International Business Machines Corp. (NYSE:IBM)
Citi Global Technology Conference
September 4, 2013 12:00 PM ET
Mike Rhodin - SVP, IBM Software Solutions
Jim Suva - Citi
Ashwin Shirvaikar - Citi
Jim Suva - Citi
Good afternoon, ladies and gentlemen and thank you for joining us in the second day of Citi's Global Technology Conference here in New York City. This keynote lunch is with IBM and I am Jim Suva, the Technology Supply Chain and IT Hardware analyst. Joining me also on the stage in the center is Mike Rhodin, the Senior Vice President of IBM Software Solutions and to his side is Ashwin Shirvaikar Citi's IT Services analyst.
The format of this is not a canned presentation but a fireside chat. So we'll talk about some overall business trends and most importantly specifically what Mike Rhodin is in charge of and where he's spending his time, efforts and energies focused within IBM and the type of future that he sees for the company.
Following this time after myself and Ashwin ask Mike some questions, we're going to turn the time over to you as investors to ask some questions of IBM that you may have. Because this is a large group with lots of people as well as being webcast, we do ask that you wait for the microphone to get to you. Please proceed to have your lunch as needed and again for the first half of this presentation we'll be up here doing some informal questions and answers with a fireside chat. Again thank you so much and for those of you who just joining the room. This is IBM keynote lunch.
Mike, thank you so much for joining us today and making a trip down here to Manhattan. To begin, can you go ahead and give us a quick overview and a little bit of background about yourself, what you do at IBM and your roles and responsibility?
Thanks, Jim. Good afternoon everybody, I hope you are enjoying your lunch. I am Mike Rhodin and I'm responsible at IBM for one of the five groups or large business units within the organization. I'm responsible for the newest of the five businesses within the company. My focus area is just on software solutions which is a kind of a generic term but it's focused in on the key growth areas for IBM. So our analytics capabilities, our smarter planet solutions, including smarter cities, smarter commerce, our smarter workforce solutions including all of our social capabilities as well as the commercialization of emerging technologies in the cognitive computing area with Watson and the technologies around next generation computing that are emerging. The group is formed beginning of 2010 and with some of the recent acquisitions is kind of the foundation of the group, BioMed, Cognos, SPSS and then Sam and Jenny have been kind to open up the balance sheet and I've bought a few companies along the way over the last three years.
Jim Suva - Citi
Well thanks very much, it sounds like you're in some of the most exciting part of not only IBM but overall as well as in IT technology and the space overall. Mike, can you maybe talk a little bit about some of the hot topics of IT landscapes, specifically maybe Big Data, security and mobility, what you're seeing there, but please don't forget because these are investors, how is IBM monetizing these trends?
Sure, I think and as I talked to some of you throughout the morning, I think the important thing to understand is these are not separate trends. There is an interrelationship across social, mobile, analytics, Cloud that are really forming the foundation for a next generation of information technology services that are going to be made available to the market. At the root of all of this is this concept of Big Data. It's clear that the technologists had a lot to do with the naming and marketing didn't get a hold of it, because Big Data is not that sexy of a name but it's aptly named and it is about the interconnection or confluence of lots of new sources of information, whether it's coming from social systems, whether it’s coming from instrumented mobile devices, whether it's coming from public or cloud services or coming out of your back office systems in the companies that we service.
All of that information coming together is what forms this concept of Big Data. We're at the very early stages of a massive growth wave of information, which is going to change the way that information technology systems are going to have to be built in the future. There is so much data that traditional techniques of processing every record of data in the order it comes in doesn't make sense anymore. You got to use math, analytics, statistics to start to look for the correlations and the hidden patterns that exist within all that data to tell you what's happening in the world around you, what's happening in your business, what's happening in your business processes and then to start to be able to predict what might happen next based on those patterns.
So we see this confluence of information, this Big Data phenomenon and analytics is a universal translator for that big data as the foundation for a whole new wave of application. Now many of these new applications are hitting areas of the business that haven't been focused on as much by IT vendors. It's hitting front office versus back office systems of record. So these front office solutions, they're solutions for the Chief Financial Officer, the Chief Procurement Officer, the Head of Sales, the Chief Marketing Officer represent a new set of buyers for information technology, a new set of budget back to the investment point that's going to be freed up to use as part of this transformation on as how Big Data and information start to transform, all of the processes that these different front office organizations are using to run their business.
