Who's Afraid of Big Blue?

No longer just a hardware company, IBM is dominating software and services.

Warning to the competition: Be afraid, be very afraid.
By Heinz Bulos
September 2002

oaquin Quintos IV is a man with an
aura o certainty. le exudes a
conidence not just in himsel but
more so in the company he works or.
\heneer he talks about strategy, he
becomes animated and emphatic,
absolutely coninced that IBM is doing
the right thing at the right time.

1he strategy we`e embarked on is, I
beliee, absolutely the right strategy, and
it`s in these diicult times when it`s
absolutely important to stick to your
strategy. \ou don`t waer,` Quintos
aows.

Ater all, IBM is the largest technology
company in the world. It`s in the top 20
o lortune Global 500 and in the top 10
o the lortune 500. \ith almost >86
billion in reenues, it`s 4 times the
reenues o LDS, its main rial in
serices, 12 times larger than LMC, its
top competitor in storage, 3 times bigger
than Microsot and almost 8 times than
Oracle, its primary opponents in
sotware, twice the size o lP and
almost thrice compared to Compaq and
Dell and close to 5 times that o Sun, its
enemies in enterprise and personal
systems. Put another way, its reenues
are larger than LDS, Microsot, Oracle,
and Sun covbivea. 1he closest would be
lP-Compaq, which hae combined
reenues o >9 billion.

In the Philippines, IBM is number 32 in
the 1op 500 I1 Companies o I1
Resource based on 2000 reenues. I
you take out the telecom irms, the
semiconductor and component
manuacturers that mainly supply global
sales, IBM Philippines is on top. \ith
P3.6 billion in sales, it`s much bigger
than any o its traditional rials.

Ironically, ten years ago, IBM was
almost let or dead. Len IBM
Philippines was orced to oer early
retirement to a third o its workorce.
\orldwide in 1993, IBM - long the
paragon o paternalism and security with
its tradition o lietime employment -
or the irst time in its history laid o
tens o thousands o employees. 1here
were plans o breaking up the company.

But as history tells us, since then it has
regained its dominance thanks in large
part to ormer CLO Lou Gerstner who
came in as an outsider o the IBM
culture. le turned IBM rom a
bureaucratic and monolithic company
into the ocused and responsie
organization that it is now. IBM ixed its
organization, changed its corporate
culture, made its workers more
accountable and customer-ocused,
acquired Lotus, 1ioli, and Inormix
,and recently PwC Consulting,,
launched a highly successul e-business
campaign, and ocused on areas it can
be most competitie.

L-strategy
ore importantly, Gerstner
enorced a strategy that turned
out to be right. 1hat strategy
included a moe rom closed,
proprietary computing to open
standards. It included a shit rom
ertical integration to a best-o-breed
approach that oered non-IBM
products to its solutions. And it
included a change rom being a
hardware-led company to a sotware and
serices-led irm. Already, sotware and
serices contribute more than hal o
IBM`s reenues, rom almost zilch
beore 1993.
J
M

1hat strategy has paid o as the
eolution o computing has reached a
new stage, transormed by the Internet,
open systems, wireless technologies, and
multiple deices. 1he timing also
couldn`t hae been better. Companies
that hae inested a lot o hardware and
sotware during the \2K scare and dot-
com bubble now ind themseles with
disparate systems and applications that
need to be connected. 1he real alue in
e-business turned out to be cost
eiciency, streamlined operations, and
business integration, the stu IBM
knows ery well. And already, IBM is
positioning itsel or the next stage o
computing - wireless and \eb serices.

Victor Silino, Country Manager o the
IBM Sotware Group, explains, 1he
IBM strategy is clear: we`re cross-
platorm computing, multiple operating
systems, and we`re in the Jaa camp. In
the eolution o e-business, we`re really
now in the enterprise applications
integration because o the
implementation o LRP across
enterprises today. \ith the introduction
o \eb serices - that`s what we call
dynamic e-business - these e-businesses
can now dynamically interact through
applications using \eb serices.`

Quintos elaborates, 1en years ago,
many o the Philippine businesses were
inesting in ertical applications. I you
were a bank, you want to put your core
banking system in place, i you`re a
manuacturing company, you want to
put your LRP application in place, i
you`re a credit card company you want
to put your billing and collection system
in place. A lot o the solution
requirements o those companies then
were along those lines, so you had
companies selling banking solutions,
LRP solutions.`

Guess what 1he Internet comes
along, and I think the Internet is such a
powerul orce because what it has done
is it has shaken the equilibrium. \e now
hae this orce that requires companies
to connect to each other, to their
customers, partners, suppliers through
the \eb. Guess what It`s not that easy.
It`s easy to put up your \eb site but
customers don`t want just to get
inormation on your \eb site, they want
to be able to go into their bank account
and look up their inormation and pay
their utility bill online and so on and so
orth. Once you start doing that you`re
gonna go straight to your ertical apps.
1o be able to do these things end to end
rom the time that you order to the time
you accept deliery, you need to connect
these ertical apps and that`s where we
are.`

IBM`s alue proposition is compelling:
you hae all these inestments in
serers, applications, operating systems,
and deices. \ou want all o them to
work together to cut costs, speed up
processes, and connect with your
employees, suppliers, and customers.
And you want to deal with just one
party. IBM has the complete solution.
\ou need serers and storage or your
data Check. \ou want middleware to
integrate disparate systems rom
dierent endors Check. \ou need
help to do all these stu Check. I IBM
doesn`t hae what you want, it has the
best partners who can help you and it is
willing to include products rom its
competitors. 1he hardware-agnostic
approach has made allies out o the top
applications endors such as SAP,
Siebel, and Peoplesot. It also has helped
drie IBM`s database business to the
chagrin o Oracle, which competes also
on the applications market.

