IBM research: ultimate source for new businesses: the emerging business opportunities team plays a major role in accelerating research technologies from the labs to the marketplace.

OVERVIEW: Research organizations must have a strong balance of near-term and exploratory projects. Having a system that tracks and nurtures the development of these projects enables the organization to advance or eliminate them based on strategic milestones. IBM has developed an organization

to identify emerging business opportunities (EBO) within the research organization. By teaming with researchers earl), in the development process, the EBO team can provide support, funding, and the business advice necessary to advance new technologies more quickly to the market. Over the past three years, IBM has taken a systematic, company-wide approach to growing these new businesses. Beginning with a handful of EBOs, the program has grown to 17 EBOs--and generated market leadership for IBM in prime growth areas like life sciences, Linux, pervasive computing, and business integration.

**********

IBM's emerging business opportunities (EBO) program can be viewed as a group of startup companies being developed and nurtured inside the management constructs of the industry's largest information technology company. Although funded and managed within business divisions, the strategies are managed centrally and the funding for the EBOs is protected centrally--based on strategic milestones, rather than standard near-term business results. The EBOs are managed very differently from the rest of IBM's business units, and for good reason, because they represent the future.

EBOs have become a critical element in delivering IBM's sustained, future revenue growth. The EBO program was established in 2000 to improve the company's ability to explore, develop and test emerging business opportunities, and ultimately, to exploit these opportunities to grow our business. The intent was to identify new businesses that would develop into scalable growth businesses with significant, recurring revenue streams. The EBOs are not product upgrades or simply technical opportunities--they are business opportunities, ones we believe we can commercialize and turn into revenue-producing businesses because they meet the needs of our customers.

EBOs, by their definition, are changing the dynamics of our marketplace by introducing new business models like business transformation outsourcing, new customer sets like life sciences, new offerings like pervasive computing, and disruptive technologies like Linux and grid computing. IBM's future success is predicated on the ability to gain share and generate new streams of revenue growth and profit in areas like these. The identification and marketplace execution of EBOs is critical to this effort.

Horizon Businesses

IBM's EBO model is adapted from The Alchemy of Growth, by Baghai, Coley and White (1). We use their "Horizon" terminology to categorize the kind of new business opportunity and the type of general management style needed for projects in that horizon. Horizon One (H1) businesses are mature, and managed with a focus on current revenue and profit. Horizon Two (H2) has a longer time frame and is more uncertain. H2 involves growth into new technologies for the company's current customers, or growth of current technology to new customer segments. Horizon Three (H3) businesses, commonly referred to as EBOs, are aimed at long-term growth and involve significant experimentation in new markets or technical areas.

IBM is managing the EBOs tightly in terms of monitoring results and modifying investments over time. Every EBO is managed by a different set of milestones--but in the early stages, profitability is rarely one of them. EBOs are opportunities that IBM believes may become more important in a two-to-three year time frame. To keep a close eye on these projects, each EBO has an executive leader who reports into and is funded by a specific business organization. This leader also reports centrally to IBM's strategy organization, to ensure that appropriate funding is provided and to keep executive focus on the technical and business progress of the EBOs.

How do you maintain a flow of viable H3 opportunities while growing the H1 and H2 businesses? This is the challenge at hand for Research's EBO group. IBM Research has become the breeding ground for many of the new H3 initiatives. In the past, IBM has relied on the researchers to focus on technology and science, not the business issues associated with their projects.

The Research EBO Program

In 2000, the Research EBO group was established to accelerate the transfer of technology to the marketplace by wrapping business knowledge around the technical development in Research (2). Where the Research EBO group offers significant value is with business insight, which is crucial when developing the H3 projects. The Research EBO program is becoming an integral part of the leadership model of IBM, and is focused on improving alignment with key growth areas through market analysis, industry expertise and education of the research community around new market opportunities.

Research EBOs get the extra support and attention they need as young, unformed and unexplored ventures. The Research EBO team acts as their agent and partner by meeting with them on a regular basis, ensuring clarity of strategy and organizational structure. The Research EBO team also works with the technical team to define the related business issues and helps them to understand how to go to market by working with the various channels, including sales and distribution (S&D), IBM Global Services (IGS), sectors/industries, and the global small and medium business (GSMB) organization.

The Research EBO team ensures alignment with external and internal priorities by focusing on such areas as marketing, business development, finance, and entrepreneurship. By having the EBO team handle these business issues, the researchers can focus on what they do best: exploratory, technical work. Once a project is approved as a Research EBO, the EBO team becomes an integral part of the research team and guides the project by means of executive reviews of technical milestones.

Four Approaches to Growth

The Research EBO group has four approaches for growth (see Figure 1): new products, new practices, new businesses, and acceleration of product extensions. Having these four options gives each EBO the flexibility to grow in many different directions, based on market demand, technical capabilities and resources. A project that starts out as a new product can morph into a new business.