It's a major transformation opportunity. It's an opportunity not just for software, it's an opportunity for the cloud, it's an opportunity for infrastructure it's an opportunity for consulting. It is a major transformation that's underway. That's really where I think the hot topics are and if this mornings' conversations are any indicators, as I told you both when walking up, the conversations are social, mobile, analytics and cloud.
Cloud becomes an interesting topic here because it becomes a new way to deploy information technology to reach these new buyers. These new buyers don't have traditional ties to on premise infrastructure versus Cloud base infrastructure. So they are very comfortable with the concept of buying it as a service and then over the time, I think that will move around a little bit because you are going to run into leasing versus buying and the mathematics and financial equations associated with leasing versus buying over time.
Jim Suva - Citi
Well that’s exciting. It sounds like IBM is well positioned to get the checkbook and the orders to monetize this in several different segments within the company. Mike, when we will shift over and think about smarter planets and talking about social technologies, can you talk about, everybody in this room like to be social, whether its adult, children, teenagers and where this whole realm is going for social opportunity; can you talk about the opportunity for IBM, how you are competing in the space and maybe provide some tangible examples of being able advantage of social technology and important how is IBM monetizing this.
Yes, I think social becomes one of those interesting confluence points. We are all familiar with social. We see Twitter, we see Facebook. All of our children are all over these systems, we are all over the systems, my parents are all over the systems and some of my aunts and uncles are all over the system and it’s amazing what people will actually say in their retirement.
But as you look at the social systems, what inherently is happening is people generally like to be social. In the old days companies were located in one big building. They were all together, they meet at the water cooler, they meet in the cafeteria for lunch, they would exchange ideas, they would exchange ideas about how to improve the business. A lot of great ideas happened in these conversations that occurred in the hallways. What's happened as companies have become multinational, globalized, as parts of organizations has been spread across countries, across continents and across the globe, we have lost that right.
And five or six years ago when the social phenomenon was happening in the consumer space, one of the things that we have recognized was that technology, that technique offered an opportunity for businesses to recapture those hallway conversations, to recapture the social element of how organizations became efficient, how they innovated, how they came up with the new ideas that drove the next generation of business.
So one of the things that we did is we launched a social product called IBM Connection. It became and it has been the number one rated enterprise social platform by IDC over the last four years but what’s interesting about it is it shifted from an application like a Facebook to a platform. You see this happening in the consumer space with the social products and social services. They are starting to become platforms. The same things happening in the enterprise.
What happens with social software when it's deployed across a distributed organization, it becomes the knowledge base it, becomes the place where ideas are shared but it also becomes the place where ideas are captured. One of the biggest problems that organizations have today is attrition, transient nature of employees, of talent, as people come and go. Typically in a modern organization for security reason when an employee leaves their laptop is taken away, the hard drive is wiped, their emails are wiped out and everything that person worked on for the last five years is gone.
With these social systems the idea, the intellectual capital that is generated by those employees is captured, it's shared, its part of the social fabric of that organization and can be tapped into. One of the things we are doing inside IBM is we have launched the new internal application called IBM Expertise Locator. We are a very large company, globally distributed. Finding the right talent to apply to the right problem at the right time is something that's very important to our client.
So we have actually launched a mobile app where any IBM employee can actually tap into the social expertise of the organization and not just find the information, but actually trace that information back to the very person they need to get involved in that particular client situation. So we think we're on the very beginnings of a set of social as a platform within organizations that will unlock I think great opportunities for our client.
Jim Suva - Citi
Mike I guess, in your introductory comments, you talked a little bit about Cloud and a couple of very interesting notions. I wanted to take the opportunity to set up Cloud a little bit for the audience here in terms of what IBM is doing in the business, how big is it, what are the competitive aspects of it, how do we change your relationships with your partners?
