IBM's services drive

Hans Ulrich Maerki, Chairman of IBM Europe, Middle East & Africa, discusses IBM's services business, the company's regional strategy and the global economy with ITP.net

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By  David Ingham Published  February 3, 2002

IT complexity|~||~||~|Can IBM establish a direct services business in the Middle East without upsetting local partners? Can it achieve its own commercial objectives while under pressure to hire and train more nationals? And what does IBM think about the global economic outlook and the HP/Compaq merger? Hans Ulrich Maerki, Chairman of IBM Europe, Middle East & Africa, discussed these questions and a lot more besides with ITP.net's David Ingham.

What is IBM doing to make IT simpler? Isn’t complexity perhaps good for IBM, as the leading IT services company?

Hans Ulrich Maerki
We’re doing a lot of things to try to simplify it. However, realising that and at the same time integrating IT with the complexity of your business is not that easy.

If you are IT literate, you’ll know that around twelve years ago we created a system called AS/400; we called it the simplest machine that the customer ever had. It had an integrated database, a simple operating system and anyone who used it will still say it was the simplest machine they ever used.

And then the industry brought in Unix. They said one Unix for everybody and no more proprietary IBM. How many Unix standards do we have today?

Even if you are a leader like IBM, you can’t work against the market. IBM tried do this for many years and it almost killed us. We’re working for the market now.

The biggest complexity today comes from the fact that the industry is not standardised. If people think we built the services business based on that complexity, that’s wrong. We are using our skills and capabilities to shield people from that complexity.

Our services business is not growing because of the complexity of information technology. Our services business is growing because customers need to create value from the technology they use in their business.

If you want to bet your business on information technology you have to have a very stable, robust system. That takes a lot of skills.

Another way we build our service business is when a customer says it doesn’t want anything to do with IT. We have the skills and the people to take care of it for them. That’s called outsourcing and it’s another reason why we’ve built the biggest services business around the world.

Would we like it to be simpler, yes? My biggest challenge in IBM services — I was running services for six years in Europe — was to get the right skills for the job.

How do you make things simpler?

Hans Ulrich Maerki
First of all, customers want to have multiple vendors. No-one will say they want only IBM.

The answer to your question is open standards. Make everything open so it becomes transparent and you can connect it in an easy way, rather than having to build complex environments around it.

We are committed to open standards, we have been for seven or eight years. Lou Gerstner [IBM’s CEO] has said that we have to get away from all this proprietary stuff and be the most open company we can.

Who is making things too complex?

Hans Ulrich Maerki
All those that are not adhering to standards and think they don’t need to comply. We all know that it’s not that easy to come to common agreements because you want to defend your own standards. However, you’ve seen lots of efforts where competing companies have tried to agree. Moving an Oracle database to DB2 is a major effort and the same the other way round.

Why is IBM so keen to support open source [making software code freely available for everyone to look at]?

Hans Ulrich Maerki
It’s one of the ways you can speed up the progress to open standards. Linux is an open standard; it’s free and allows you to construct software that will run on all platforms that support Linux. The code is portable without major changes. Eclipse.org is an effort to provide development tools to the community for free.
||**||The economic outlook|~||~||~|
All this happens against the backdrop of lower IT spending and a weaker global economy; how do you feel about the economy, your own most recent financials and the outlook for the IT sector generally?

Hans Ulrich Maerki
If I knew we’d reached the bottom I’d probably sleep a little easier tonight. We did not make the revenue numbers we’d anticipated which shows that while we were doing better than most of our competitors we’re not totally shielded from vulnerability. I think we’ve been able to balance things because we’re not focused on one thing.

There’s a balance between services, software and hardware. That helps us, but clearly we’re feeling the economic situation. The question obviously is what will happen next.

What’s the outlook for the Middle East?

Hans Ulrich Maerki
I’ve spoken to a number of customers and business partners and things did slow down here. The market here grows twice as fast in Europe but it did come down a few points, particularly around the third quarter, and September 11 didn’t help.

However, I’ve heard in Bahrain and in Dubai that it is already picking up again. The fourth quarter was better than it was in most geographies.

There have been some examples of large American corporations pulling back on their regional commitments. Would you ever reconsider your commitment to smaller markets?

Hans Ulrich Maerki
I would never make a categorical statement. Never say never.
However, we have been in this geography for the last fifty-six years. We have a long history. In 1946, people did not even know what information technology was. I was hardly born.

When you have such long relationships, you don’t just pull out. Now, are we checking our situation in every single one of the countries year by year? Yes we do. Do we check political developments? Yes we do.

This is my first trip here because I was running Global Services for six years in Europe, and we did not do services business here so I had no reason to come down here. I took the decision last year when I was still in charge of that business to start services here.