IBM`s mantra is end-to-end solutions`.
\hen asked i anyone comes close to
IBM in proiding such, Quintos
answers, Nobody. Look at it, we`e got
the technology and the hardware, we`e
got the middleware sotware. \e just
acquired PwC Consulting, that adds
industry expertise, business consulting
to our portolio. Right now IGS |IBM
Global Serices| is ocused on
technology. 1o be able to put these all
together, you need to know the business
o your customers.`

1here`s such a huge gap between who
can do this and what`s being required
out there. My proposition is we at IBM
Philippines are the ones who can do
this. 1hat`s where we are and that`s
where we`re trying to bring this
company to.`

It`s not just the standard line or IBM as
a whole, it`s the standard line or any o
its businesses. Dan Daid, Country
Manager or the Lnterprise Systems
Group, asserts, \e position our
storage and serer products to sole
speciic problems o customers in the
areas o business continuance, I1
consolidation or example, lowering
1CO |total cost o ownership|, security.
Nowadays, companies also want to look
at the price aspect but at the end o the
day, businesses are not going to solely
look at price, they`re ater return on
their inestment, how ast can they
recoer rom their inestment, how ast
they are able to achiee their business
objecties. Our solutions are not
positioned on hardware alone, there`s
sotware, there are applications, we hae
a lot o partners, independent solution
endors, and our IBM Global Serices.
1he customer doesn`t buy hardware or
the sake o hardware anymore, he is
ater the business beneits. I he has a
business problem, he needs a business
solution. \hat IBM is doing, it`s
solutions that help him achiee his
objecties.`

It`s the same competitie strategy or
the Personal Computing Diision,
headed by Country Manager Karrie
Ilagan, \e aoid box-pushing. Our
competitie adantage, een in an
industry where we`re in a more or less
commodity business, we try to put in
the technology and solutions in our
oerings - wireless, security. \hen we
bring out our products in the market, we
make sure that a solution comes with it,
not just a plain anilla box, and we
continue to deelop products with this
in mind. \e can leerage on the other
units o IBM.`

Credit Gerstner and his successor Sam
Palmisano or taking IBM out o the
commodity game and emphasizing
serices. Interestingly, the serices
business o IBM was almost accidental,
when in the late eighties, a couple o
large clients asked IBM to take oer
some o their I1 unctions. 1hus was
born Integrated Systems Solutions Corp.
or ISSI, a subsidiary ar remoed rom
the traditional IBM culture. 1hat turned
out later to become IBM Global
Serices, which Palmisano helped
nurture and which Gerstner turned as a
cornerstone o IBM`s strategy in 1996.

Quintos says, 1his is so important or
us. I`m ery passionate about this. I we
as a country are going to be moe
orward, lilipino businesses and
enterprises hae to embrace these
concepts and not look at using I1 as
commodities only. \e need to shit our
thinking rom one that is pure I`m just
buying a PC` to one o I need to get a
solution that will help me make my
business better`.

Criticism
he criticism rom its competitors
is that IBM`s approach is
complex, and IBM likes it that
way so it can make more money o its
serices. And that it can cut on its
hardware prices to sell the more
expensie serices ees.

On the irst issue, Lric Cruz, Country
Manager o Business Innoation
Serices ,BIS, o IBM Global Serices,
1
explains, It`s a dierent strategy that
they hae. \hen |Oracle| gets inside the
account - and it claims to hae a ull
suite o products - it`s really tying the
customer down with Oracle products.
But that`s it, who can claim monopoly
o best-o-breed products I don`t think
any company can do that, not een
IBM. In act IBM consciously got out o
the asset business - the industry
solutions we used to deelop, like
banking applications, telco applications,
retail applications - because we elt that
there are a lot o other players who are
able to deelop o best-o-breed
products and we don`t need to compete
with each one o them. \e can partner
with them so we that can bring together
the best-o-breed products, like Siebel,
Peoplesot, SAP. Can you imagine i we
hae to compete with each one \e
hae to deelop our own when in act
these are best-o-breed already, world-
class. Now Oracle tries to do the
reerse. 1hey say Stick with us, it`s
simpler integration.` One o our
strengths really is being able to integrate
eerything. Our \ebSphere suite o
products, our middleware solution,
that`s the de acto standard right now. It
can integrate any solution, any product,
any appliance.`

On the second issue o undercutting,
Cruz replies, 1o be honest, i we can
undercut our product prices, we would
be ery dangerous because we would be
ery competitie coupled with our
quality o execution. lirst we`re not able
to do undercutting o our products. \e
run the arious units as almost
independent units, like in IGS, we`re
supposed to be product agnostic. \e
can sell IBM but we can also sell all the
other brands or products, but we
normally do not compete on price. \e
actually sell solutions to our customers
and the alue o our solutions, most o
the time, you ind our customers are
willing to pay some premium or IBM
solutions. 1hey know it`s going to be
more expensie but you get what you
pay or, but they`re assured o quality o
execution, good products based on good
product research, experience, skills,
methodology, so it comes with
eerything. I tell my customers eery
time I pitch our serices, we are a
technology company, you`re buying a
solution, but at the end o the day,
you`re buying peace o mind, because
you know when you contract us, we will
delier that or you. Some can undercut
or sell cheaper solutions but towards the
end it becomes more expensie because
o the delays, because o the things let
out in the design, it doesn`t work, it`s
slower. So our customers hae come to
accept that we come in a little bit higher,
with some premium.`

\e try to justiy the cost o the
inestment in terms o returns. \e do
not compete by saying we`re the
cheapest, I hope we can be the cheapest
and the best as well but otentimes
quality comes with some premium, so
no we don`t undercut, I can`t tell Dan,
Dan, atvgi /a .a serer vo ara /vvita
a/o` ,Dan, take losses on your serer
so I can earn.`,, because we`re measured
separately, I hae to take care o my
own proit, he has to take care o his
own proit. In act, I may go to the
competition because the other products
would it the business requirements o
the customer better. 1hat`s part o our
mission as well, being able to integrate
any product o any endor. \e eel we
hae the edge there. Others are only
able to oer solutions based only on
their own technology, based on their
own products.`

