IBM to direct $1bn of R&D into IT services


20 November 2002 IBM is moving $1 billion of its research-and-development (R&D) budget into solving specific problems for consulting clients, in the latest sign of changing priorities within the high-tech industry.

The New York-based systems, software and services giant has formed On Demand Innovation Services, a 200-strong research unit that will help its customers build, integrate and change their IT infrastructure.

The company said its clients will be able to build better supply chains, improve their database information and enhance their management of physical assets.

“We’re going to use stuff we’ve developed in the lab to help companies differentiate themselves from their competitors,” said Paul Horn, senior vice-president and director of IBM’s research division.

IBM hopes the new emphasis on computer-services R&D will encourage more clients to switch to its managed computing services. The $10 billion push, called ‘ebusiness on-demand’, was outlined by CEO Sam Palmisano in October 2002.

This is the first time that a major technology company has shifted such a large slice of its research budget into consulting and computer services. IBM’s R&D spending last year was $5.3 billion, or 6.2% of its revenue.

“As the industry enters a new era driven by services growth, the role of IT research and the kinds of problems researchers should be solving will radically shift,” said Horn. “[This marks] a fundamental shift in the IT industry’s research agenda, much like the emergence of software as a critical research discipline in the 1970s.”

In 2001, IBM’s services business generated about 45% of the company’s overall sales, and this figure seems certain to rise above 50% in 2002 for the first time. IBM bought the consulting business of PricewaterhouseCoopers for $3.5 billion in July 2002.

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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