Okay great, I think the first thing, when any cloud discussion comes up, the first thing you have to do is define what you are going to talk about because it’s one of the broadest and probably deepest topics in the industry right now, because you first start to say what’s a Cloud. Well Google is a Cloud. Is ADP a cloud? Probably. So when you look at all of these different business processes, services, things you access through the internet, everything becomes a Cloud thing.
So therefore how do we play in the Cloud and more importantly how do our clients take advantage of Cloud, which is where the value we can provide is. So you have to step back and look at the elements of Cloud technology, as well as the elements of Cloud services and there are different things, right. So Cloud technology has to do with the infrastructure that runs the Cloud environment. So then you get into private Cloud environments where Cloud technology services around provisioning virtualization, security, et cetera are helping organizations decentralized IT processing, making it more efficient, making next generation data centers come to life in ways that can lower costs and make them much more efficient operations.
We are seeing public Cloud capabilities like what Amazon does, with Rackspace does, where they are offering a public Cloud infrastructure for you to host your own applications in someone else’s datacenter. It’s always in a datacenter. There is no such of a thing as a Cloud. The Cloud is just a name that we put on an outsourcing of where you run your application.
A recent acquisition of soft layers puts us in a very well position space to provide that base infrastructure for running Cloud based workloads for our client; everything from bare metal provisioning to platform base provisioning, the virtualization technologies and the applications that could run there.
We find this a very exciting set of technologies that can help our clients that are choosing to run their application workloads, their particular solutions outside of their own data center. So, that becomes an element of our overall Cloud strategy. Within that software system, within those public card infrastructures people are going to want to build new applications. To build new applications they’re still going to need databases, application servers, security systems, mobile enablement, they’re going to need analytics. Those are middleware capabilities that we can provide in those Cloud based deployment mechanisms as a development environment for people building new Cloud based world loads and that’s one of the pieces of our strategy.
And then finally, the third piece is this idea of Cloud as service or software as a service, which is really the long terminology. The best way to think about it is really business process as a service. Salesforce is often talked about as one of the shiny examples of a software as a service company. What they really are is the business process that people have outsourced to a third party provider, for sales automation, sales management. And that platform provides a service back to those companies. What we’ve been doing in IBM, through our solution strategy is we’ve been doing a number of acquisitions as you know. Many of the acquisitions that we’ve done have been in this business process as a service, software as a service area whether its Demandtec for dynamic pricing optimization, whether it's Coremetrics for web analytics or Kenexa for talent management, they’re all Cloud based solution offerings that we’re providing to our client that are sold and consumed as a service.
Ashwin Shirvaikar - Citi
Just a follow up on that, one of the questions that come up is with regards to differentiation. So, when you have Cloud based offerings and the sort of thought process kind of goes, it's all that the consumer of that service cares about is the service, how do you as provider differentiate yourself?
Well, what they care about is the service, and the reliability, and the security, and the efficiency and the cost effectiveness of that service, not just the service. So, it’s all of those elements put together. As a Company, it’s important to provide solutions that meet the problems statements of the clients we’re working with.
We’re not a consumer Company. We are B2B Company. We are outworking with clients that have problems. I don’t typically show up in a sales situation and say, here is my list of software; what would you like to buy. I sit down with the Chief Marketing Officer and talk to them about what are their pressing issues. Typically the first one is I want to know more about my clients? How can I gather the most information from a Big Data perspective about my clients? How can I use analytics to get more information and understanding those clients and then how can I automate my marketing processes to go after that?
So the differentiation comes both from an understanding of the business processes that make sense for those particular new buyers, as well as the ability to deliver integrated solution that’s solves their problem in a way that is acquirable as a service but efficient, secure, reliable and is going to give them the competitive advantage they’re looking for in the market and that’s where we try to differentiate our solution.
Ashwin Shirvaikar - Citi
That’s actually a great segue into my next question because sometimes I think investors do tend to underestimate the sheer computational aspect of all of these things to answer, if you answer to Jim’s question around social and mobile and analytics and my question around Cloud, can we talk about Watson?
Ashwin Shirvaikar - Citi
What you’re doing there? What’s latest, especially in financial services?