That’s another show of commitment to the market. We think the market is now ready and mature enough, it’s becoming more complex in its needs. We’re now looking at some very highly sophisticated projects here.

It’s growing quickly and growing faster than the rest of Europe. It would be dumb for us not to be participating heavily in this market.

How do you look at emerging markets, on their performance or their share of overall revenue?

Hans Ulrich Maerki
If this is five or six percent of Europe, you could say ‘Why worry about that six percent, why not focus on Germany or somewhere else?’ I don’t think you can do that, for two reasons. First, we have a lot of large international customers that have done business with IBM for many years. When they move down here, they want to have IBM down here taking care of them. We have a tradition for serving our customer around the world.

The second reason is that focusing on large countries is OK if you have a market share of five percent. IBM has a market share of above ten percent in each of the large markets. It’s very ambitious to say that you’re going to satisfy all your growth needs for the next ten years in those highly developed markets. It’s prudent to be in different geographies. We stayed in Latin America despite all its difficulties and Brazil is a focus market again. We’re heavily involved in Asia-Pacific and have been in the Middle East, and are expanding.
||**||Partner relationships|~||~||~|
Do I sense that IBM Global Services is coming in here and that you are now competing with partners like SBM and GBM?

Hans Ulrich Maerki
The answer to the first question is that we are here. We have a man responsible for services and we are building, together with DIC, a hosting centre. We have agreed to make the necessary investments on both sides of the partnership; we want to actively pursue the e-business hosting market, [and] we are heavily involved in systems integration.

We are going to be growing a business. I’ve seen the business plan and I would say it’s too modest.

Now, to your second question. No, we are not going to compete [with local partners.]

But they want that business…

Hans Ulrich Maerki
They want the business that they can do. I think they will be strong and remain strong in what I call the infrastructure business around hardware and software. We need them for that, because I don’t think we’re going to be able to build a formidable global services business in all its aspects.

We are going to be in partnership with them as we have been in the past, particularly in Saudi Arabia. I just sat with the general manager of SBM and he did not leave me with the impression that our plan to bring even more people down here is going to be in any way devastating to him.

I think this is a constructive conflict. This is the same thing I had in Europe five years ago. Everyone said I would make my business partners mad. We had some conflicts, but as long as the market is growing 15-20% you can hardly step on each other’ feet unless you’re stupid, and we’re not stupid.

If you want a complex project done you have traditionally had to bring people in from outside. Are people going to have to keep bringing in $2000 per day consultants or will you base skills here?

Hans Ulrich Maerki
For some time, they will probably still have to pay such amounts in certain cases. But he told me a year ago [gestures towards Farid Metwally, IBM’s regional manager] that we cannot build services unless I let him get people in. The fastest way to transfer those skills is to find ten or fifteen guys who are willing to come down, live and transfer those skills. In the long run you cannot build a viable services business if you have to fly in your people.

You have to train people, you have to hire locals and this is what the idea of the current rulers is here. This is what they want to invest in and develop in this area.

Are you going to invest in the national population?

Hans Ulrich Maerki
We were in Bahrain and people told me their primary interest was employability of Bahrainis. They have a better situation maybe than here in Dubai but their population is 60% Bahraini, 40% expatriate. If you look at the employment situation, it’s the other way round. They have a large reservoir of jobs for their people if they only have the skills.

We found out that if we train 200 in the next five years that’s not going to replace even half of the expatriate that they want to replace. That’s not even talking about the growth in the market or creating new jobs. Our interest is to help locals do this. I don’t think this region can have sustainable growth unless they have a lot more locals that can carry out these jobs.

How far will you go in giving them these skills?

Hans Ulrich Maerki
They have to manage the process, but what we can give them is the methodologies, what we think the curricula should be, an idea of what the jobs are that need to be filled. I was in a vocational training school in Bahrain and they were training women and men in AS/400. It was very impressive.

What do you think about HP and Compaq?

Hans Ulrich Maerki
They have been formidable competitors up until today; whatever they do they are going to be formidable competitors tomorrow. If they keep themselves occupied with internals, that’s not so bad for us.

Why should I speculate? They will do that they can do and whether they succeed or not, we will compete with them.

From a volume point of view, they may get bigger. The fact that they are doing this shows that the model IBM has is a very desirable model.

Will it be that easy if you just buy businesses and merge them together? I don’t know. I almost doubled my [services] business in Europe; we did only 10% of that doubling through acquisition. The rest was done over six or seven years, growing organically. Putting two organisations together and assuming you can double the revenue to me is questionable. I don’t know how to do that.||**||

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