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Kay Plantes is an MIT-trained economist, business strategy consultant, columnist and author. Business model innovation, strategic leadership and smart economic policies are her professional passions. A former Madison, WI resident, Kay now resides in San Diego, CA. The views on her blog are not those of her employer, IBM.

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October 4th, 2010

IBM’s Smart Business Model Strategy

Dr. Colin Harrison, inventor of IBM’s Smarter Cities technical architecture and leader of business strategy development for Smarter Cities.

IBM’s Smarter Planet initiative is more than smart branding. The initiative reflects smart evolution in IBM’s business model.

Over the past decade, the Fortune 500 company exited commodity IT hardware (e.g., personal computers) to make investments in high-end IT, such as data analytics. As IBM’s income from hardware fell from $2.7b to $1.4b, income from software rose from $2.8b to $8.1b between 2000 and 2009.

The broader scope and higher-end capabilities positions IBM as a catalyst to advance individual enterprise performance and significantly advance system-wide improvements in health care, transportation, energy, public safety, water and educational systems, or what IBM calls a creating a Smarter Planet. IBM is now positioned to improve how cities – where all these systems come together in a “system of systems” – operate. Thus the Smarter Cities initiative.

The aim of the Smarter Cities initiative is to make cities’ systems more instrumented, integrated and intelligent so that cities better serve the needs of their businesses and citizens.

I had the privilege of a short interview with Dr. Colin Harrison, a key leader in the “Smarter Cities” initiative at the IBM Research Lab in Zurich, Switzerland. Dr. Colin Harrison will be the keynote speaker at the Greater Madison Chamber of Commerce 58th Annual Dinner, October 7, 2010 5-9PM at Monona Terrace in Madison, Wisconsin. Creating, attracting and retaining talent and knowledge-intensive businesses is Job #1 in economic development today and the Smarter City perspective – complete with examples from Iowa to Europe and Asia – will be a useful perspective for Madison’s leaders to consider.

Dr. Harrison, with IBM since 1979, has a track record of successes reflective of IBM’s view that “information technology is transformational technology, to be deployed to improve life.” Dr. Harrison explained how the concept for Smarter Cities emerged from a number of directions, mainly the following three.

IBM had been working during the last decade with an innovative economist, Carlota Perez, who helped IBM understand the implications of the global economy moving into a fifth long-wave Kondratiev cycle. (These are 50-60 years cycles created from technological innovation and the response of organizations to them.) The fifth cycle is the information technology cycle, in which a growing share of GDP uses integrated hardware and software producing what IBM refers to as a “wired planet.”

The second direction was work Harrison was doing in sustainability and the environment, where IBM had a long-standing strategic focus. Harrison saw a lot of commonality in need across multiple applications, creating an opportunity for IBM to create a technical architecture that could be leveraged across multiple projects and systems.

A third direction was IBM’s work with a new small city being constructed in Dubai that had, as one aim, limits on the total daily usage of energy by the city in its entirety.  This project helped Harrison and his team understand a city as a system of systems, with interconnectedness between the systems.

“To compete in this new economic environment, cities will need to better apply advanced information technology, analytics and systems thinking to develop a more citizen-centric approach to services. By doing so, they can better attract, create, enable and retain their citizens’ skills, knowledge and creativity.” (IBM Website)

Effective leadership teams keep innovating their organization’s business model to avoid the relentless gravitational pull of commoditization. IBM’s business model strategy decisions are smart in that the new business model is well-aligned with external trends, leverages IBM systems thinking and innovation skills, and opens IBM to terrific growth opportunities. The Smarter Planet focus, for example, increases IBM’s addressable opportunities by 40% in the decade ahead (IBM 2009 Annual Report).

What larger view of the future is driving your business model strategy? How might you contribute to creating a smarter city and smarter planet?

For insight on business model strategy, read my recently released book, Beyond Price.

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