First, does everyone what Watson is before [indiscernible] I need to define it? Watson was – two years ago we launched a demonstration match on TV on the game show Jeopardy of a cognitive computing machine and was able to understand human language and actually learn and play a game against two of the most successful humans that have ever played the game.
That was a taste of a new generation of technology that we call cognitive computing. Machines that can understand human language that can learn by continuously reading and updating their understanding of that information. And then start to connect the dots across that information, to correlate that information and in essence become an advisor to human beings in new cases.
One of the first things we started working on with the technology was to really focus in on an area that we thought had a lot of value, as you would expect us to do which was healthcare. And so we started working with leading cancer institutes and healthcare providers on how this new type of technology could help doctors amass enormous amounts of information about a patient and help them way through the complex diagnosis process associated with cancer treatment.
I think as we all understand, as we’ve all have loved ones that have been affected by cancer is early diagnosis and early treatment is one of the greatest gifts you can give a cancer patient, because the chances of survival go up dramatically.
So, our view was that if we can actually help doctors through the creation of a diagnosis capability in Watson, help them diagnose and treat cancer faster that would a high value solution we could offer the marketplace. But it’s also a space that’s a great example of information technology being applied in a domain where it typically was not applied.
When we all think about Healthcare and Information Technology; we typically think about billing systems, back office systems, electronic medical records, storage devices. We don’t think about a tablet that’s giving a doctor access to the correlated and amassed knowledge of the leading cancer institutes in the world, bringing together everything they know about specific cancers and correlating with everything that doctor knows about that patient to help the doctor navigate a complex scenario.
So that’s an example of a very high value space that we’ve been working on and you’ve seen some press releases and things that have gone on in that space and we’re working with organizations like Memorial Sloan-Kettering in that space.
Now, on the flip side, on the commercial side we’ve been looking for domains that are highly information intensive that could leverage this technology in a much more horizontal kind of play. In earlier this spring we launched and announced a new solution called the Watson Engagement Advisor. Think about the Engagement Advisor as a way to have Watson interact with your clients. So think of it in the context of a call center. So instead of it being the system that the person on the phone types into search about information that's being called in, think about it actually being the person having the dialog with the customer.
So that it's taking the problem, understanding the problem, correlating it to the right answer and going back. Now from a business view point in how you monetize this, which is I think what you are trying to get at, think about organizations that spend enormous amounts of money on call centers; insurance companies, banks et cetera, any customer support center. Every major organization has large call center operations. What are the cost drivers of the call center? Training, attrition and labor. If you can start to offload some of that to an automated set of capabilities, you can drive a tremendous value equation in place for those kind of solutions.
So the ability of Watson to answer hard questions, like it did in Jeopardy has been evolving to so it can take on more of a dialog, an ongoing dialog and staying in contact as it goes from question to question. This isn't very different than search, where you would go to Google and type and look for this problem. First you have to know what problem you are looking for and secondly you have to figure out which of the 10 million hits that comes back is the right answer, versus this cognitive computing would come back and say well based on the question, here are the top four ranking answers, this is why those answers are there and not only will you be able to see the ranking answers, the confidence level of the answer specific, you will be able to ask the question well, why did you think that and have it a comeback with a full evidence trace of why that was the right answer.
So if you think about it in a medical diagnosis, a doctor is not going to trust the machine to say this is the answer, go treat this. The doctor is going to say why do you think that, what journals, what evidence, what family history, how does it correlate together and why didn't I think about it and it will be a dialog that goes back and forth between Watson as an advisor to doctors, to call centers, to customers that we think is an amazing new set of technologies that we're in a very, very early stages of, but something we think holds enormous prospects for the future.
Jim Suva - Citi
And Mike if you over see the software group and so far everything has been quite exiting. But I know investors in the crowd have a little bit of concern about market sharing, of what's going on in the landscape of global software, market share shifts and IBM? Can you talk about any market share shifts that are going on?
I can talk about the last few quarters. I think that's fair way to start. I'm certainly not going to make any forward looking statements as we look at how that plays out. If you look at our most recent quarter, our middleware business which is the business I have been talking about turning 10% results, we grew share in all five of our report segments, things like our smarter workforce solutions were growing 23%, Information Management business grew 6%. So a range between the different solutions, in all cases it was growing share. We have grown share in three of the last six quarters reported. So we think that the software business continues to be healthy as we reported it.
