All hands on deck?

When a company as big as IBM decides to restructure, everyone feels the shock waves. But will the revamp go down like a sinking ship or will it all be smooth sailing?

With the recent spate of consolidations in the channel placing more the shock waves. But will the revamp go down like a sinking ship or will it all be smooth sailing? power in fewer hands, many companies have been forced into reviewing their business strategies. IBM is no exception. Once so powerful it was feared by all in the industry - a mantle now passed on to Microsoft - Big Blue has had to face falling market share as younger and fitter firms arrive on the scene.

But it would appear the giant has woken from its slumber, and through a programme of internal consolidation has reinvented itself in a bid to regain the glory of 20 years ago.

Buell Duncan, general manager of systems sales at IBM Europe, the Middle East and Africa, outlined the company's server strategy in January. In essence, IBM sees the server, mainframe, minicomputer or PC as the key to the future. To that end, it has effectively merged its AS/400 and RS/6000 divisions whose sales personnel will also be able to offer PCs and storage in the server market. The mainframe System/390 group will remain intact as the supplier of high-end storage. This means IBM will now have two rather than four hardware divisions.

Back in the early 80s, IBM was divided into three divisions: the data processing division (DPD) which sold and supported its mainframes, and the 8100, IBM's distributed processing offering; the general systems division (GSD) which sold office automation systems and minicomputers; and the office products division (OPD), responsible for golf ball typewriters and Displaywriter, the company's dedicated wordprocessing machine.

The natural evolution of technology and the arrival of the PC made the OPD obsolete. IBM pulled out of the typewriter market and PC-based packages made dedicated wordprocessing machines a thing of the past.

A fierce rivalry existed between DPD and GSD, particularly as more powerful minicomputers like the System/38, a precursor of the AS/400, came on the scene in the late 70s. The System/38 was supposed to counteract upstart minicomputer companies like Digital and Hewlett Packard.

The divisions frequently found themselves in conflict, particularly when a customer wanted to build a new application but was unwilling to pay for a mainframe upgrade.

There were even rumours that salesmen would tip-off rival companies rather than see the competing division win a contract over them.

Duncan denies that the latest reorganisation is a return to those days.

And in many ways this is true. According to Duncan, there will be a greater emphasis on selling through the channel and IBM's business partners. 'Our strong suit is dealing with the channel, but we are restructuring our business model. The term I use is outsourcing the branch office,' Duncan says.

Not everyone agrees this renewed emphasis on the channel is a good thing for resellers or their customers, or indeed, for IBM itself. Phil Payne, principle consultant with Isham Research, believes IBM's emphasis on the channel is misplaced. 'It has too readily adopted the Var and reseller.

'IBM's strength always lay in its own salesforce. It's fine to say IBM will sell any and all its server products through the channel, but that will only work if a reseller is trained to sell all products. Many of these guys cannot afford to skill up for different lines,' he says.

Duncan outlines a threefold strategy. IBM believes there is a significant shift to network computing as the latest phase of client-server computing, and Duncan claims to have proof of significant business for servers from both divisions of IBM. 'There is plenty of evidence that System/390, AS/400, RS/6000 and the PC server business is here to stay,' he says.

He is also confident IBM can increase its server market share. 'We think we can get a bigger slice of the pie by leveraging our business partners.'

Duncan acknowledges that Windows NT will be the major server operating system of the future, despite doubts about its robustness, scalability, systems management, cost of ownership and openness. But he maintains that few of IBM's larger customers are currently using NT for critical applications.

Despite this, Dun-can insists IBM will continue to invest in System/390, AS/400 and the RS/6000.

In IBM's view, e-commerce and banking will fuel the demand for its server products. According to Duncan, 70 per cent of the world's corporate data lies on IBM systems. 'Bankers continually ask about e-commerce.

The conviction of bankers is that banking over the internet is far more profitable than over the counter, ATM or telephone banking,' he says.

IBM may be in for a long haul if the analysts findings are correct. Last year, UK consultancy firm Xephon, which specialises in tracking IBM, published a report entitled New Directions Electronic Commerce. The report surveyed 250 large IT users and revealed that 70 per cent of respondents felt the Web was not yet suitable for business class trading, security cited as the main drawback.

Nevertheless, 50 per cent of those surveyed said they expected to move to e-commerce in the next five years. The survey also revealed that of current electronic data interchange (EDI) users, 36 per cent intended to stay with their existing system, while 53 per cent expected to use a mixture of EDI and the internet.

Joseph Reger, an executive consultant at IBM, believes the internet has its limitations as a vehicle for e-commerce. 'The internet is not an architecture, it is a chaotic system which needs an underlying architecture and that is network computing,' Reger says. He claims the reorganisation of IBM into two distinct server divisions has removed several layers of bureaucracy. 'When I joined IBM in 1992 there were nine levels of hierarchy between myself and Gerstner - now there are five,' he says.