But IBM Philippines brings to the table
other adantages. Quintos explains
IBM`s dominant position. \e`e been
here or 65 years. A strong history o
sering customers is important, they
know how to do business with us,
they`re comortable with doing business
with IBM, and they see our products
and serices eole through the years.
So there is this long relationship and
partnership, I think that`s number one.
Number two is we bring a sense o
reliability, integrity, and dependability to
the table. 1here was an old ad beore on
IBM: \ou sleep well with IBM`. I you
were a customer who`s into technology,
i you went with IBM, you could sleep
well at night because you know that
IBM is gonna be there to make your
solution work or you and keep it
running. I think that holds true up to
know, and many o our customers look
at that particular ability o IBM. 1hird is
the transormation, rom being a
hardware-led company, like a decade
ago, to now where we`re basically
sotware and serices-led. Customers are
constantly telling us we want end to end
integrated solutions, we don`t want piece
parts`. At the end o the day it becomes
complicated.`

1ough times
ut IBM is not always immune to
economic realities. \orldwide, it
suered a slight 3 decline in
reenues in 2001. Just recently, it laid o
15,000 employees. In the Philippines, it
has been in a growth trajectory since
1992, rom P1.3 billion in reenues to
P2.9 billion last year ,it enjoyed an all
time high o P3.9 billion in reenues in
1999,. But 2001 reenues experienced a
signiicant 20 drop compared to 2000,
based on inancial statements submitted
to the Securities and Lxchange
Commission.

Quintos declines to comment on the
igures, but admits, Last year, the
whole industry was in a diicult
situation not just in the Philippines but
worldwide, and it continues to be
tough.` loweer, he adds, I do oresee
this year would be slightly better than
last year. All the economic indicators in
the Philippines as o the irst hal
indicate slight to positie growth, and
we can see that in terms o business
actiity outside. Customers are coming
back to us expressing interest in
solutions. 1hese are good signs, it`s still
highly selectie, it`s not broad-based.
1hat`s the challenge that any I1
company aces in a tough situation.
\hat you need to do is to be able to
identiy which speciic areas o
opportunities and ocus your resources
on these areas and do business there.`

le sees growth areas in inance and
telcos, and singles out goernment and
education. 1en years ago, there was
minimal technology actiity in
goernment. 1his is one those things
that hae dramatically changed. I`e seen
this dramatic shit o the ocus o
goernment to inest heaily in
technology. I you look at countries that
hae thriing technology industries,
goernment is the leader in spending.
1hat is one o the things the Philippines
needs to get into. 1he goernment
needs to lead in technology spending or
the local I1 industry to be ibrant. It`s
only goernment that can come up with
the large projects. Another area is
education, which is emerging to be a
growth area. In line with goernment
initiaties, technology and education go
hand in hand.`

Lnterprise Systems
ne o IBM`s strengths is in
enterprise systems, particularly
its serer and storage
businesses. In the last 10 years, the
enterprise systems business was the
second largest segment o IBM. 35-year
old Daid began his career in IBM 14
years ago as a marketing trainee. le now
heads the Lnterprise Systems Group,
responsible or managing the total e-
business enterprise systems line
consisting o IBM eSerers,
1otalStorage and
InoPrint solutions.

IBM Philippines is number one in the
storage market, with a 41 share, next
B
O
is Compaq with just hal. Surprisingly,
LMC is only number 5. In the serer
market, IBM competes with Sun, Dell,
lP, lujitsu, among others.

On the serer side, we hae year-to-
year growth, as well as with storage,`
Daid discloses. 1he pSeries in
particular grew in the irst hal o the
year. But his best-sellers in terms o
number o serers sold are still the Intel-
based serers, the xSeries.

Based on preliminary worldwide serer
unit shipment estimates or 2Q02 o
Gartner Dataquest, the new lP leads
the market with 30.5, ollowed by Dell
with 18, IBM with 14.5, and Sun
with 6.5. lor the Philippines, Daid
declines to gie their ranking in each o
the serer segments - application
serers, integrated serers, Unix, and
Intel-based. But he aows, It is a
challenge that I`e placed upon mysel
that by the end o this year, that we will
be number one in terms o reenues.`

\orldwide in the key Unix serer
market, according to IDC, as o the irst
quarter o 2002, Sun leads with 34,
ollowed by lP with 2 and IBM with
1. In Asia howeer, IBM has 30.4
o the Unix serer space, ahead o Sun
and lP. lor application serers in 2001,
Gartner Dataquest ranked BLA irst
with 34, IBM with 31, and Sun with
9.

lor the total serer space, in terms o
actory reenues, IDC reported that
IBM leads in 2001 with 23, then
Compaq with 1, Sun with 14.8, and
lP with 14.6. Gartner also pegged
IBM on top with 29, then Sun with
15.4, Compaq with 13.9, lP with
12.8, and Dell with 6.4.

1he key business segments or serers in
the Philippines include banking and
inance, manuacturing, semiconductor
companies, and the goernment. Daid
says, As a whole, we`re conident that
business is beginning to pick up
especially in the SML area. 1he SML
market is a growth and strategic market,
we want to be more actie in that area,
we want to be well positioned or that
growth, it shows in the announcements
o our new serers, lower models, that
would cater to that segment o the
market.`

Still, the bulk o its reenues come rom
large buyers, including mainrame clients
rom the banking and the public sector.
Surprisingly, mainrame technology has
proen to be resilient and it doesn`t
show signs o going away soon. Daid
explains, Mainrame customers hae
ery high transactions and the type o
workload they require, require that type
o technology. 1hey`re in act upgrading
their systems, others hae moed on to
the pSeries.`

1here`s a segment o the market that
still requires that kind o workload and
require that kind o reliability and
aailability. In act we hae our zSeries
codenamed Raptor, we`ll still continue
to cater to those kinds o workloads.
Mainrames will still be around in the
next couple o decades.`

IBM hasn`t abandoned mainrames,
despite orecasts o its extinction. In
act, it continues to promote them. 1he
company has ew competitors in this
area, as Sun, lP, and Dell are pushing
their high-end Unix serers. IBM`s
mainrame reenues in 2001 in act
increased or the irst time in 13 years.