But what is happening and I think a lot of hype in the marketplace is all of these new things that are going on that we have been talking about. And what we haven't talked about is the things that have traditionally been done haven't gone away. We tend to provide middleware infrastructure software to banks, to Citi.
People still put money in the bank, they still trade stocks, they still do market research, they still do all the things they always have done. But the hype of the press is all this new emerging cool stuff that's going on, which is what you would expect, because that's what sells and that’s what people want to read. But I haven't seen anything go away.
So what we're seeing when we look at this idea of Big Data, one of the attendees asked a question this morning about what does this idea of Big Data for relational data bases. I know that's something that gets written about all the time. The growth in relational data has not slowed, it is continuing to grow as the rate underpinning those systems of record, those transactional systems just like it always has. What's changed is all there's all these new data types, all this new type of information that's growing in addition to that growth and what becomes interesting from a business viewpoint, it's the insights gained from the correlation of what's in those relational systems with what's in these unstructured systems, what's in these new social systems?
And how do you gain insights? I think we could all claim that not everything published on Twitter is useful. But there is something in there is useful, because you can start to pick up sentiment, how people feel about things. You can pick up signals of things that you need to correlate with other signals. That becomes important and that starts to bring out this whole idea of analytics which is great growth area for software in our middleware business.
And as you have seen us make a large number of acquisitions, over $15 billion of acquisitions over the last five or six years, in the analytics space, information space has become almost a platform of the future as you think the future application. I don't think future applications will be built without analytics in the many more, because they have to look at statistical models, statistical patterns in order to grow.
One of the other hot growth areas for us in the software space is security. We have continued to acquire in that space but what’s interesting about security it's become a big data problem. It’s not just the traditional firewalls and the security intrusion techniques that are the parameter of your organization. It's really now instrumenting and connecting every one of those points and correlating it with everything that's going on inside the organization, so that you can start to detect patterns of movements that are anomalous, that are something that shouldn't be happening.
As that occurs, that's an enormous opportunity. When we bought Q1 Labs a year and a half ago, not only we buy the company, we formed an entire new division around it, moved all of our existing software into that division, because we felt this approach to security, this Big Data approach becomes an important aspect on how companies are going to have to secure what they do. So analytics is now going to infiltrate into every one of these other segment as we go forward.
Jim Suva - Citi
And Mike when we think about you’ve mentioned your CEO and CFO who have given you a checkbook. Obviously I'm sure it’s not an open check for any amount of size or criteria. Can you talk about what are some of the criteria that they put upon you for discipline, whether it’s revenue growth or accretion or margins or restructuring you have to do, and importantly are there specific M&A pockets where maybe IBM is little softer in the skill set, where you like to focus you M&A on?
Starting at the beginning of the question, we have been pretty transparent I think with even the size of the budget that we’ve set aside for acquisitions as part of our capital allocation scheme. Our 2015 roadmap lays out that we were going to spend, from the time we announced it till end of 2015 about $20 billion.
So substantial checkbook. You can do a lot with $20 billion. You can waste it. There have been examples of people that have spent lot money for things that weren’t worth it but we tend to be very prudent in our acquisition strategy. It is because we have very rational business oriented metrics around our acquisition process. We focus on IR and we focus on accretion. We focus on payback. We focus on multiples.
But those are only one element of this successful M&A strategy. We put an enormous amount of focus on culture. What’s the culture of the company? Is the culture going to work within IBM? What’s the leadership of the company? Is the leadership going to stay or are they going to go? We look at the all the source code. We look at all of their client relationships. We look at all of their employee records. We look at all of these things as part of a process that we go through to decide whether an acquisition makes sense for us.
So it’s not just what’s the cool technology; is it the right technology? Does it fit our strategy? Is it at the right price? Are we going to be able to put that technology into our distribution system, spread it globally, get the returns in the timeframe that make sense and so we have a very disciplined process on that. And in aggregate we do very well, it’s a portfolio like any other portfolio that you would manage, but in aggregate we think we are best in class 1 when it comes with us, and I think as an investment community, the pay off on those acquisitions has been pretty good.
