The Hindu Business Line : Globally integrated network is IBM plank

Wikipedia describes scuba diver as one who is able to hold her breath underwater, with the aid of equipment, for periods greater than an average individual can. As a scuba diving enthusiast, it was probably this ability to go beyond the average that propelled Ms Virginia (Ginny) M. Rometty, to the position of Senior Vice-President, IBM Global Business Services, reporting directly to Mr Sam Palmisano, CEO. Ms Rometty was earlier head of the consulting division formed after the merger of PricewaterhouseConsulting with IBM.

Ms Rometty recently spoke to Business Line on broad trends in IT. She is part of the delegation visiting Bangalore to attend IBM's two-day `investor and influencer' briefing to be addressed by the Chairman and CEO, Mr Sam Palmisano on June 6 and 7. Excerpts from our chat:

Is the trend of unbundling of services to different vendors picking up? What do you see in the market place?

My view on how clients make these decisions is this: large engagements have always been about the market that you (create) out there, that you proactively construct with clients. So, there are still large engagements that we engage on.

In general what are clients doing? I see a different trend. I see clients going more and more towards solutions. Application maintenance may be part of the solution. But we approach this from other angle. In a couple of years out, you will see, that the client is looking for a provider to be accountable to business outcome.

You start at the very end of understanding what the issue is, outlining it, how to deconstruct your business, put it back together, what the application architecture is, technological architecture is and then, over time, maintain it. That, to me, is a project.

Large engagements and large markets is something you have the opportunity to create with clients. I see clients looking at projects as an end-to-end solution.

So, you'd move towards transaction-based or value-based pricing...

Not only transaction based. A number of these engagements today are a combination; some pieces of the project are fixed, there are pieces based on time and material and some based on business outcome. For example, your fees could be based on how much sales go up.

The future is a combination of those different leverages with much more of a focus on "Did I get the outcome I wanted?" and, "Did the cycle for product introduction actually go down?" And, not just around, "Did I just get this cheaper?"

Most clients are focused on "Did I reduce my risk, did I increase my chances? Is the quality up and did I actually get the outcome I wanted?"

Discretionary spending has been exceptionally strong recently. Any areas that seem better now compared to the past — particular verticals or technologies?

I can't think of a hotter topic with clients that the Services Oriented Architecture (SOA). It's not (to do) with tech clients but about business leaders in client companies. This is because SOA allows a business leader to leverage past investment and revitalise it without ripping it apart. It helps encapsulate things and changes things in components.

It is a way of building applications that requires both, the software company mindset, as well as the services mindset and a business acumen to bring SoA to life.

SoA sits at the intersection of business and technology. It is one technology trend that would propel people to do things they wouldn't have done before.

And it's come into its being now. You can actually begin to develop these major applications — an example is the work we are doing with companies like NorthWestern Mutual. It's a hybrid software services model.

In the last 3-4 years, IBM has been obviously successful in getting an India strategy up and running. Last reported manpower was near 38,000 in India. What has driven this surge in work outsourced here? Client pressure? Need for an India strategy?

First, it has been more than these last few years. Our India operations began in the early 1990s. It has been part of our success.

IBM research, development, servicing of domestic clients, parts of services (technology, application, high-end consulting and strategy work) are all located here. India plays a vital role in IBM's overall global strategy, as does China, Brazil, the US, Germany — they are all integrated.

We recently had a conversation with a banker. He was saying it is critical to build reusable, shareable services and applications. Soon, the number one issue would be about governance and how to manage these assets.

We have a very unique advantage because of our software heritage.

He said he wouldn't even think of going to other vendors to ask these questions. ... because he has to talk to someone who has actually lived in a world of how to actually manage software products and not just services alone, on how you do governance.

From the vertical standpoint, we see clearly strong demand from the financial services sector, and also growth in small and medium business around the world — if you see that as a sector.

Some vendors feel that application development and maintenance work is saturating. Your comment?

I don't see it stagnating and is still a growth opportunity. I see clients more and more interested in doing not just that piece but in solutions.

For instance, when we go out to a client, talking about replacing core systems around insurance, we work with them on how to take their legacy systems, break them up into components, how do I do change management with the client, how do I build it and maintain it? (I go through the whole lifecycle with them)

That's the different trend I see. It isn't just about maintenance but about that lifecycle. I think these are all still vibrant markets for us.

What is the nature of projects that IBM Research does in India?

They are not significantly different (from work done elsewhere in IBM). Global Business Solutions is one of the vehicles that we pulled out and brought together with. The only difference is that the way it is set up is that they have some specialties like Zurich is known for wireless and communications expertise. Likewise, around the world. In India, expertise is with software development.

The biggest trend with clients is the amount of work we are doing with analytics and mathematical algorithms that allow them to do analysis and Real-time changes to business processes that they couldn't have done before. For example, the fraud and management solution we offered were mathematical algorithms that had to be created/invented to be able to do that level of precision and fraud detection.

