The TransformerThe Transformer

Honeywell executives say they believe the deal will give them the economic advantages of buying a mass-produced chip like the PowerPC without sacrificing specific performance parameters set by the Defense Department and its military contractors. Honeywell engineers will work directly with IBM engineers to tailor processor subsystems, such as memory and input/output channels, for Honeywell's needs. "We've had most of that expertise in-house. Now we see a chance to leverage IBM's expertise in memory and high-speed communications," says Ed Wheeler, VP and general manager of Honeywell's defense and space electronic systems group. "They invest more into it than we do, and ought to be better at it."

Toole's group also created custom handheld computing devices and related middleware for traders at the New York Stock Exchange. Off-the-shelf products couldn't stand up to the exchange's hectic trading environment, says Roger Burkhardt, chief technology officer at NYSE. "We couldn't compromise on availability and resilience," he adds.

As a result of such engagements, IBM's Engineering and Technology Services unit is growing--fast. It counted 400 staffers at the beginning of 2003 and now has more than 1,400. "We have a lot of deep technology and know-how that we're just now taking to market," Toole says.

Some IT executives are wary of the transformation pitch. Steve Moffitt, CIO at energy company Dynegy Inc., recently inked a long-term IT outsourcing engagement with Accenture. Moffitt chose Accenture in part because of the company's "flexibility and financial arrangements," he says. His take on IBM's offerings: "One of the ways they make their money is by taking your stuff and loading it on their hardware, which they get at a really cut-rate. I wasn't willing to turn that much over to them," he says.

Others say IBM needs to perfect its own business processes before it can do so for others. Robert Rosen, a CIO within the National Institutes of Health and president of IBM user group Share, says a recent Share user survey revealed that IBM has trouble managing its bills and contracts. Share members complain that their bills from IBM don't always match goods and services they've received. But Rosen says IBM may be a victim of its own success. "They may have grown faster than they're able to deal with," he says.

Even some happy hardware customers, such as Greif's Andre, don't represent an easy sell for IBM's business-transformation push. Andre doesn't find the pitch appealing, he says. "I don't think it's a sound approach for most companies," he says. "Too many people just try and outsource their problems."

But that's the whole point, IBM's Palmisano might counter. Take imperfect processes; apply state-of-the-art software, hardware, and business expertise; and business transformation occurs. At least that's the theory. Now it's time for IBM to prove it.

Continue to the sidebars:
Acquisitions With Business Transformation In Mind
and IBM's Future Is In Business-Performance Transformation