When you look at the high growth basis and where we’re growing, it’s in those spaces we replacing those investments. So the capital allocation strategy around acquisition I think has been pretty good. But we also do capital allocation into other spaces as well. We return money to the shareholders. We do it through share repurchases that we set in that same 2015 roadmap. We've spent $50 billion in share repurchases. We also said we’re going to return $20 billion in dividends to the shareholders.
So I think it’s a balanced capital allocation strategy. Now what new targets are we looking for, what are the soft spots or skills, I'm clearly not going to tell you what I’m looking to buy. That will get me in a lot of trouble in a lot of places. But the way we think about acquisitions are kind of twofold. We look for gaps. We look for either solution segments or businesses that we have that have specific gaps that we think can be filled by an innovative new technology that has been fostered by the VC community or we look at adjacencies. Most of my group has been formed out of adjacencies.
Looking at those new spaces that are in a space that’s adjacent to where we’re or whether we have a piece of a solution in that space that we can fill out into something much larger, that we can then spread onto a global scale. I think some other commerce solution space is a great illustrative example of the process we use for this. We had a solution in the e-commerce space called Webster [ph] Commerce, have been around for a while and had been used in many different large organizations around the world. We have the opportunity to add to that portfolio with Sterling Commerce, which we picked in 2010 which gave us an order management capability behind e-commerce capability, gave us more of an end-to-end process flow. We augmented that with a web analytics company called Coremetrics that allowed us to instrument that solution. We then moved on to campaign management and marketing with the Unica acquisition that allowed us to feed those analytics directly into campaign management software so that you could start to automatically create offers and placement.
We looked at automatic pricing optimization software. We added the Demandtec into that space. We started to look at how goods and services get into the company in the first place, how they manage their spend? We added Emptoris to the solution space. And we’re now working on organically adding Watson as a call center engagement manager to service side of what happens after you sell.
So we have put together a pretty broad portfolio of capabilities around the consolidated solutions space. We've built both a global direct sales force, a business partner channel and alternate deployment delivery vehicle. So it’s offered both in the cloud and on premise and we have built the consulting capability around GBS.
So that’s an example of how we take a set of acquisitions, we deploy it on a global scale. We take advantage of cloud. We take advantage of on premise software. We build our partner channels the way that we’ve built them, even for the cloud capabilities. Partners are very excited about working with us on cloud and then we wrap our consulting capabilities around it. So we get a lot of overall IBM lift out of those solution segments, and Smarter Commerce has been an important element of the Smarter Planet solutions that we report growth on every quarter.
Jim Suva - Citi
Well, Mike, I think right now we’ve got about 10 minutes for some investor audience questions and so what we'd like to do is if you have question, if you could please raise your hand in the audience and we’ll get a microphone over to you. There is a question right up here in the front and we've got about 10 minutes for questions. So please wait for the microphone.
Thank you. Thanks for the presentation. You referenced the 2015 roadmap couple of times now and as part of that roadmap, about 40% of the accretion in EPS came from revenue growth. Most of it was organic. There was a time when we had low single digits revenue growth organic, that’s turned negative at least in the last few quarters. How do you think about the roadmap now?
Well, with any roadmap there is various elements to it and when we announced the roadmap we also announced that we had various levers of flexibility built into the roadmap to deal with unforeseen circumstances that could occur. Any time you’re laying out of five year time period, you’re kind of betting on what’s going to happen in the market. And what -- so we built flexibility into that in multiple different ways. We continue to track to the roadmap, we report on that every quarter.
We said within the roadmap that we were going to invest in strategic growth areas around Cloud, around Analytics, around Smarter Planet. And those have been tracking well. There has been other things that have popped up at that portfolio called IBM that has affected us in the short term and those are the things that you have to contemplate when you’re putting a long term roadmap in place and then why you build the flexibility into the model in the first place and that’s why we’ve done it the way we’ve done it.