On the storage side, IBM`s 1otalStorage
Lnterprise Storage Serer, codenamed
Shark, remains in the lead. Daid says,
I you look at the 41 market share,
the bulk o that is in the enterprise
storage deices |or| customers who
require the high perormance and high
reliability in storage solutions. Second to
people, data is a ery important asset o
a business, they hae placed their trust
on the high-end Shark.`

1he trend nowadays among companies
is or them to consolidate their serers.
\ith greater ocus on cost eiciencies
and mergers and acquisitions requiring a
single I1 inrastructure, consolidation
becomes a more eicient way o
supporting their business. Daid notes,
Our serers are well positioned or
that. lor example, our zSeries, it`s still
our most reliable. All o our serers can
run dual partitions, meaning they can
run seeral applications under a single
serer. 1hat alone would spell saings
or the customers in terms o licenses
and maintenance. 1he pSeries, it`s
powered by Power4 microprocessor
chip, which is the astest in the industry.
I you hae a workload, the saings
there is the hardware license and more
importantly, our sotware license.`

Personal Systems
robably the highly competitie
area o IBM`s business is in
personal systems - desktops and
notebooks. lor one, there are ar too
many players. And second, margins now
are razor thin. \orldwide, it`s been a
losing operation or IBM. It`s only
ourth-place behind Dell, Compaq, and
lP, based on unit shipments. In act, it
suered a decline last year as PC
shipments continued to decrease.

In Asia Paciic, there was slight growth.
Ilagan, 33 years old, heads the Personal
Systems Group. She notes, lor the
Philippines, we had our challenges, but
year on year 2000-2001, surprisingly
there was some growth, but ery small,
it`s probably a lat growth. I you
normalize it, it`s a contraction really. In
an industry where double-digit growth is
expected, a lat growth in terms o
getting the actual numbers is really a
decline in that sense.`

1here was some contraction in the
commercial desktop space, but the
notebook space grew last year. I
attribute the growth in notebooks
because a lot o people are shiting rom
desktops to notebooks mainly because
o mobility, notebooks as a replacement
PC.`

It`s a general trend she sees not just in
the Philippines but worldwide. In Asia
Paciic, IBM leads in the notebook
space, with 16 market share in 2001,
according to IDC. 1oshiba came in
second with 14.6. I beliee it`s one o
our strengths. \e`re stronger in the
notebook segment than PCs, PCs were
early in the commoditization.`

1he top sellers are on both sides o the
spectrum. 1his market is either low-
end or high-end, so the best-sellers are
the entry-leel machines, the consumer
notebooks, the R Series, and we`re ery
strong as well in the commercial with
the P Series,` she says.

Despite the ierce competition, in the
last two years, IBM has been number
one in this country or total PC sales.
Ilagan points out that in the ASLAN
region, it`s only in the Philippines where
IBM is number one. In 2000 we`re
number one in both shipments and
reenues, in 2001, we retained market
leadership in terms o reenues.`

Ilagan is always on the lookout or the
competition, but takes a much closer
watch on the major players, like Acer,
lP, and Dell. 1he 1aiwan-based Acer
has not been successul in its bid to
become a major player in the U.S.
market, which is still dominated by Dell,
and is targeting China, dominated by
home-grown Legend. But it has always
been in the top 3 in the Philippines, and
Ilagan hasn`t discounted the company.
\e just hae to guard each and eery
brand that we compete with in the
market. I don`t wanna say Acer is no
P
longer a threat, we still keep our eyes on
Acer but maybe not as ocused as maybe
Dell or lP-Compaq.

1he combined lP and Compaq is the
real threat. Ater all, while Dell tops
2001 worldwide unit shipments with
13.3, according to Gartner Dataquest,
Compaq owns 11.1 and lP another
.2, easily surpassing Dell. Preliminary
worldwide PC endor unit shipment
estimates or 2Q02 already pegged the
new lP on top with 15.5, Dell with
14.9, and IBM with 6.6. Compaq in
particular has been quite successul in
the country. Says Ilagan, In the short-
term, it`s this part o the business that
probably will be the most impacted. In
the Philippine scenario, we compete
head on in the PC space. I you combine
last year, it would make them number
one, it`s possible.`

\hat she`s most wary o howeer is
Dell. Although currently not a major
orce in the Philippines and Asia-Paciic,
Dell is a top PC brand worldwide. \e
all know Dell`s success is highly
attributed to its direct marketing model.
In the Philippines, most o the other
players do not hae the same business
model. \ill they be able to implement
the same model here Logistics is ery
important. Logistics include where you`ll
build your machines, the time you bring
the product to the customer. It`s
possible i you can bring your logistics
here, at the end o the day, the olumes
will justiy building the logistics
inrastructure in each o the countries.`

1he PC market may be a commodity
market, but Ilagan is coninced it
remains a growth market in the
Philippines. I remember when I started
in PCs, people were just talking about
quantities o a ew thousands, today
we`re talking about in the twenties or
een thirties olume, I think the market
size today is 100, 200 times bigger.`

I think it is a growth market or PCs
because o the saturation leel, where
are we today lor eery lilipino, how
many PCs are there 80 million lilipinos
today ersus a PC market size o 300
thousand. 1hat`s one opportunity, the
other opportunity is in this market, it`s
already signiicant to hae a twenties
market share. Imagine the rest o the
space that you can occupy, whether or
not the market grows double-digit year
on year, the act that each player doesn`t
hae a monopoly o the market, unlike
in the serer space.`

