Grzegorz Tomasiak:
The Polish market is maturing, but it's not there yet
International Business Machines (IBM) has managed to steer a clear course through the current IT sector storm, while many other tech firms have seen their market shares plummet along with their revenue and stock prices. But a corporate makeover in the late 1990s helped prepare the company for the current downswing. Better known for its production of mainframe computers, IBM has recently metamorphosed into a sleek IT services company that can create, construct and control corporations' data systems. Last year, the company overhauled its line of corporate computers with a new brand under the name eServer. Grzegorz Tomasiak, the 37-year-old country general manager of IBM Polska, talked to the Business Journal's Roseanne Gerin about the company's business focus for the Polish market and the current climate for its products. The following is an edited version of their conversation.
Q: October 2001 marked the 10th anniversary of IBM's Polish operations. What were the biggest tasks that IBM Polska faced in 1991 and what are the company's major challenges here today?
A: The biggest task we had was to build the organization. At that time we had a big contract with Bank Śląski. This was the first big project that we had to fulfill as a new organization. Over time what we had to do was build the organization but also change the focus. Those 10 years in the history of IBM have been important because there's been a shift in its strategy and approach. We've become a global company. We wanted to have three (business) components that were hardware, software and services. The services component is especially important because most of our competitors are going in this direction - but five years after IBM. Those 10 years have been important, with IBM Polska working hard to build the organization (and) to make sure the strategy and focus is in line with the (parent) organization. We started the software and services business with the right focus a little later than the (parent) corporation. This was the rollout phase. Even though we had the services organization from the beginning, it was mainly focused on the services around the product - our maintenance and warranty service. And 1997 was a very important date for us because we started IBM Global Services focused not only around product services, but also integration and consulting. We also started the software business where we have four pillars. The most important one is the database pillar where we (have the database management software) Informix. The second is Lotus (e-business solutions). The third is WebSphere (Internet infrastructure software) and the last one is Tivoli network management software.
Q: What is the main product focus for IBM Polska now?
A: The main focus is (IT) infrastructure and whatever this infrastructure requires. We have the spectrum of servers for which we have been known for years. On top of that we have a strong focus on storage (with) our flagship product called Shark (a large-scale disk storage product). Software is based on the four pillars I mentioned. What is important is that IBM is not involved in the application business. Some time ago we used to have our own applications that we offered (as part of our) whole (software) solution(s). But there was a shift where we said we just want to develop the middleware software, which is called infrastructure software (a layer of software between the network and the application that provides services, such as identification, authentication, authorization, direction and security. With (software) application(s), we focused on cooperation with independent software vendors like (German software producer) SAP (and U.S. software producers) Siebel, i2, Ariba and PeopleSoft. We (include the) applications of these software houses with our services when we build the total (software) solution(s). The third piece is obviously the services, and here we have the product services (which are) the maintenance and warranty. Then we have the consultancy, the development and the integration of solutions where our people talk to customers to build the solutions. Our services division can design, build and run (software applications for our corporate clients) on a day-to-day basis.
Q: Will this infrastructure you described remain IBM Polska's focus during the next few years? If so, Why?
A: Yes. We still have to catch up with the West in the sense that the IT infrastructure of the country is still developing, and it's not at the mature level. Here we're talking about all the state registers that have to be formed or created - the whole e-government solutions that will be built around those state registers. In our view this is something that will come, especially with European Union (EU) access in 2004. It is something that has to come because (Poland) has to make sure it can cooperate with the European Union at the right level.
Q: Like other tech companies, IBM in recent years has cut its spending and reduced staff. Have IBM Polska's operations been affected by any budget-cutting measures or layoffs?
A: No, we added more resources this year. Overall we increased the number of employees in recent years globally and also in Poland.
Q: IBM's stock closed at almost $115 on Nov. 12, $18 more than a year ago when the shares traded at about $97. What does the increase in IBM's share price say about the company, as the shares of other large tech companies have plunged since then?