[FIGURE 1 OMITTED]

IBM Research has developed a system for each stage of the EBO process, from QuikScan to investigation to validation/incubation to transfer (Figure 2). This system allows us to advance or eliminate projects based on established milestones. If a project makes it through the incubation process, it is then transferred to the appropriate IBM division.

[FIGURE 2 OMITTED]

One of the first projects incubated by the Research EBO team was Web Fountain, a very-large-scale integrated infrastructure for advanced text analytics that allows the discovery of trends, patterns and relationships from unstructured and semi-structured data on a worldwide basis. Web Fountain is based on three years of research at IBM's labs around the world. More than 250 scientists and researchers in five countries contributed to the core technology. The EBO team recognized this opportunity, nurtured the project and is now working with the Web Fountain leadership team and IBM's services division to transition Web Fountain into a formal company offering.

Another example of a successful EBO that originated in Research is the Business Value Modeling Tool, a new asset developed jointly by IBM Business Consulting Services (BCS) and IBM Research (Figure 3). This tool helps clients make better decisions by providing a deeper understanding of the business impact of proposed initiatives. A rich set of model inputs supports analysis of multiple business segments across the client's value chain. Additionally, prepackaged "scenarios" provide an intuitive approach for assessing specific industry-related offerings.

[FIGURE 3 OMITTED]

The tool supports traditional return on investment (ROI) analysis but also goes beyond ROI to analyze a transformation's broader impact on business performance. It also benchmarks customer performance against industry peers. This project was developed in Research under the guidance of the EBO team, which then joined with the BCS team to pilot it with customers.

Life Sciences is an example of an initiative that was identified as being ripe for dramatic growth; however, this happened in 1998, before IBM developed its EBO model. Some researchers had recognized that computational biology was growing by leaps and bounds with the advent of the human genome project, and thought that this could be a significant business opportunity for IBM. Without the EBO model, it took nearly two years to establish the Life Sciences business organization. Had there been an EBO management system in place, the time to launch the business could have likely been cut in half.

Accelerating to Market

The goal of the Research EBO team is to accelerate research technologies into the marketplace, and this can happen in a number of ways: technology assets can be combined with intellectual capital to form a services practice; technology assets and architectures can transfer into a new platform; and technology assets and existing offerings can become market extensions.

IBM Research experiments in the marketplace using first-of-a-kind projects and pilots. These are projects between IBM Research and a customer, and typically will last for 12 months. The EBO team provides market insights to researchers which helps them in creating these customer-oriented prototypes. The team also improves Research's portfolio in targeted areas through proactive market intelligence, identification of technology gaps, and "go-to-market" linkages. This helps shorten the time it takes to transfer technology from the labs to the marketplace.

Another way to link research more closely with customers is a new initiative, called On Demand Innovation Services. This program is aimed at making our research innovation directly available to customers through IBM's consulting group. As researchers work with business consultants and customers to solve real-world problems, we are better positioned to identify emerging business opportunities.

The growth of the EBO program has demonstrated the value of a structured management process for emerging businesses. For continued growth, it is critical to have a viable H3 pipeline to drive future EBOs. The Research EBO team will continue to play a major role in accelerating research technologies from the labs to the marketplace and growing IBM's future revenue stream.

Lessons Learned

The EBO team has learned to deal with many challenges while nurturing these emerging projects. One key lesson has been around the personal aspects and learning to make business decisions based on measurable criteria (business and technical milestones) and not solely on the passion of the technical team leading the project. IBM encourages exploratory research through support of grant programs, and it is important to remember that the goals of the emerging business group are focused on delivering revenue to IBM, not just on delivering cool new technologies.

A second lesson centers on the timing for project transfer to IBM divisions. Researchers are never done with developing technologies, as there are always new functions that can be added to a project to improve it. The role of the business team is to keep the technical team focused on a set of deliverables against a specific timetable, agreed upon early in the project. The focus on emerging business (versus emerging technologies) is a new venture for IBM Research, but the early indications show that we are influencing the thinking of the research technical community, and by partnering with them we are creating new opportunities for IBM.

References

(1.) Baghai, Mehrdad; Coley, Stephen; and White, David. The Alchemy of Growth. Perseus Publishing, Cambridge, MA, 2000.

(2.) McQueeny, David. "IBM's Evolving Research Strategy." Research. Technology Management, July--August 2003, pp. 20-27.

Sharon Nunes is vice president, Emerging Business at IBM's Thomas J. Watson Research Center in Yorktown Heights, New York, where she is responsible for identifying and growing new technologies into future businesses for the company. Prior to this, she was director of Life Sciences Solutions in IBM, bringing new technology solutions to the pharmaceutical and biotech markets. Nunes received her Ph.D. in materials science from the University of Connecticut.

slnunes@us.ibm.com; www.research.ibm.com