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Does All This Work Increase Profitability?
Two and a half years after starting to pursue services science, IBM can point to some successes. The company has a fixed procedure for measuring what it calls “accomplishments,” and Horn estimates that about 15 percent of the accomplishments by research now involve services. Research has had 250 direct consulting engagements since 2002. And in the fourth quarter of 2004, it spawned two new practice areas, WebFountain and the Center for Business Optimization.

Both are fledgling but promising. WebFountain is a set of processes for organizing and analyzing huge sets of disparate data. A WebFountain application might involve surveying text on the Web and deducing what people are actually saying, rather than just returning instances of keywords. That work is of obvious interest to IBM customers that have, say, customer service departments that need to gauge complaints or answer questions.

The Center for Business Optimization helps clients tighten up operations. It recently created what it calls a Pharmaceutical Production Refactoring Tool, which helps large drugmakers reduce the risk of having to shut down manufacturing facilities because of failed health inspections. This tool could prove especially useful now, in light of recent changes in drug-manufacturing regulations, which mean that if the U.S. Food and Drug Administration finds a problem with a single production line at a manufacturing facility, it will shut down the entire site until the problem is resolved. Thus, “something low-margin can wipe out your entire facility revenue,” notes Krishna Nathan, head of IBM’s Zürich Research Lab and vice president of services research. “It’s a huge problem for the industry. [Drug manufacturers] need to refactor the risk and restructure it across all their sites.”

To create a product that would help meet that need, IBM researchers in November 2004 worked with IBM’s Business Consulting Services unit to devise algorithms that would quantify the risk of failure presented at each site and suggest changes, based on historical data from drugmakers. According to Nathan, in a pilot case involving one drugmaker, initial tests showed that the IBM tool had the potential to reduce risk by 30 percent.

The push now is to do more, faster. No one at IBM Research thinks the division is getting enough done on the services side. Over the past year, IBM has started referring to its research work as “services science,” but there are people even in the services group who can’t say those words with a straight face. Nathan added “services” to his title only in September, when Horn decided he wanted the research department to accelerate its services efforts.

“We’re making a lot of progress, but would I like it to be faster? Yeah, I would,” says Horn. He hopes that in five years, half of IBM Research’s “accomplishments” will come from its work on services. But he thinks it may take years for the department to become as services oriented as he thinks it must be to best serve IBM’s needs.

Services have clearly been good business for IBM. Less clear is whether services research is good business; it’s too new an area for us to know for sure. But there are encouraging signs: IBM’s On Demand Innovation Services program, which basically farms out the talents of the research staff, last year generated more than $300 million in revenues. That might seem an insignificant portion of a $46 billion service business. But it more than ­triples the revenues from the year before. Growth like that is hard to ignore – and could be a sign of more to come.

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