A: It shows that the strategy that we have on building (IT) infrastructure (resources) is right. That we came to the market with good products and we managed to build a stable business around our services, which have helped us to survive the bad times that we have right now. (Also) good price performance and, foremost, the services businesses, because in these difficult times customers require some consultancy that brings them savings in operating costs quickly.
Q: PC sales have been falling throughout the year as corporations cut their tech spending budgets and are not upgrading their computers as frequently as before. IBM's own PC revenue fell 29% for the financial year ending Sept. 30. Would you say that the PC business is no longer a good one for IBM?
A: I would say that the PC business in general is not good right now. As you have seen from the third-quarter global results, we have been affected by that. But the good thing about it is that we managed to minimize the impact on the overall results because of our good performance in the services software business.
Q: IBM's Global Services division (the company's IT consulting division) drives the company's revenue and now accounts for about 40% of its business. Are Global Services a strategic priority of IBM Polska?
A: Yes, globally for the first time in the second quarter, the Global Service revenue was higher than our hardware revenue. In Poland, we do not yet have this revenue structure where 40% would come from services. But we are getting there. I am not allowed to comment on the country results. We're not there yet - that's as much as I can tell you, but it is increasing this year in our share of the overall revenue.
Q: Why has IBM's Global Services division done well in the current economic environment?
A: Because we started to build this organization many years ago compared to the competition, and it turns out that we were well prepared for the bad times that we have right now. In services, the biggest asset is people, and it's not so easy to build this asset over night.
Q: In general, industry observers have raised the issue of whether the Global Services division has reached its peak or if there is still room for it to grow in terms of revenue. What do you think?
A: There's still room for growth, especially when I look at the Polish market. We also started to focus on the consulting part of the business where we invested in telco consultancy skills. We are also going to invest in banking consulting skills. From that point of view we still see growth potential. Also, outsourcing is pretty new on the Polish market so there's a lot of room to grow in the services business.
Q: In October 2000, IBM rebranded its line of corporate computers as eServers. How has this strategy fared in Poland?
A: Looking at the results and the market share that we gained during the last two quarters of this year, it paid off because it was not only a rebranding, but also some technology features were implemented in those servers that help us to get in front of the competition. For example, with the recent introduction of IBM's Regatta (server). This is 80% faster than the competition.
Q: Is IBM seeing a trend in the IT sector where companies now prefer to lease their servers and mainframes along with outsourcing IT operations so that they don't have to purchase the equipment outright and replace it after so many years?
A: Not in Poland yet. There's an increasing interest, but we do not see a run on this. In the West this has been the phenomenon for some time. The Polish market is maturing in that respect, but it's not there yet.
Q: IBM has embraced the open operating-system standard Linux to undermine the leading companies that have their own proprietary software, especially Microsoft with its dominant Windows operating system and Sun Microsystems with its Solaris version of Unix. But IBM's rivals say that Linux is not catching on quickly enough with software developers, so why is IBM incorporating Linux into its servers?
A: I would not agree with this statement. Recent developments show that the Linux solutions are maturing. It's no longer a niche solution. The biggest success of last year was in December when (Sweden's largest telecom) Telia installed our mainframe together with Linux. So those were important references for us. The recent decision of the New York Stock Exchange, (NYSE) to turn to Linux (the NYSE moved part of its operations from Sun Microsystems' Unix-based servers to IBM hardware running Linux) shows this standard is getting acknowledged. The NYSE doesn't make such decisions just like that. It has to ensure (around the clock) operations. So from that point of view, I see that reference as an endorsement of Linux. In addition, for the last three to four years we have seen a big interest in Linux in the academic world. Now these academics are coming into industries and spreading the word. They are the evangelists of this solution. And they are going to work for our customers and for software developers, so I think (Linux) will catch on pretty fast and stay with us.
Q: How do you expect IBM Polska to do for the year ending Sept. 30, 2002?
A: We should manage to grow the business. I still see room for growth in our services and software businesses. It all depends on the market, but we should be gaining market share over the next four quarters.
Roseanne Gerin
