IBM to restructure its software business

1 December 2003 IBM is planning a major restructuring of its $13.1 billion global software business in a move that could have ramifications for customers, competitors and business partners.

As part of the new reorganisation, IBM will move more development and marketing responsibility to its vertical industry units, of which there are twelve. These units will combine with the industry-specific consulting divisions that IBM acquired as part of its acquisition of PwC Consulting in 2002.


The move will inevitably lead to speculation that IBM is planning a return to the application software market, which it largely quit in the 1980s. By combining its middleware and system software products with an allied expertise in building industry-specific applications, IBM will be able to build customised ‘business processes’ that could compete with packaged applications.

As part of the strategy, IBM plans to compete more directly with Microsoft and its Windows, SQLServer and .NET suite, by trying to persuade thousands of software companies to build flexible applications on its platforms.

Details of the reorganisation will be announced to IBM software business staff at a sales conference in Las Vegas in January 2004. Some 20,000 software engineers are likely to be redirected towards more industry specific work, reports suggest.

IBM’s software business is second only to Microsoft’s in scale, and includes the DB2 and Informix databases, the Websphere integration and application server platform, the Rational development suite, the Tivoli systems management suite and Lotus collaboration software.

But whereas Microsoft has been growing steadily throughout the industry recession, IBM’s business has grown only marginally in four years to $13.1 billion, in spite of the acquisitions of Rational and Informix.

IBM believes that, using Rational and Websphere development and management tools, it can quickly build end-to-end business processes. Moreover, executives have argued that using event-driven modelling and business process management techniques, it will be possible for business people to specify and alter software ‘on-the-fly’.

Over the past three decades, IBM has repeatedly re-organised its software and services businesses, creating industry specific units as long ago as the early 1980s. However, former CEO Lou Gerstner also strengthened IBM’s focus on core, generic technologies, encouraging business partners to take on more of the marketing load.

Partners that supply industry specific applications, and those that provide services around IBM products, are likely to be concerned over the new moves, which could lead to channel conflict.

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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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