IBM insists the AS/400 and the RS/6000 will remain distinct product lines despite the fact that they are now manufactured at the same plant, use the same chip and power supply and are sold by the same marketing personnel. IBM is also working on a common I/O subsystem for the two machines and it is possible that in the future the only differentiating factor will be the operating system.

A company the size of IBM is like an ocean liner which has to travel at least a mile to turn round. Hence, any such major reorganisations will effect everyone, including staff and business partners.

According to Rob Hailstone, a consultant at Bloor Research, IBM has been working on the reorganisation for some time. 'It makes sense and they had to do it because areas in IBM have been competing with each other quite ruthlessly.

'But it is bound to put a few noses out of joint. The world is a complicated enough place if you are taking strategic IT decisions without competing divisions from the same company trying to sell to you,' he says.

Hailstone believes the greatest threat NT poses is to Unix. 'As far as I can see, everything Microsoft is doing with NT is making it look more like an AS/400 - though I don't think either IBM or Microsoft would thank me for saying so. The AS/400 is a perfect Java virtual machine because Java sits underneath the OS where everybody else has it sitting on top.

'One of the few criticisms of the AS/400, which is a popular box, is that it is proprietary. But if it can act as a Java virtual machine, who is going to worry about the operating system? The AS/400 has the potential - if it can ride out the next couple of years - to be an important machine again,' Hailstone says.

IBM has continually reiterated its support for NT as a critical server operating system and its business partners have followed suit. The financial and human resources software developer Infinium Software (formerly Software 2000), which developed its products for the AS/400, is convinced IBM's vision of NT as a primary server operating system is correct.

The company has entered into a partnership agreement with Microsoft to port its products to NT while maintaining faith with its existing AS/400 user base. 'We have two separate products for AS/400 and NT and we will continue to develop and support our AS/400 products. But we have to go with the growing market and that is NT,' says Maggie Childs, marketing operations manager for Infinium.

But Childs says there is still some confusion among customers over NT strategy. 'If you ask the average person in the street whether they have an NT strategy, they will tell you that they are using NT. But if you question them, you will find what they mean is they are using NT on their PCs.

'When you talk to them about NT on the servers, things are different,' she says.

The AS/400 is IBM's most popular box. Designed as a vehicle for packaged software solutions it has the most loyal user base of any of IBM's products. 'IBM's AS/400 users are fiercely loyal and are accustomed to working with packaged applications, whereas the RS/6000 users are more footloose,' says Mark Lillycrop, a director at Xephon.

'It seems difficult to get out of IBM what the future is for the AS/400 and the RS/6000. The problem is that IBM has a different marketing message coming from different brand managers.'

The reorganisation has been broadly welcomed by the channel. According to Paul Smith, commercial director of distributor Northamber, these moves are good news for the channel, although he concedes that some resellers have misgivings. Smith admits there is an element of fanaticism in the IBM camp.

'The fanaticism tends not to reside among the customers but in the channel.

Too many resellers, in my view, tend to think IBM is in business to serve them. It is not - it is business to serve the customer,' he says.

Smith welcomes the IBM reorganisation without reservation and believes it is returning to the strategy of delivering solutions rather than shifting tin: 'The difference between this and other reorganisations is that IBM is going back to delivering solutions,' he says.

Smith also feels that bringing the AS/400, RS/6000 and Netfinity 7000 boxes into one mid-range server group opens up new opportunities for the channel.

'The difference with this reorganisation is that the market is going back to delivering solutions. Manufacturers had got so far away from the customers and they have realised they cannot just deliver hardware any more,' he says.

In the early 1990s, there was considerable speculation that IBM would break up into a series of small companies, each independent but contributing turnover and profit to the whole. The latest reorganisation reverses that role.

IBM has had grand plans in the past, many of which have foundered on the rocks of commercial reality or simply been technically unfeasible.

In 1992, IBM set up a wholly owned subsidiary, Individual Computer Products International (ICPI), to sell PCs which, although manufactured by IBM, did not carry its brand name.

The Ambra range of machines, which ICPI sold, were designed to kill off some of the suppliers of lower priced compatible systems. Launched with fanfare, ICPI and Ambra failed conspicuously to make any headway and quietly folded in 1994.

Similarly in 1987, IBM announced its systems application architecture (SAA), which was designed to allow applications to run unchanged on the mainframe, AS/400 and PS/2. The scheme was highly ambitious and was generally welcomed by customers - until they realised that most of the components of SAA did not yet exist. Some of the more waggish users rechristened the SAA 'sod all available'.

It is still too early to assess the full impact of the latest organisation.

Even IBM employees are uncertain what the future holds. But what almost everyone is agreed on is that this time round the restructuring is not a small fix but a major exercise.