Guild Companies

"On my dresser sits an oak box lightly coated with dust. In it, for reasons passing memory, I keep an assortment of random relics that have somehow survived years of domestic downsizing." I wrote those words a decade ago, and wouldn'tchaknowit, the box is still there, and still holds the same collection of oddball memorabilia. Among my neglected treasures are a broken watch, a black stone, the significance of which I've forgotten, an expired library card, a commemorative belt buckle, about the size and weight of a waffle iron, a button that says "The Scenery Only Changes for the Lead Dog," and eight shares of IBM stock.

Although the stock certificate says eight shares, it's actually 32 shares now, because the stock split twice over the years. Before it started multiplying like an amoeba, however, it had lost three-quarters of its value, and one day, in disgust, I stuck it in the oak box, which I thought of as a symbolic final resting place for the stiff it was. But the thing refused to die. Akers (IBM CEO twice removed) damn near killed it, until he was finally asked to leave, then Gerstner came aboard to breathe life into it, and he kept huffing and puffing for a decade, until it grew to four times its original size.

Now Gerstner is gone (just when I finally learned to spell his name) and Palmisano has taken over, and once again I'm reminded of why I've held on to the stock all these years. I persist in keeping it because it entitles me to all of the shareholder correspondence from IBM. Each year, as a loyal investor, I faithfully receive my copy of the annual report, with quarterly updates on the doings at Armonk.

I particularly love to read the chairman's letter. It's mostly propaganda, of course, but it usually offers a glimpse of where IBM wants the industry to go, how it views its role, and what its customers can expect. Or, more accurately, where its customers can expect to be led.

One of the first things I gleaned from IBM's new chairman is that, although he tries very hard to insist otherwise, the industry is not driven by customer requirements, and really never has been. The vast majority of IT customers remain years behind the technology curve. And for good reason. Technology changes a lot faster than business practices or customer demands, and a premature commitment to unproven technology can be both costly and disastrous. If anything, customers wish the IT industry would slow the obsolescence treadmill down, allowing them to maximize current investments and chase customers rather than technology.

No, technology providers only listen selectively to their customers, because they can't afford to have their customer base standing still. Like the annual rollout of new cars, a new fender, a faddish headlight, or a GPS system for the directionally impaired, something has to bring the buyers in. It is innovation that drives the IT industry, and, generally, business trails behind at a safe pace. Business neither wants to stake its survival by being the first to hazard unexplored territory, nor wishes to be left so far behind the herd that it will become irrelevant or be eaten by predators.

Proof of the value of innovation lies in IBM's continued commitment to it. Even in a bad year, when IBM was "repositioning itself for leadership" (the sporting equivalent of having a rebuilding year), and revenue and income were down from the year before, IBM nonetheless invested $4.8 billion in research and development. Within the last decade, the company has pretty consistently allocated such substantial sums to R&D, so we must assume the investment is generating desirable results. As one measure, the chairman reports that IBM was granted 3,288 patents this year alone and that its 10-year total eclipsed 22,000.

Let's not kid ourselves. All of that research is not in response to some perceived customer need, unless one defines "need" using the broadest comparative strokes, like better, faster, greater capacity, and so on. There is, for example, little immediate demand for nanotechnology, but research continues. Essentially, research is a multibillion dollar gamble that some discovery or set of discoveries will inaugurate the next generation of must-have computing, preferably with cross-industry application.

Although there are exceptions, rarely does customer demand for some product or service turn out to be an industry-driver. If for no other reason than that the greatest innovations are locked in the minds of innovators whose vision far surpasses the status quo. But once those innovations go public, if they are dynamic enough, everyone is soon forced to use them at the risk of becoming irrelevant. I don't remember anyone asking for a PC, but try getting a job if you can't use one. The Internet was a military application, but now you can't be the rage if you don't have a page. And so it goes. Someone puts a graphite shaft on a golf club, gets an extra 10 yards on his drives, and everyone panics and buys clubs with graphite shafts. Innovation occurs, business finds a useful application for it, and soon everyone has to use it to remain competitive. Then, of course, providers claim it was all in response to their customer's wishes.

Palmisano is quite clear about that. "Our customers have stopped thinking of their technology needs just in terms of data centers or storage systems or PCs or even networks." They have? That may be news to some of you, but the chairman would prefer that IBM's customers no longer view their technology needs so narrowly, because the more extensive their desires and the more complex their needs, the fewer solution providers they have to chose from.

"It's the entire technical infrastructure" that matters, according to Palmisano, and, as you can imagine, for most businesses, even the large ones, paying for an entire infrastructure is cost-prohibitive and thus will require lifetime assistance. Happily, that's a much more profitable proposition for IBM than, say, setting up one of those outdated data centers.

"E-business on demand" is the Valhalla toward which we are all being herded. "The promise of on demand," Palmisano explains in this bit of mind-bending analysis, "is that a company or institution can provide products, services, information, health care, education, government services, and so on--all 'on demand.' " So, if I've got this right, the promise of on demand is--getting stuff on demand. That's sort of like clarifying that instant gratification is all about getting gratified instantly. I suspect the point Palmisano is straining to make is that on demand is no less desirable for being self-defining.

And he has a point. If you've recently had the misfortune of dealing with the healthcare industry or an educational institution or an insurance company or, God forbid, a government agency, a little on-demand service sounds mighty inviting. Of course, improved service was the original promise of computing, wasn't it? But, okay, if your company wants car parts from Calcutta, or jackets from Jakarta, or microchips from Malaysia, the promise of on demand has some appeal. Impulse buyers, however, will live to regret it.

In any event, it's too early to get too excited, because the chairman's vision is still a little vague. Palmisano foresees the industry "moving from a collection of vertical 'silos' to a seamlessly integrated, horizontal flow across value chains." If that confuses you, you're not alone. But whatever that means, Palmisano thinks it will be "a major, major shift." Yeah, and so would speaking in plain English. Regardless, knocking down those vertical silos while flowing horizontally over chains of value will require, according to the chairman, "deep business expertise and know how." And a translator would help.

The good news is, IBM wants to be your translator. The bad news is, you're going to need one, because managing falling silos and flowing chains is no work for mere mortals. In a rather remarkable dismissal of competitive alternatives, Palmisano declares: ". . .all technology companies envision ways in which their products will change business and society. Most do so with great bravado. More often than not, though, they are just plain wrong. The dot-com era was just the latest reminder that creators of databases, PCs, and printers have no special qualifications to understand the future of serious business. In fact, they are probably the last people customers should look to for this kind of insight."

So there you have it. Insight and innovation are limited to only the largest technology providers, which possess "special qualifications" (don't tell Steve Jobs, Red Hat, or a dozen others I can think of), and if you should look elsewhere for guidance, your business must not be "serious."

Although, in IBM's model of the world, "serious" means big. IBM will help your business appear to be small and personal and responsive to the on-demand demands of your demanding customers. To survive, you will need access to an entire technological infrastructure, which you can't create by yourself, but you can lease from IBM. All the computing power, all the software, all the communication capability you want. Pay only for what you use. All necessities furnished, all anxieties tranquilized. Just sign here.

And, who knows, maybe it will work. IBM has a lot invested in seeing that it does. But there's always that wild card, the man or woman working alone after hours in a lab or a basement or a garage, tinkering with a design that tomorrow will change everything.