We know that technology firms spend billions each year in R&D to improve their products. But what happens when your product isn't a device but, rather, a service? This is the intriguing question that Ron Hira and Harry Goldstein ask in this month's feature "IBM Takes the Guesswork Out of Services Consulting". Using the results of our annual Spectrum R&D 100 survey, our authors found that, when it comes to spending on improving services for its customers, nobody invests in its future like Big Blue.
While coming in at Number 10 in the R&D survey, with an overall outlay of US $5.4 billion in 2005, IBM Corp. is the only one of the top 100 spenders that derives a significant percentage—slightly more than half—of its revenue from services, according to Hira and Goldstein. The services' portion of its revenues swelled from $12.7 billion in 1995 to $47.5 billion in 2005. Some of this was due to IBM's acquisition in 2002 of PricewaterhouseCoopers Consulting, a $5 billion-a-year consulting business. This put the company on a path that led away from personal computing in the workplace to an integrated approach to serving the needs of corporate customers. And it has demanded that IBM invest about a quarter of its R&D budget on the science of services.
Paul Maglio, a senior manager at IBM's Almaden Research Center in San Jose, told our authors that his services group has grown from nine people in December 2002 to more than 70 now. He estimates that 550 of IBM's 3000-plus researchers are working on services, either directly with clients or as part of teams running company projects. Maglio said the skill mix of IBM research will continue to shift as the labs hire ever more anthropologists, sociologists, and economists.
Moreover, Big Blue is aggressively promoting a new academic discipline it calls services science, management, and engineering (SSME), encouraging a group of universities—such as North Carolina State University, Pennsylvania State University, Rensselaer Polytechnic Institute, and the University of California at Berkeley—to create SSME programs. Pumping out graduates schooled in services science could form part of the United States or Europes competitive advantage in the coming years, the authors write.
The U.S. Congress has even built services science into the pending National Competitiveness Investment Act, which calls for the federal government to develop strategies to leverage services science to improve U.S. competitiveness. The legislation describes the new field as "curricula, training, and research programs that are designed to teach individuals to apply scientific, engineering, and management disciplines that integrate elements of computer science, operations research, industrial engineering, business strategy, management sciences, and social and legal sciences, in order to encourage innovation in how organizations create value for customers and shareholders that could not be achieved through such disciplines working in isolation."
Hira and Goldstein note that in determining success or failure, IBM is holding its services research projects to the same standards as its other R&D initiatives. The research division justifies its budget by demonstrating return on investment through hard examples of how it reduces the cost of services delivery. Whether the company can successfully refocus its R&D enterprise and lead the services sector in breaking new ground in the formal research of the post-industrial economy remains to be seen. However, with a track record for introducing new avenues in R&D like IBM has, it's a strategy that should prove hard to argue with.