But will IBM eer abandon the
hardware part o its business, now that
most o its reenues are in sotware and
serices Ilagan replies, I think 45 o
the business is still critical.`

Cruz adds, \ou really neer can tell.
But i you look at IBM strategy, it`s
being able to proide end to end
solutions, not just point solutions. Len
the PC business is part o the end to end
solutions that we try to gie to our
customers. It`s not just on the basis o
the proitability o each business unit
that IBM looks at, with the customer in
mind. \hen a customer comes to you,
we should hae eerything, een i that
segment may be low margin, you just
don`t abandon part o that business.`

Software
nother growth area or IBM
Philippines is the IBM Sotware
Group, headed by Country
Manager Victor Silino. Mitch \oung,
ASLAN Regional Manager o 1ioli,
once reerred to Silino as a golden boy
in IBM Philippines.

It`s well-desered. IBM is number one
in all o its our major sotware brands -
\ebSphere, Lotus, 1ioli, DB2 - in the
ASLAN region and in the Philippines.
And the Sotware Group`s reenues
grew 0 or the irst hal o 2002.

A
\orldwide, Gartner Dataquest named
IBM as the leader in database
management sotware, surpassing
Oracle. In terms o license reenues or
2001, IBM with its DB2 product ranked
irst with a 34.6 market share.

Silino says, Beore, \ebSphere was
number two, 1ioli was number two.
But this last quarter, we`e become
number one. \ith the acquisition o
Inormix, we bought market share. In a
matter o less than six quarters we`e
oertaken Oracle as the world`s largest
database endor. \hat does this say
IBM is serious in this space. I you look
at our competitors out there, they`re
disparate. 1he likes o Oracle, CA,
LMC, Veritas, they oer point solutions
while IBM oers a whole set o
solutions, rom system management,
databases, messaging and collaboration,
integration solutions, ertical solutions.
I you look at the middleware oering
o IBM today, we are in a ery unique
position. No other company can oer
that kind o depth and breadth in
middleware solutions.`

1he bulk o reenues still come rom
Lotus, with its groupware products,
Notes and Domino, still industry
leaders. Silino, who was Country
Manager o Lotus Philippines in 199
already ater the IBM acquisition but
beore the ull integration into IBM, says
that it was a good thing or Lotus. \e
introduced groupware back in 1995.
\e`re really ahead in that space. 1he
IBM acquisition did as well. I we
weren`t bought by IBM, we would hae
been another Netscape.`

\orldwide, Lotus claimed 2.5 million
seats prior to acquisition. Now, they
hae 90 million seats, making them
number one in the collaboration
sotware space. And these are sold, not
bundled,` adds Silino. Lotus has
reached that point when it`s not
anymore a push product, it`s a pull
product. I you look at the speciications
o goernment bodies out there, they
speciy Lotus already without any
inolement o IBM.`

In the Philippines, 1ioli is the top
perormer in the irst hal o 2002
compared to targets, ollowed by Lotus,
\ebSphere, and DB2. 1ioli was
another key acquisition or IBM and one
that beneited a lot rom the deal.

But the company`s lagship sotware
product really is \ebSphere, a amily o
products that coer applications
deelopment to applications integration.
In Asia Paciic and the Philippines, it`s
already the market leader in application
serer sotware platorm ,ASSP,, with
29.5 share in Asia Paciic, according to
IDC, and with 4.6 in the country.
BLA Systems, which does not hae a
local oice, is second with 25.

Silino calls \ebSphere their 1rojan
horse, a strategic piece o sotware.
Silino explains, 1he our brands are
inrastructure sotware but \ebSphere
really is the lagship because the way
organizations can deelop applications
using open standards and run on
multiple operating systems.` Already, it`s
being used or e-commerce and
integration projects by companies such
as Unilab and the Bank o the Philippine
Islands.

And IBM is just beginning. Silino says,
Last year there were two organic
changes that happened: the acquisition
o Inormix and the integration o
Lotus. Second hal o last year was
building the oundation, integrating our
story as the world`s number one
middleware proider, sotware that
addresses critical business challenges in
this era o e-business.`

Now, he is looking into the SML market
with entry-leel packages, like
\ebSphere Lxpress and Lotus Starter
Pack, as growth areas or the sotware
group. And he is starting the \eb
serices campaign. Asked i there are
local companies already implementing
\eb serices, Silino notes, 1here`s
none, but a lot o people are asking
about it, there`s deinitely interest about
it.`

\hen asked how IBM is any dierent in
its \eb serices strategy as all the other
endors including Microsot claim to
support open standards, he replies,
1hey support multiple programming
languages but we all know their
operating enironment is \indows.`
But he welcomes the competition,
Because IBM is not the sole supporter
o \eb serices, a client has greater
possibilities or interoperability, or
partnership, which in turn hopeully
increases reenue, productiity. 1hey
now hae a choice.`

Services
t`s in the area o serices that IBM
will drie its growth. Already taking
up 41 o its total reenues
worldwide ,rom just 2 in 1993,, it
boasts o a >102 billion backlog o
serice contracts that will proide
annuity reenues or years to come
,although ironically, 2001 reenues rom
serices ell 1,. IBM Global Serices
made >35 billion in reenues last year,
dwaring its closest competitor, LDS
with its >22 billion. It employs 150,000
consultants, about hal o its total
employees, making it the largest I1
serices proider.

