Innovation and the Time dimension

On labor day, I was vacationing in CO, and picked up this blog post by Vinnie Mirchandani ( @dealarchitect on twitter) to read while my family was getting ready for the day’s activities. http://dealarchitect.typepad.com/deal_architect/2011/09/ibm-we-need-more-innovators-less-integrators.html . Vinnie had earlier penned http://www.enterpriseirregulars.com/40863/we-need-more-applegoogleamazon-moments-less-ibm-moments/. I picked up a lively and healthy debate with Vinnie on twitter, and then Martijn Linssen joined in. He is @martinlinssen on twitter, and I am @vijayasankarv.

Vinnie is a well respected analyst in the industry, as is totally entitled to his opinion. However, I do think the thought process in this case has some flaws. I have an equal amount of respect for Martijn, and respect his opinions as well. We had to stop the twitter debate abruptly since I had promised to take my daughter to the zoo.

So here is me picking up that thread. I do work for IBM since 2006, and am very proud to be an IBMer. However, these are just my opinions, and not that of IBM’s .

How does one define innovation? Vinnie gives his metric to define innovation here.

How much of IBM’s revenues comes from new products innovated in the last 5 years? Because that is the benchmark that Apple and Google and Amazon blow IBM away on as what I consider a legitimate claim to innovation

I think it is a really bad metric to judge innovation of an enterprise company. Here are a few reasons why.

First off – I truly admire Apple, Google and Amazon for what they have done and what they are doing. They truly deserve the accolades Vinnie and others bestow. I use them all as a consumer, and am happy with all of them.

However, Apple comes up with a new product version say every year or less – like the iPad. Since it is a brilliant product, a lot of consumers pay about $1000 give or take each year to buy the next version . That is pretty much a 100% recurring annual cost. Enterprise customers cannot even tolerate 22% maintenance fees. How many vendors can manage to get a savvy enterprise customer to fork 100% every year for the next big thing? And unlike the consumer world, the enterprise world generally needs backward compatibility.

Martijn made a point that IBM thrives because of great sales skills. I questioned that asking him how many customers will stick with a vendor for long term just because the sales people were rockstars. Martijn came back with some good points – mentioning shelfware and government contracts. Even if both are true, what percentage of the $100B revenue will come from shelfware and government? I think the reason IBM survived a 100 years – most of them as a leader – is that great sales was paired with greater delivery.

IBM developed Sabre for American airlines many decades ago – before I was born. And it is still being used widely – and not just for airline reservations. That is innovation that has withstood the test of time. It did not need annual revisions that cost 100% more money from customer every year. If I am an enterprise customer – which one would I like? something that changes every year, and costs me practically 100% of my initial investment every year? or something that I buy once and pay a much smaller maintenance fee annually to keep up to date for decades?

Apple revolutionized how we consume music with iPods. iPhone and iPad were phenomenal successes as well. And they came out in a span of few years or less of each other. Very impressive. But guess who started an entire industry around personal computers? IBM did. And how many years did it take for the next big thing to come up? a few decades. An investment in a PC is not something people did in a recurring fashion every year. And even with mobile devices catching up – PC is not exactly dying. Doesn’t that count as innovative? Or is it not innovative because it was not done in last 5 years?

By the same token, IBM sold off its PC division to Lenovo in 2005 when they figured that the margins of that business were not going to help take IBM to the next level. Wasn’t that brilliant for the shareholders that IBM invested in high margin services and software instead of low margin PC business? And Lenovo is a very successful company too and shows good numbers to its investors. Why is that not innovative?

Vinnie goes on to say

IBM prides itself as supporting and leveraging Open source but cordons it off from its own proprietary and profitable products.

So is it Apple that is the shining example of all things open? Apple decides what works and does not work with their products. It is not open, and it can get away with it in consumer space. IBM is way more open in its products – and supports multiple systems to integrate with its products. Sure it can be argued that it could integrate more – but the point is, it is fairly open, and has been an active proponent of open standards.

Vinnie makes a point of IBM as more of an integrator than an innovator. He says

If IBM was truly innovative it would be automating and commoditizing much of that labor – its own and that of the rest of the market.

Here – there are 2 issues. Is it bad to be an integrator? I would categorically say NO, especially if you are the best (or one of the best) in your business. Second – IBM has very innovative service solutions. IBM does not solve services problems by just throwing warm bodies at it. They are one of the few companies that bring high-end consulting, software, assets, hardware and research capabilities all together to solve the complex problems of its customers. It is a large company, and hence many people have different perspectives on IBM. Some exceptional, some good and some bad and some really really bad. Bad press gets more publicity – but that does not take away anything from a company that has been an icon for a 100 years.

Vinnie’s blog closes of with this

What I find disconcerting is that even at the top IBM confuses its nice margins from milking old software and old data centers and old partners like SAP as “innovation”. This WSJ article I should have written about a while ago summarizes that state of delusion.

Sure SAP is a few decades old. Sure it could also be more innovative like everyone else. But one should also not forget that a good portion of Global business runs on SAP. And IBM is one of the biggest partners of SAP globally. ERP projects get a lot of bad rap for being costly to implement and maintain. But the number of successful projects definitely outnumber the unsuccessful ones, although it hardly ever gets reported on. And OLD does not mean BAD if it still works effectively. Sockets API for Unix was unchanged for a long time since it was written. Was it BAD? Full disclosure : For most of my life, I did SAP consulting. So I probably am biased on this topic 🙂

If Lotus is 20 years old, what about Microsoft office? Why do customers use something that originated more than a decade ago? Shouldn’t that be anti-innovation too?

Martijn said HP invests more in R&D than IBM, and so does many other companies. Not sure if that is a fact – but I do know that IBM invests quite a bit on R&D, and in terms of number of patents and number of PhDs employed, I wonder how many other companies will come close. And how many other companies have 5 Nobel prize winners? Does that sound like sustained investing in innovation?

Of course IBM has had its fair share of challenges. When I did my MBA, we used to discuss endlessly how IBM nearly died, and how it strongly came back. So I am not saying it doesn’t have its problems. But irrespective of all that – I firmly believe that IBM is one of the most innovative companies in the world. In fact, it is one of the core values of IBMers