IBM: "If Not Us, Then Who?"

Rod Adkins, SVP of IBM's System and Technology Group uttered the claim on the last day of IBM STG’s Smarter Computing Analyst Forum on Wednesday, December 7th, 2011, and it hit me on multiple levels.

I blame – or credit – Watson.

Watson – an artificial intelligence computer capable of answering questions posed in natural language – represents IBM’s most recent “next big thing.”  Watson went public in Jeopardy competitions, beating humans, and went commercial this past August, with the first initiative focused on healthcare in partnership with health insurer Wellpoint.

After a technical dissertation by Watson Solutions GM Manoj Saxena, IBM turned the discussion over to Dan Pelino, GM of the Healthcare and Life Sciences Industry and Dr. Herb Chase, Professor of clinical medicine at Columbia University.  This segment started with a video clip of a baby in a hospital crib after which Mr. Pelino fired off the various connections and data points monitored in such situations for premature babies and the way in which predictive analytics can intervene in those early stages to forestall long term medical challenges for the baby.

It likewise had me recalling the birth of my four children.  It had me recalling the brother I never knew who died at the age of 5 days from a now repairable congenital heart defect.  It had me recalling the first time parents in our office.  It had me wonder about what will happen technologically in the lifetime of those born this year.

Soon thereafter Dr. Chase recounted a challenging diagnostic case he had in the late 1970s that ultimately turned out to be Rickets brought on by kidney failure rather than more common vitamin D deficiencies.  Dr. Chase recounted how this case has stayed with him, with the implication being the painful journey that patient endured 30 years ago was a factor in his move into the medical teaching and researching field where he now quite obviously thrives.

And so Dr. Chase put the symptoms of this long ago case of Rickets to Watson in a test to see what would come back, and come back Watson did with kidney failure as one of the potential causes for the symptoms … in minutes.  Technology directing doctors to the right diagnosis in far less time and with far less patient hardship or resources expended.

Smarter Computing, Smarter Planet, call it what you want, but there, in a nutshell, was IBM’s Value Proposition.

Overpowering to me in three very distinct ways:

1. Economics
2.  Corporate Social Responsibility
3.  Generational viewpoint differences around technology

Economics of Pareto Optimality

Per Dan Pelino, US Healthcare spend runs at about $2.7 Trillion and 35% to 40% of that is not spent on care.  We can do better on the labor spend through smarter deployment.  If we can minimize the cost associated with the tricky diagnostics we save money in aggregate to devote to other investment, be it in healthcare and preventative medicine or simply in needing fewer tax revenues to address our obligations to our citizens.  Either way we improve economic efficiency and move closer to a Pareto Optimal environment.

And that is a rather esoteric economic term to throw into a blog, but it hammers home the point.  This notion states you achieve pareto optimality when you cannot allocate resources in a different way to benefit one segment or situation without hurting another.  A $75 word to denote “Win-Win.”

The Rickets diagnostic case example clearly indicates how you can free up money to allocate elsewhere while actually improving the well-being of the person receiving less resource.  You spend less time coming to realize kidney failure is causing a patient Rickets, thereby quickening their improvement while also saving money. 

 

Corporate Responsibility

Prior to the Watson presentations, IBM ran through their assessment of the business opportunity in Africa.  Rod Adkins, SVP of the Systems and Technology Group put out a personal challenge to the audience to make a bigger point about what can be done in that region.

The notion of a handheld device into which a stretched thin Doctor or nurse practitioner in a remote region of a Lesser Developed Country can input symptoms to query Watson hit me.  Extending the global reach of the planet’s collective body of knowledge to the most remote and impoverished areas of the world through simple and proven technology infrastructure.  WebMD on steroids.

So somehow and some way, I am certain Watson Healthcare will drive forward improved health services in very economically disadvantaged regions, improving quality of life and pre-empting avoidable debilitating medical issues.

Faster, better and cheaper medical care.

That’s cool.  

And it prompted me to recall this picture during the presentation that I have seen in the Newseum in Washington DC taken in Sudan.  The picture sparked outrage at the photographer, precipitating his suicide.

To the extent Watson Healthcare can mitigate situations such as that depicted in the photograph, we may not become a Smarter Planet, but we will become a BETTER Planet. 

The Generational Divide Around Technology

Baby Boomers represent the last generation to grow up without technology as a permeating aspect of their daily existence.  This age factor cascades throughout market research studies when you track quantitative data by respondent age, and is a strong predictive indicator of viewpoints in the technology industry.  My traveling companion -- and a brilliant mind -- happens to be half my age.  We banter and we joke, but we both admit we learn from each other.

Dr. Chase hammered home this point on technology in medicine.  Two-thirds of Doctors still have paper billing record keeping systems , for example, and a dominant majority of doctors indicate they spend less than 5 hours per week reading.  This also contrasts with a data point offered during Mr. Saxena’s presentation indicating that 80% of the world’s data has been created in the last two years.

We are awash in data and don’t know where to find it.  “Thirsty in an ocean of information” to paraphrase the Powerpoint slide.  “Water, Water everywhere and nary a drop to drink” as I recall from Samuel Coleridge's poem "The Rime of the Ancient Mariner" taught to me in high school as an example of irony.