In the Philippines, serices made up
36 o total reenues o P2.9 billion,
according to its 2001 inancial
statements submitted to the SLC. Lric
Cruz, Country Manager o Business
Innoation Serices ,BIS, o IBM
Global Serices, says, In 1991, we
would hae been lucky i we had 10,
maybe 5, but now as you know
worldwide, we hae more than 50.`

1he ratio o its serices business to total
reenues in the Philippines has gone up
rom 33 in 2000, but in terms o year-
to-year igures, it declined by 15. Cruz
explains, Last year was a tough year,
when the industry suered a slowdown
in the economy, I guess you would note
that in tough times, the companies will
start holding back on inestments on
complex I1 projects, they will stick to
the basics, they will still buy the PCs,
they will buy probably serer upgrades
but they will postpone inestment on
complex projects. Most serices
companies suered rom a decrease in
business last year.`

Currently, the bulk o its reenues
locally come rom the Integrated
1echnology Serices ,I1S, branch o
IBM Global Serices, which oer
network consulting and integration, the
annuity-based serices such as
maintenance and product support
serice, the product-based serices like
LAN serices and business recoery, all
o which proide a steady stream o
reenues.

But the growth areas will come rom
Business Innoation Serices ,BIS, and
Strategic Outsourcing ,SO,. Cruz
asserts, In act, SO, i the market
becomes ready locally, that would
explode.`

Already, outsourcing is a >14 billion a
year business or IBM, but it has yet to
boom in the Philippines. Lric says local
customers are keeping a wait-and-see
attitude but it will take just one major
player to get into it, and others will
ollow. Cruz explains, I guess it`s that
apprehension you`re not in total control
o eerything, that someone else is
running your mission-critical systems. It
takes a while to accept that concept.`

Currently, IBM Philippines is doing
some outsourcing projects or help desk,
I
application maintenance serice, and co-
location serices or local and
multinational companies, but the ull
strategic outsourcing is not yet there, but
we are working on potential
opportunities, i only one starts, the
concept will catch on.`

It`s a ery good concept,` he adds,
you can sae on a lot o costs, ocus on
your competency. Like banks or
example, our banks here hae big I1
shops, mostly mainrame-based, but
really their business is banking and
inance, not maintaining a big I1
department.`

1hey may say the U.S. is a dierent
model, Japan is a dierent model,
Australia is a dierent model, but when
you see it happening in Malaysia and
1hailand, countries that hae more or
less a similar model and enironment as
ours, people will start taking a harder
look at outsourcing.`

A more mature business is BIS, which is
e-business strategy and planning
consulting. Cruz says, \e`e had a lot
o successes in banking and telcos, those
are our two major industries. As an
example, or telcos, the business support
system, billing system, customer care, we
hae a irtual monopoly o that space.
lie o the six major telcos here are
running on IBM`s billing system. BIS
implemented all o those or our
customers. lor banking, tellering
system, our core banking solution,
business intelligence, those are the areas
where we hae strengths.`

Locally, LDS does not hae a presence
in the Philippines, and its closest
competitor, Accenture, has closed its
consulting shop in the Philippines,
maintaining the Manila Support Center,
which is more on the programming side.
But o course, lP, Sun, and Oracle
remain strong rials. But based on
reenues alone, IBM is the undisputed
leader. \ith its PwC Consulting
acquisition, IBM will hae a beeed-up
business consulting practice, and it will
be miles ahead o the competition.

1he next step
BM is either number one in its
business segments or has the astest
growth, making it a earsome
competitor or the likes o Sun, Oracle,
LMC, LDS, lP, and Microsot. And
the company continues to set the agenda
in computing and technology. 1ake or
instance what IBM calls autonomic
computing, through its eLiza initiatie.
IBM is gradually transorming its
product lines to be sel-managing,
decreasing the need or human
interention. It is also pushing or a
concept called grid computing, which
would harness the processing power o
connected systems worldwide, turning
computing power into something more
utility-like, to be sold by the unit and
deliered on the Internet.

Despite IBM`s dominance, critics cite
that during Gerstner`s tenure, reenues
grew a measly 3.2 compounded
annually ,the worst record or any IBM
CLO,. Gerstner is also criticized or
creating the illusion o growth, by
buying back shares and padded
operating income using its pension und.
But that`s missing the point. 1rue,
Gerstner may not be impeccable, but he
turned around a hardware company in
the brink o death to a sotware and
serices powerhouse, rom a company
that lost >8.1 billion in 1993 to a
company that made >. billion last year.

1he game is not oer obiously. IBM`s
competitors will not take the ight sitting
down. 1he company to watch out or,
surprisingly as it`s not really known as an
IBM rial, is Microsot. 1he sotware
company is more proitable than IBM,
though smaller in size. It has strengths
in the SML market, the astest growing
I1 segment, in the middleware and
I
inrastructure space. It is also well-
entrenched in the consumer market,
moing beyond personal computers to
consumer electronics. It`s .NL1 ision,
though conusing to many, is more
high-proile.

Still, or the moment, it is IBM`s time.
Businesses are now more concerned
with integration more than anything
else, and IBM is in the best position to
conince companies o its alue
proposition. Big Blue is absolutely right
on the spot.


IBM Philippines: 6S Years and
Counting
A study o IBM in the Philippines is
really a study o the history o
computing in the country. \ou can`t
write about one without writing about
the other. Indeed, IBM Philippines has
been a major orce in our history and a
tremendous inluence in our economic
deelopment.
By leinz Bulos

J Big Blues

1en years ago, IBM was in the brink o
death. Ater decades on industry
dominance, the company became a
ictim o its own success. In the era o
the personal computer in the eighties,
IBM was still pushing mainrames as the
cornerstone o its strategy. Blinded by
success and bloated by its bureaucracy,
its supremacy was shattered by the likes
o Apple, Compaq, Intel, and Microsot.
1here were plans to break up the
company. 1here were also talks o
bankruptcy.