We also launched a centre for business optimisation — these were algorithms mapped around real time use of data. You could always have done it a long time ago. But now the issues are — the amount of data, the speed at which you can do it, the lower prices... You can actually invent some of these algorithms and insert it real time when you do a process. For example, ... we are doing a large amount of work with IBM Research for clients in shipping, including container analysis and tracking. We couldn't have done that before. It's not just RFID reading. They have invented a censor that goes into the container — but it's real time, satellite driven, senses a number of things, is interactive, and all that.

Since you have ramped up strength and getting the overall thing in order in India, have you reached a stage of being comfortable with the offshoring model?

We are past that stage even. On a time and cost basis, we can compete with any of those companies. And, I don't believe that the current issue is on the offshoring model. The issue is: Who has a global solutions delivery model? Because without that, you can't service a client. You can't service a client in 50 countries, and do everything from ADM and all the way up to project management, training and change management. This is not a war of offshoring but of global solutions delivery and about who can harness the best of excellence centres in the world to do work for clients. One thing we have perfected is: in doing an end to end engagement with appropriate functions being done between the client and ourselves and whether that is local for a client or in a remote centre, taking culture and language into consideration and how change actually happens.

That is the most important and difficult thing. That has taken us well over a decade to perfect this.

Indian vendors say that they would be able to compete in every deal upto $ 500m. With the renewal of deals happening this year and the next, are you looking at reorienting your strategy for unbundled deals or renegotiable deals?

If you determine how to bid on a deal is by your size, then that would imply that the market is only about scale and labour.

You have to pick the deal and the engagements with clients by the capability that it takes to deliver them. Size is immaterial — whether you are qualified to actually help them is the question. Again I go back to — "Can we help the client? Do we have the breadth?"

Clients are buying more and more with a solution orientation and into projects oriented end-to-end. We will do both — large deals and non-large deals. Our first quarter had a number of (deal) signings. They increased significantly with clients. But, nothing over a billion dollars. This is about providing what a client needs versus dictating what you bid by size.

For IT outsourcing, they are looking for very important service levels and metrics for running their business.

The important point is that we look at India as a centre of excellence where we have developed skills, capabilities and access that are part of the global network for clients and it would continue to play a vital role in that for us. Evident from our staff numbers.

We see some estimates for enormous manpower addition the coming year for the software biggies in India. Given your own aspirations, what does this mean to management width. Do companies have adequate mid-management strengths built in?

We feel very confident about our middle management in India. It's been very strong.

We have brought senior people in and have done a good job of rotating people in and out. We have very consciously focused on growing local talent. We also have a management development programme that we have used around the world and which we have actually offered as services to clients.

We don't see that as an inhibitor to growth. We have a lot of functions that make ours a mature organisation. Our growth strategy is not just India but India, China, Brazil, Romania... all networked together so you get the strength of not just the country but a globally integrated network.

We have worked very hard on offering people careers so people have stayed longer. That gives you that business acumen that stays with you. That is an important part of middle management.

There is a growing manpower requirement with other industries also requiring quality graduates, not to mention the increase in the US' H1B visas. Is hiring of large numbers of lateral recruits a challenge? Do we do something now to thwart an emergency five years ahead?

The biggest thing you have to do is to offer people a career path. We have varied specialty areas, excellent skills coming on line around the world. We are doing that now and planning for it now.

Two years ago, we started something called service to science. This is a way to prepare universities to produce people more ready to work in this world. This is not an MBA who also has a Computer Science speciality but people who do an academic discipline called Services Science.

That is one of the biggest things that can change the future of the number, quality and type of students produced.

First, it has been more than these last few years. Our India operations began in the early 1990s. It has been part of our success. IBM research, development, servicing of domestic clients, parts of services (technology, application, high-end consulting and strategy work) are all located here. India plays a vital role in IBM's overall global strategy, as does China, Brazil, the US, Germany — they are all integrated.

(Activity in India) has accelerated in the last 6-7 years. This is all about being a globally integrated company. We have proven that with centres of excellence around the world, with skill sets that could be harnessed to help grow IBM and help our clients. So, it wasn't just India but other countries as well. This isn't about low cost labour but about really talented people who we want to make part of our global network. The Global Business Solutions Centre in Bangalore is an example of this. We are packaging and delivering what I believe are high value capabilities around the world. We have software/research/services skills in India — we use those to build replicable assets targeted at business solutions. We have about 50 of them, targeted at client pain points. For example, we built something around fraud and abuse management. It combines advanced algorithms from research with consulting. The software group runs it as a service. Different centres around the world are focused on their area of speciality. Subject matter experts build these assets that we then take to our services business or that are taken into products over time. That is a very important mission that I think tells you about our globally integrated centres of excellence. They are not meant to be pockets of labour.