And older individuals can sometimes be awed at how far we have come in this information age to continue to push.  The younger generation does not fathom these limitations.  Electronics enable their thinking whereas my generation’s thinking  was more in how to use the new gadgets.  Older IT decision makers as former IT builders or carpenters,  whereas younger IT decision makers are IT architects or business consultants.  

Dr. Chase made a statement about young doctors that Watson will bring them what they want to know RIGHT NOW as opposed to the month long interval between appointments Dr. Chase scheduled for his Rickets patient so he had time to investigate in the ways of the 1970s to do his job. 

And that represents the new technology paradigm.

Now.

Instant on floats around client device development in smartphones, tablets, laptops and desktops.  Windows8 better have instant on.  People won’t wait to boot to access email.  Cloud provisioning demands “always on, always live.”  Disaster recovery does not cut it.  Disaster resistance does.

Doctor’s want access to the body of diagnostic evidence to predict patient treatments, and the younger generation will demand and innovate around this new paradigm in ways I am happy, no, excited, to admit I cannot fully fathom.

“If Not Us, Then Who?”

Rod Adkins uttered those words after the Watson presentation.  Who else in the industry can do this?  Mr. Adkins, I believe, meant to speak more to the investment levels IBM can devote to pushing the technology envelope.  Not to take away from IBM’s efforts, but a lot of great minds work on scientific development.  Few can rival IBM’s ability to apply technology to business problems.  The fundamental underpinnings of this industry that makes “faster better cheaper” its rallying cry brings down the cost of innovation, thereby expanding its reach to improve our economics and overall well-being.  It enables Smarter Computing and, through it, a Smarter Planet.

And no one helps business apply technology better than IBM.

Do Managed Services Providers (MSPs) Render Distributors Irrelevant?

Cloud continues disrupting the IT delivery chain.  End customer relationship management undergoes the greatest transformation, with Managed Services Providers (MSPs) playing a greater intermediary role between large IT vendors and end customers.  Increasingly MSPs work to be the business entity that will manage end customer relationships, while traditional IT vendors have to package services and solutions to sell to MSPs and to sell through MSPs to others. 

The old computing model depicted below allowed, in hindsight, for some fairly clean responsibility lines between hardware, software, and services vendors.

Corporate IT data environments no longer enjoy clear cut demarcation lines.  CPUs and storage have been virtualized.  Client devices undergo transformation as radical as that offered by cloud computing.  The net result, in simple terms, looks something like this.

MSPs as Intermediaries

End customers look to their IT suppliers to coordinate varied cloud-based offerings.  Customers increasingly want these services tied together under one management umbrella.  Customers want MSPs to deliver a single, monthly invoice, and ensure the cloud services all work seamlessly from interoperability to security to disaster resistance to governance to compliance.  Customers also want to make sure the cloud environment will scale as their business grows.

Brokering/aggregation will become a critical MSP differentiator that will insure MSPs stay relevant five and ten years from now.  Today “pure plays” exist, but they lack little pieces of the solution set.  As happened with outsourcing, the number of different suppliers/invoices/interactions an end customer will tolerate to receive their computing feeds into their business operations will contract.  End customers will pay for brokerage services as they become less tolerant of multiple suppliers, invoices, and intermediaries in building out their data environments.  

Whither the role of Distributors?

The scenario above sounds a lot like the role of distributors.  But their value add historically comes from line card breadth and inventory management best practices.  Distributors operate on razor thin margins, promise competitively priced inventory delivered in a timely fashion, and seek to differentiate themselves through value added services.  

But system hardware buy points contract as more end customers provision their data environment through metered service of the compute and storage functions.  In short, cloud calls into question the long-term relevance of the distributor business model.

Can Distributors Adapt?

On the one hand distributors seem well positioned to evolve into the MSP space.  They understand the process of scouring the IT landscape and rapidly adjusting line card components to adapt to end customer and VAR demand.  Inventory management and control drives distributor business economics.

Similarly, distributors have “permission to play” with VARs and mid-market end users to whom large IT vendors do not sell directly.

But inventory turns and cloud-driven customer service expectations of 100% SLAs and time-to-resolution tracked in minutes rather than hours or days are driven by a new set of organizational best practices.  Can distributors adapt?

What are the long-term implications for distributors?

Clearly no technology trend results in an absolute transition.  On-premise installations will continue to exist even in cloud-centric computing environments.

But distributors will see their market opportunity shrink.  They can ride the decline, reducing inventory and learning to live on declining revenue where cost of goods sold (COGS) runs around 85% of revenue.  

Alternatively, they can enter the cloud brokerage business -- an extremely difficult and risky transition.  They will have to invest working capital in what is largely a subscription business akin to magazine publications or insurance sales.  Publishers know to expect to run in the red for two years when launching a new publication.  Insurance salesmen know they have to build a book of business over time to begin realizing significant annual earnings.

The transition will require patience and working capital and neither is an attribute commonly found in the distribution business which measures sales performance on a monthly basis and operating on 3% to 4% net income contributions.

The distributor business segment will therefore simultaneously consolidate and diversify.  The larger, better-funded distributors will buy up those distributors who hit the wall as cloud permeates.  Both large distributors and savvy regional distributors will build out the operating infrastructure necessary to bring to their established relationships cloud brokering services.