IBM's Vertical Climb

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    A few years ago I had the chance to chat with Andy Grove during a book fair where he had gone to do a reading of his just-published book, Only the Paranoid Survive. I asked him what, beyond continued miniaturization, would classify the next big thing in chip technology. He didn’t pause to answer: “Verticals.” He explained that specialty chips would find new markets in vertical segments — healthcare, education, financial services.

    I was reminded of that when, as part of the Great Canadian Bus Tour, we landed at a building with IBM’s logo. In particular, it was the IBM Services Centre for Insurance. Insurance? Isn’t that a vertical? Three years ago, this IBM Canada operation became part of IBM’s Global Services. Worldwide, IBM Global Services employs about 180,000 people. About 13,000 are in Canada, which makes up a large portion of the 20,000 people who work for IBM Canada.

    The particular office we visited provides both infrastructure and application management services to insurance clients. It’s an apt location, since this region of Waterloo, Cambridge and Kitchener is home to 14 major insurance companies, according to our hosts, Canada’s Technology Triangle.

    That focus didn’t arrive wholesale. It evolved. Its evolution shows the route that we may be seeing more of, not just from IBM but also from other sizable service providers looking for strong footing in their client’s lines.

    In 2001, an IBM Waterloo office had about 40 people, mainly doing equipment support and sales. In early 2002, IBM Canada signed an agreement with Manulife Financial’s Canadian Division. The service provider offered server support, e-business hosting, network support, desktop services and help desk services, as well as e-business application testing and deployment. Currently, that business employs 400 IBM people, 200 in Waterloo (many transferred over from the client).

    Then in the summer of 2002, IBM Canada signed an agreement with Sun Life Financial to provide server support, email and network security. That employs 120 people, 40 in the Waterloo offices (many transferred from the client).

    In 2002, The Economical Insurance Group signed IBM on to handle legacy application management for property and auto systems.

    Later that year, IBM Canada realized what it had on its hands — a specialty that could help distinguish this relatively small collection of people in the Waterloo region. In late 2002, IBM opened its first Services Centre, devoted to insurance. It was the first center created by IBM that didn’t have a technology focal point but rather a market focus.

    The kinds of services these companies hired IBM for is basic stuff, right? Anybody could handle it, because, presumably, this kind of IT is supposed to be a utility! Apparently not. IBM has emulated the model by opening two other service centers: one in Calgary dedicated to petroleum clients and the other in Montreal for retail clients.

    Perhaps there’s more to delivering infrastructure services or managing applications than simply making sure the servers stay on or the code gets checked in and out properly. Domain expertise, specialty security considerations and the inextricable tug of like wanting to be with like all play into corporate decision-making around outsourcing.

    In 2005, the Centre serves 20 clients and employs 330 people in Waterloo. The head of the office, Paul Sammut, says it works because of a concentration of insurance companies and insurance skills as well as the tech and business skills generated at the University of Waterloo. A quarter of the work done at the Centre is for clients in the US.

    Mr. Sammut, a soft-spoken man, says an obstacle to growth from his group is simply making itself more visible to those within IBM selling services. In the meantime, he’ll keep on doing what he’s been doing, and, no doubt, doing it well.

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