So I think the investments we’re making in the growth areas, we like what we see in that space and we continue to invest in that space going forward. But I'd clearly like to see more and more growth everywhere as everyone here would. So it’s -- but a roadmap like that is a financial model that we put in place with flexibility, that we think we have the way with all the dealer [ph].
Jim Suva - Citi
If one can raise your hand for the next question and we’ll get the microphone right over to you right away. Okay, great group of people, it’s amazing that they are also shy. There is a question right here and the microphone making the way to you.
Just question on, I don’t know if you would answer this but you made a lot of acquisitions, some of them were private companies and the terms are not disclosed very often. Would you care to comment on your organic revenue growth rate in software, either the last 12 months or going forward?
Well, the easiest one to point to is second quarter. Second quarter, our growth rate for the middleware business that we’ve been talking about throughout this conversation was 10% and of that, the only acquisition of any size in that number was Kenexa. So the majority of that 10% growth was organic as we go through that. So as you look at the branded middleware growth rates as we go forward, you have to look at it across the portfolio; the bulk of that is organic, not inorganic and these things wrap to organic as you go through the calendar years post acquisition.
Jim Suva - Citi
Great, thank you. Do we have another question in the audience?
This presentation and others I’ve heard, the capabilities that IBM brings to the table or I’m doing commercial for you, it sounds very incredible. But we still have the issue with somewhat slow growth rates. And I was wondering if you could maybe talk a little bit about your sales organization and what you’ve done there and what you might be doing there? It just seems that the more times you’re at the table, the more chance obviously you have to get something. What’s happening in that segment? Thank you.
Right. Well, I think there is a couple of elements that are going on in the sales side that are kind of a curl with the whole roadmap period. One of it has been geographic expansion as we’ve expanded into new territories. We made a lot of investments into moving into other areas of the growth markets as part of the roadmap. We’ve made investments, recent investments moving into new markets such as Africa.
When we look at new businesses like my business, not only do I acquire companies, I acquire the sales forces that are associated with those companies and then build those into a solution sales force that’s associated with the growth areas I am responsible for.
So I have a dedicated solution sales force team that’s driving those acquisition cases, those acquisition results. And then we build consulting capabilities on top of that as a complement, additional lift to the Smarter Commerce scenario I went through a little bit earlier.
As we’re doing that, we’re continuing to evolve and learn how to reach these new buyers and these new segments. One of the things I’ve been talking about here with these new growth segments is that this is about reaching new buyers and new markets; the front office type of solutions that can drive automation around Chief Financial Officers, Chief Procurement Officers, Chief Marketing Officers, et cetera.
So there is a re-skilling, a training effort that goes into building a sales force that has the domain expertise that can reach and sit down and have a conversation with the CMO as opposed to someone who sits down and talks to the Chief Information and Security Officer to sale, they are different people. You have train them differently in different spaces.
The other thing in the front office sales cycle is industry domain expertise becomes important. Selling a commerce solution to a retail company is different than selling it to a bank and we sell that solution to both but you have to have people that fit within the domain expertise. So that’s part of how we build out the sales force associated with this. I think we’ve done well on that in these new growth areas. I think there is a lot more than can be done and we are continuing to do that as we go forward.
I think cloud becomes an interesting aspect to the sales model as well, because you're flipping from selling on premise software to signing a long term contract. So there is elements of sales force training that have to be associated with that as well. You've probably heard similar from some of the other vendors that are managing balanced portfolios between cloud and on premise software, as they discuss things as well.
Also there are a lot of transformations that are going on in the sales side, pretty much everybody in the IT industry. But again it’s not because the back-office stuff is not going away, it’s continuing to grow, it’s just an optimization focus, a cost efficiency focus and a lot of the exciting new growth areas are on these new solution areas around social, mobile, analytics, some of these business process outsourcing services, cloud based services. And building your sales force around how you reach those buyers in those markets is what we've been focusing.
Jim Suva - Citi
Well, ladies and gentlemen, I hope you enjoyed your nice lunch here. And I personally want to thank IBM and specifically Mike Rhodin, the Senior Vice President of IBM Software Solutions Group for joining us today. Thank you, ladies and gentlemen.
Thank you everybody.
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