1hings looked bleak or the IBM oices
around the world as well, including the
Philippines. Quintos, who began his
stint at IBM Philippines twenty years
ago, recalls, 1hose were tough times
or us. At that time, I was a manager and
obiously we needed to do what we
needed to do in this business to surie.
It`s not always pleasant to let go o
employees, particularly when some o
them are your riends, it`s not easy.`

luman Resources and Sta Serices
Manager Anna Roqueza, also a twenty-
year eteran ,Roqueza`s ather had been
an IBMer or 2 years and she also has a
brother currently working or the
company,, recounts, 1hat was when
the economy was haing a hard time.
\e had a special package which allowed
employees to take early retirement, so
we lost 99 employees out o 300.`

Lric Cruz, Country Lxecutie o
Business Innoation Serices or IBM
Global Serices, iidly remembers
1991, the year he started at IBM, \hen
I got out o Intel and moed into IBM,
Intel`s stock was soaring like this and
IBM was going like that. 1hose were
turbulent times, they were letting go o a
lot people in the US.`

Indeed, those were shaky times or a
company that was supposed to be rock-
solid, the bluest o the blue chip
companies. In the Philippines, it was
already a major institution that has
suried a world war, a dictatorship, and
a reolution. IBM is one o the oldest
multinational corporations to hae set
up shop in the country, haing been
established in 193 by 1homas Kein
Mallen o l.L. leacock. IBM was
called \atson Business Machines
Corporation then. In act, IBM`s history
in Asia dates back to 1925 when l.L.
leacock started selling IBM products in
the Philippines.

1he company started rom a small oice
in Lscolta with 3 employees selling
electric accounting machines,
typewriters, and time recording systems.
1he rest, as they say, is history.

Quintos is the thirteenth country general
manager or IBM Philippines, and the
seenth lilipino. le is aware that he has
big shoes to ill. Asked which one o his
illustrious lilipino predecessors he
admires the most, he replies, All o
them. I think all o them are great, they
all hae set high standards or the job
and I can only hope I can lie up to
those standards. I wouldn`t single out
one o them, they`e all done a great job
at IBM and moed on to better things
outside IBM.` Ramon del Rosario and
Roberto Romulo are ambassadors or
the country. Rainerio Reyes was a
ormer DO1C secretary. Virgilio Pena is
I1LCC Lxecutie Director. Ramon
Dimacali is President o lederal
Phoenix Assurance Company,
Inc. Ramon Jocson.

1he personal story o Quintos is in itsel
remarkable and inspiring. le recounts
that he came rom humble beginnings,
born in 1oledo, Cebu, a mining town o
less than ie thousand people with only
two streets. I don`t een know i you
know where that is,` he quips. le
graduated with honors rom the
Uniersity o the Philippines in
Diliman, with a degree in Industrial
Lngineering.

le climbed the corporate ladder at IBM
Philippines, was credited or pioneering
the Sotware and Serices diisions, held
numerous key positions, was assigned
arious responsibilities or
ASLAN,South Asia, and last managed
worldwide sales o IBM Sotware
Group, what Quintos aptly describes as
a sweet spot`.

le says, IBM has gien me an
opportunity to basically see the world.
1hat`s the kind o inspiration I try to
gie to an employee who`s just joined
the company.` le attributes his success
to reaching or his potential, respect or
people, respect or the past, and the
ability to balance strategy and execution.

It sounds much like IBM`s own success.
IBM without a doubt is one o the
greatest companies in the world. Surely,
it has learned rom the mistakes o its
past, but it has held on to its core alues.
Quintos says, \e`e maintained our
basic belies - respect or the indiidual,
our core alues in terms o sering
customers, quality, the alue we placed
on our human resources, the
deelopment o our people - those
things hae not changed.`

Cruz echoes this sentiment, \hat
hasn`t changed is the company`s respect
or employees, and the amount o trust
and leel o conidence the company has
gien to its people.`

2 Culture club

1he transormation o IBM started with
strategy, but it was enorced through the
culture. IBMers were always known or
proessionalism and technical skills. But
the eighties hae gien way to arrogance,
conormist thinking, and resistance to
change.

Roqueza calls the IBM o old a country
club`. It`s been much easier beore or
employees in the sense that eerything
was gien to them in a siler platter,
eerything that employees asked or.`
lor instance, IBMers receied a salary
increase automatically eery year
regardless o perormance. \ou only
know you did better i you got two
increases in a year. She adds, IBM had
become quite arrogant. Our sales people
were haing such an easy time selling
IBM that we didn`t try ery hard. a.ta
IBM /a, bibitiv va.`

1hey were then liing the lie. Roqueza
recalls, I used to go or six weeks o
training, we had the luxury o staying in
hotels.` Lmployees een complain
about the ood sered at posh parties.
1hey were like like a spoiled child who
was gien eerything.`

1hat was when we had an oerhaul o
our thinking at IBM, when Lou
Gerstner came in, but it already started
een with |John| Akers. le started to
talk about we`re this big dinosaur and
we really hae to shit gear`.`

1he change in the corporate culture
started with measuring eerybody by
objecties. Roqueza explains, \e raised
the bar or this measurement.
Preiously, we had 4 to 5 ratings, now
it`s down to 3. So you`re either in or out,
you can`t be aerage anymore.`

\e started to change the way we gae
people incenties, where eerything was
based on real perormance. 1he mindset
o getting annual increases, that had to
change as well. \ou hae to earn it,
you`re not entitled to that.`

\e also changed the way we do things
at IBM like lexible beneits,
telecommuting. \e introduced these 6
years ago and that`s really part o
empowering our employees.`

It helped that close to a hundred
lilipino IBMers with 15 years in the
company were oered to take on early
retirement, paing the way or a younger
crop that was less resistant to changes.
It gae the company the opportunity to
jumpstart on the changes`, Roqueza
notes.

Cruz adds, \hat has changed is the
openness in IBM. Back then, the
impression o people o IBM was
inlexible. \e hae proen that we are
open to what`s going on in the
marketplace.`

But there are things that haen`t
changed. loremost is the act that
IBMers hae so many opportunities
presented to them or growth. 1hat`s
the one word uttered by all the
managers we`e talked to: opportunities.
1he other two things that proide job
satisaction is IBM`s work,lie program
and the kind o people they work with.

