the commercial breaks of something about his IT infrastructure. He's reminded that it's a mess.

The bearer of this bad news is IBM. The message embedded in its ads (once you finish laughing at befuddled businesspeople peering through "magic business binoculars" or examining the "universal technology adapter") is simple: Your IT is broken, and you need IBM, the biggest technology company in the world, to fix it.

Now CIOs watching those ads know that IBM can't, in fact, clean up the mess they live with every day - the costly proliferation of hardware and software that doesn't work together; the shrunken staffs asked to manage more applications running on servers that typically use only 10 per cent to 20 per cent of their computing and storage capacity. They understand that IBM's "e-business on-demand" proposes to solve those problems with technologies that are either in their infancy or so numbingly complex that they're years away from being applied by the typically risk-averse Fortune 2000 company.

Unfortunately, CEOs and CFOs don't care about any of that. All they know is that their IT costs - which are now more than 50 per cent of the average Fortune 500 company's capital costs - are throbbing on their balance sheets like big red sore thumbs. All they know is that they are facing a crisis of cost and complexity. And every time they see those IBM ads, it brings it all back.

But IBM's on-demand vision is not going to bail CEOs out of their predicament - at least not yet. More than a year ago, American Express outsourced much of its IT group to IBM in what was hailed as the first example of IT as an outsourced utility. But it is not a utility. Amex's computing resources are not mixed into a vast pool to get giant economies of scale, like electric utilities do. It is a variable pricing arrangement in which Amex pays a floating rate for computing power from a bunch of existing machines that are fully dedicated to Amex. That's outsourcing with a pricing twist.

"IBM does support and the data centre," says Amex vice president and CIO Glen Salow. "We do everything else - like application development and architecture." Stripped of its on-demand hype, what you get with IBM is outsourcing, and outsourcing is what it has always been: a risky strategy that according to numerous surveys fails to achieve either better service or reduced costs 50 per cent of the time.

That's a coin flip.

But that heads-or-tails gamble doesn't stop CEOs from wanting IT off their books right now, and IBM's TV commercials tell them they can do it right now. Today.

However, if CEOs buy on-demand the same way they bought ERP and CRM - over 19th hole cocktails with consultants - the consequences could make the bloated expectations and cost overruns of the ERP and CRM era look like best practices by comparison. At least CIOs could unwrap ERP and CRM software and put it on servers. On-demand exists only in theory. And while CIOs during the years have managed plenty of difficult technology projects, implementing theories has never before been on their to-do lists.

Why Your IT Is a Mess

No one is better at conveying the crisis in IT today than IBM. The brilliance of its advertising campaign (and the way it avoids culpability for the problems it helped create) lies in the fact that it has beaten its competitors to market with a startlingly new strategy for selling technology: the truth.

And the truth is, IT has not delivered on its promises to the enterprise.

For all the sales talk about agility and on-demand, no hardware vendor today makes a server that can manage a server from a competing vendor as well as its own, if at all. And no software vendor writes its applications to share that server with anyone else's apps. Any claim that on-demand computing can be delivered today depends on the fiction that you can build your infrastructure using a single type of application and use hardware with a single operating system from a single vendor. Every CIO knows that's nonsense.

What CIOs need today is the ability to share computing resources across operating systems and across hardware vendors because that's the reality they live with: a heterogenous infrastructure comprising everything from legacy mainframes to 15-year-old PCs to cutting-edge blade servers. And CIOs need applications that can be shared across this complex mess without falling apart or bringing down other applications in a massive crash. This technology exists (much like the technology to make a nonpolluting car), but there has been no advantage for vendors to offer heterogenous infrastructure and application management because doing so would hurt the sales of their own stuff.

But now the stuff is not selling. Sales of high-end servers were down 30 per cent in 2001, according to IDC, and rose only 1.6 per cent in 2002. And in 2001, ERP vendors' revenue from existing customers for the first time outstripped those from new ones.

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