VideoOne important part of this is especially relevant to the threat posed by India. IBM is trying to write software that automates many of the activities companies now outsource. It has picked 17 industries, two of which, health care and insurance, are being primarily addressed by software engineers in India. Examples include software developed in IBM's research lab in Bangalore that tests the language skills of applicants for call-centre jobs, greatly reducing recruitment costs; and a mortgage-origination business, launched last week, which is designed to automate lending by building on technology and software from two recent acquisitions, Filenet and Palisades Technology Partners. When processes are automated in software, they become an "asset", the firm says, in the sense that programs generate licence fees and can be reused with other customers. This solves at a stroke the difficulty matching the Indians in labour-intensive outsourcing.
Analysts are divided about how successful IBM's overall strategy will be. An IBM executive complains that most of the analysts who follow the company are "legacy hardware guys who don't get software". One who does is Barry Rubinstein of IDC. He suspects that the Indian firms are too focused on short-term profits to make the best long-term bets, which may well include automation. "Things may look very different in five to seven years' time, and much better for IBM," he says.
In the meantime, the big Indian IT firms are delighted that IBM is taking them seriously. "Palmisano has authenticated our model," says the boss of one of them. "We have convinced the global investment community that our model is the future," he says. That keeps his share price rising and raises questions about IBM's value. Automation, among other things, may be a good long-run strategy, but in the short term IBM has to keep growing and get its share price up. "Palmisano's problem is timing," he concludes, with a smile. And to dance well, you have to get the timing right, as every elephant knows.
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