Roqueza talks about the diersity in
proides in terms o my job.` She
started as an instructor and has, in her
20 years, moed into eight other jobs,
rom ield support to sales. She`s been
managing lR or the last two and a hal
years. \ou neer get tired or bored,
there`s always learning, which keeps me
on the job, there`s always something
new and exciting.`

She adds, I like the stability, where I`m
able to work in the same job, hae the
same set o riends, but still hae the
challenge in terms o the work. Our
work,lie program has allowed me to
raise a amily and still hae a career.
IBM is a great place to work or, you get
to work with the best people.`

Daid likes the challenge and the rate o
change. In the course o 14 years, I`e
been asked to do many dierent things
or the company, exposed mysel to the
arious business o IBM. It`s the people
and the challenge, I`m ery satisied.`

An Intel eteran, Cruz moed to IBM
during the darkest point o its history. I
actually liked working in Intel, I guess I
moed because I`e been there or more
than years. I was at the point when I
was thinking, i I stay then I`ll stay at
Intel oreer`, because I like what I was
doing. It`s a question o staying with one
industry all my lie. 1here was an
opportunity or me to see what`s out
there and to hae experience in arious
industries, so I made the decision to
moe.`

I stayed because o the people, people
you can trust. 1here`s always oice
politics, I wouldn`t say there`s none in
IBM but it`s not signiicant at all, it has
not hindered the way I do work.` le
adds, I hae aith in the system, I neer
bothered to understand what were my
beneits because I know the system will
always take care o me. It`s like a big
amily, people will take pains to knowing
the name o your child, where she goes
to school.`

Lastly, he talks about a passion to
adance, to achiee, but not cutthroat,
killing each other. It proides aenues to
adance, my people would not hae to
kill me to adance, to get more
compensation than me, because they
hae their own proessional path they
can ollow.`

IBM is a good enironment or women.
Ilagan, a 33-year old young mother o a
3-year old, attests, IBM has proided
me an enironment where I can thrie
in both, the challenges o starting a
amily and at the same time working on
your career. |I like| opportunities
presented by IBM to you as a woman, as
an indiidual, or example, the mobility
program, that`s a lot o help or us
young mothers. I hae an option to
work at home. As an employer, IBM is
conscious o lie outside o work.`

She adds, It matters when you work
with people who share the same kind o
passion. \hen it comes to
opportunities, I know there are a lot o
opportunities within IBM. Like today, I
do PC, when I eel that I`e already
outgrown this area, I can try other areas.
As an indiidual, you look or personal
growth, when you see seeral aenues
aailable or you.`

1his morning my daughter told me,
when I become a big woman, I want to
work or IBM also, because you`re
always playing with the computer.`

Quintos says, |\hen| I joined the
company, we were a bit more insulated,`
but adds, 1he enironment may hae
changed but the quality o IBMers are
the same.` le describes them as smart
as hell, enthusiastic, drien.`

IBM Philippines, he explains, has
become more global. Beore, it was the
Country General Manager who was the
sole decision maker, but now they hae
a concept o shared leadership. Quintos
also notes that the solutions oered to
local clients today, gien the global
nature o business, are world-class
solutions with world-class expertise.
Lerything else, we`e maintained our
basic belies - respect or the indiidual,
our core alues in terms o sering
customers, quality, the alue we placed
on our human resources, the
deelopment o our people - those
things hae not changed.`

3 Legacy

IBM Philippines is not the only game in
town, and that`s good or us. 1hat
means options or employees,
customers, and suppliers. But we hae
to gie credit where credit is due. IBM
may hae been the dominant technology
company in the country or decades by
deault, but IBM took the risk in doing
business in the Philippines and helping it
in its progress. Joaquin Quintos IV
muses about the contributions o the
company.

lirst is sering customers. Our
contribution to Philippine business in
terms o proiding quality, reliable, and
integrated solutions oer this long time
and being with them in partnership in
good times and bad. Probably a lot o
people do not realize: the irst A1M
implementation in the Philippines is
IBM, the irst mainrame
implementation here is IBM, our utility
companies would not able to collect
their bills i not or IBM, our airline
companies would not able to issue
tickets i not or IBM, many o our retail
companies would not be able to take
ast ood orders i not or IBM our
banking system would not be able to
operate i not or IBM, many o our
manuacturing plants and companies
would not be able to keep their actories
humming i not or IBM.`

\e hae thousands and thousands o
customers that we`e sericed or the
past 65 years, and people take this or
granted because you know what, people
don`t see it. It`s in the back oice, unlike
the PC which you can see, it`s what I call
the boring stu that people don`t realize
is absolutely ital or the company to
operate. 1hese are the things we`e been
constantly doing or the past 65 years.`

Number two is our inolement in
goernment. 5 to 10 years, goernment
has stepped up in its ocus in using I1 as
a tool or the adancement o progress
in the Philippines. IBM has been
inoled in many o these projects and
IBM has participated in proiding
products and serices to many o these
goernment institutions oer these
years. IBMers hae sered as adisers
and consultants in goernment projects.
Our ormer IBM leaders hae been
inoled in I1 initiaties, that`s another
testament to our inolement in
goernment. It`s sort o our
commitment to supporting the national
cause.`

1he third is education. \e`e done
many things, oremost is we`e ormed a
joint enture or the Asia Paciic College
and Last Asia College where we
basically hae a ery clear presence in
proiding quality higher I1 education.
On top o that, we do a lot o special
projects that help underpriileged
children like our KidSmart program, we
hae this Computer Lyes. \e`e got the
hardware, the sotware, the courseware,
we hae the natural ability to do this
well. 1his is where we can contribute.`