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IBM takes one direction, Milwaukee entrepreneurs the other

Last Thursday was a day of interesting juxtapositions.

I spent the morning with Milwaukee entrepreneurs at eForum 2005, where one of the hot topics was the shift from selling services to selling products. The thinking was that it's easier to grow per-employee revenue selling products. Later that day, IBM announced that its year over year earnings were doing a fair imitation of an Acapulco cliff diver because of a slower than expected shift in the revenue stream from products to services.

The Dow Jones, nervous as a teenager about missing the latest fad, joined the diving exposition the next day.

Do the Milwaukee entrepreneurs know something that IBM doesn't? Well, that is how the entrepreneur game is supposed to work. The nimble little guys figure out stuff that the big guys are too big or too inflexible to notice and then grow the heck out of it. Could be, but I think there's something else going on.

Perhaps they're just at different points on the corporate growth curve. After all, the ultimate entrepreneurial goal is to become one of the big guys. Maybe at some point all that product growth moves it towards commodity, the margins get too thin for comfort, and one naturally begins to eye up the services side of the equation. Probably there's some truth there as well.
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The analysts weren't calling the IBM shift to services a blunder. They just complained that it was happening too slowly. But I still think there's something else going on.

If you dig into the details of the IBM service side, you'll find they're chasing pretty much the same objective as the Milwaukee entrepreneurs. IBM is trying to shift its focus from the lower-margin tiers of services like data centers to higher margin tiers like technology-driven business-performance enhancement. They're trying to get more revenue from the same stable of effort.

The cynical will say, "Here we go again. Increase profitability by expecting more of fewer people." Cutting costs is the more bland, if no less ominous way of saying it, and certainly some of IBM's comments post earnings announcement would suggest that's exactly what they're thinking. Talk of layoffs and reducing expenses was peppered throughout their discussions.

Ever the optimist, I'm hoping that was just some reflexive shiver. Maybe IBM still has enough flab left after several years of industry-wide cost cutting to make that approach sufficient, but I don't think even they believe that. We all learned from the bubble that no matter how fast you grow revenue, if expenses are growing faster there's trouble ahead. I'm hoping that we learned from the last few years that no matter how far you cut costs, if revenue is contracting faster, there's also trouble ahead.

Despite our obsessive, almost exclusive focus on the IT bottom line and its immediate general ledger precursor, costs and expense, there's a natural limit to that approach somewhere around going out of business. To stay in business, to keep growing, eventually somebody somewhere in an organization has to focus on growing the top-line and its immediate precursor, revenue. MBA 101 stuff here. It's the balance of the two that makes for good business.

Whether starting a small IT business in Milwaukee, running a global IT operation like IBM's, or leading an IT shop in a larger company, there's been a lot of yammering lately about IT value. Maybe this is what it really looks like when it's happening. Perhaps the last few brutal years in IT are some kind of penance for our previous lack of discipline.

There is, however, only so much satisfaction to be gotten from beating a dead horse. Eventually one has to hitch one's wagon to something more productive. IT value comes from hooking it up to the top-line as well as the bottom-line.

I'm hoping that's the common thread behind the seemingly opposite directions of the Milwaukee entrepreneurs and IBM.

Byron Glick is a principal at Prairie Star Consulting, LLC of Madison Wis. Prairie Star specializes in managing the organizational impacts of technology. He can be contacted via e-mail at byron.glick@prairiestarconsulting.com or via telephone at 608/345-3958.

The opinions expressed herein or statements made in the above column are solely those of the author, & do not necessarily reflect the views of Wisconsin Technology Network, LLC. (WTN). WTN, LLC accepts no legal liability or responsibility for any claims made or opinions expressed herein.

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