IBM: SAP, Sabre and Smart Systems

Kudos to Vijay Vijayasankar for saying “he is very proud to be an IBMer” as he continues a debate we have been having for a while now about whether IBM is innovative or not. He cites SAP and Sabre (the reservation system) as long term examples of IBM innovation. Let me come back to each. Wish he had talked more about something more recent – like Watson and related impact on natural, smart systems.

IBM deserved plenty of ink earlier this year for what Watson demonstrated with its prowess at Jeopardy as Deep Blue did when it beat Garry Kasporov at chess in 1997. It was a feel good moment for all of us in tech – we cheered for IBM even if we competed against it.

But I have not seen IBM articulate clearly what Watson means to its business customers.  And when it does, I will tell clients to also look under the covers at Apache Hadoop and see the Yahoo! contribution to that open source tool and Cloudera’s distribution of the tool. I have also tell them to talk to Google whose labs are teaching computers that pointy towers define edifices like the Eiffel Tower and by transcribing millions of Google Voice messages they are teaching computers to understand nuances of human accents. And to talk to Microsoft which is pioneering surface computing and Kinect based gesture interface technology. And to companies like Mercedes which is pioneering digital avatars like “Gloria” to communicate with us in its cars.

Now back to Sabre and SAP. To me, when I hear Sabre I think less of IBM but of the IT industry icon, Max Hopper (later in his career he was on Gartner’s board and I had a chance to shake his hand on a couple of occasions) and Bob Crandall, the crusty CEO of American Airlines who saw the value in the Sabre infotech business versus the messy core business of running an airline and related butting heads with unions and weather and other operational issues.

But Sabre to me also reminds of so much that went wrong with aviation. It was the antithesis of the frequent flyer CRM innovation. I remember writing a letter to the Delta CEO in the mid 90s saying I had analyzed my records and flew on average 100K miles a year with them, and my air tickets averaged $ 15,000. Could we not agree on a simple arrangement of 15c a mile? Save yourself and me (and my accountants) the aggravation of buying tickets each time, and just send me a statement each month. They laughed at me.

Yield management – the Sabre design principle – was meant to optimize revenue per seat and here was this moron daring to propose something so simple. The reality is yield management brought them 45c a mile on some trips, 7c on others. Markets dictate pricing not systems. On average Sabre brought airlines 15c a mile. They could have simplified reservations, eliminated hairy ticket accounting (remember how long it took to change paper tickets?), got predictable revenue by getting away from yield management which forced us to check on competitor fares every time we flew. It would have fit with their evolving frequent flyer long term customer management mindset. Yield management was about optimizing each seat. CRM was about optimizing customer life time revenues.

Along came Southwest and simplified fares to close to what I was proposing. Southwest was started in Texas to compete with car driving so their fares were sensitive to mileage based costs. And Southwest showed they could be profitable while the majors went yo-yo on their numbers most years. (Vijay, go talk to IBM procurement folks and see how they negotiated hefty discounts with each airline using Sabre and negated the so called advantages of yield management)

The other ancillary problem with yield management was a focus on hub and spoke networks. American anchored their yield management around DFW airport, Delta around Atlanta Hartsfield, United with O’Hare etc. So they forced us all to adjust to those monstrosities with their miles of walkways and endless delays. Books could be written about the enormity of impact to the economy in extra fuel and passenger cost in transit and extra flying time these hubs have cost us. Southwest (and Jetblue and others) again showed us there was a different way – fly into Dallas Love Field, Chicago Midway, Oakland and other secondary airports. Less convenient, the majors said. Getting on the L to downtown Chicago or BART to San Francisco or driving another 15 miles to Fort Worth with another $ 200-300 jingling in my pocket is not inconvenient in my books. Especially when I flew in non-stop into those airports (where the majors allowed us to – remember all their lobbying for decades to not allow Southwest to fly non-stop into Love Field?)

On SAP, if IBM is doing innovative stuff around HANA or educating SAP about multi-tenancy around ByD that may be worth talking about about. But bragging about hundreds of FI/CO, SD projects is not innovation. In that vein, my respect goes to Chris Everett,  who built Price Waterhouse’s SAP practice into a multi-billion dollar business which IBM ended up buying. In 1993, he took the risk of betting big on R/3 when it was just coming out. He did this in a conservative accounting firm. That was risky and innovative. Or my little team at Price Waterhouse in London in 1989. We installed R/2 on a mainframe in the Docklands – a rough area back then, on a platform from a company called IBM which was widely considered then as dying. We prototyped using manuals in German which none of us were fluent in and from a company few had heard of outside Germany.

Sorry, Vijay – I am old school. Show me areas where IBM  is putting big bets – and taking risks. Innovation without risk-taking is just “new and improved” toothpaste marketing.

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CEO of Deal Architect, a top advisory boutique recognized in The Black Book of Outsourcing, author of a widely praised book on technology enabled innovation, The New Polymath, prolific blogger, writing about technology-enabled innovation at New Florence, New Renaissance and about waste in technology at Deal Architect.  Previously Analyst  at Gartner, Partner with PwC Consulting. Keynoted at many business and technology conferences and has been quoted in the Wall Street Journal, BusinessWeek, The Financial Times, CIO Magazine, and other executive and technology publications.

4 responses to “IBM: SAP, Sabre and Smart Systems”

  1. Bala Prabahar

    Hi Vinnie,

    What are your thoughts on “http://www.ibm.com/ibm100/us/en/icons”?

    I’m not an IBM’er but love technology and love all technology companies Google, Apple, Cisco, Microsoft, Oracle, SAP, Amazon, Yahoo, FB, Twitter and last but not the least, IBM.

    The challenge why companies such as Google, Apple etc are considered more innovative is because their customers are consumers like us. US Open held in Aug 2011, was telecast live on iPads, iPhones etc. Tennis fans were able to see live videos, live stats, live recommendations for the players etc. How many of those fans would know that IBM was behind the technology? All they saw was iPad and iPhone so I’m sure most of them thought more about iPad and iPhone than technology.

    See this video: http://video.foxbusiness.com/v/1134507347001/the-technology-behind-the-us-open/. And remember US open was not something you could simulate to test(or IBM probably simulated that environment to test. If they did, that was another innovation). They took risk – a lot – of telecasting US Open live. Had they failed, we would be talking about IBM now. How unfair we are and how unfair this world is. Am I wrong?

    Here is a list of few innovations in the last few years: (I cut and pasted a few of innovations from http://www.ibm.com/ibm100/us/en/icons below).

    1) Racetrack Memory 2010
    2) US Open Pointstream Aug 11 –> Live videos, Live Statistics, Live Recommendations etc
    3) Pioneering Speech Recognition 2011 Watson
    4) Nanotechnology
    5) The Invention of Stream Computing – Oct 2010
    6) Power 4 – The First Multi-Core, 1GHz Processor – 2001

    7) In October 2005, IBM became the first major corporation in the world to establish a genetics privacy policy.

    8) “….Through its responses to natural disasters, IBM continues to innovate and create new solutions. Sahana, the open-source software created in the wake of the 2004 Indian Ocean tsunami, and now governed by the Sahana Software Foundation, continues to evolve and is often referred to as “disaster relief in a box” for its ease of deployment. IBM continues to support its use for disaster relief and has deployed it in more than a dozen instances since its creation, including the 2008 Chengdu-Sichuan Province earthquake in China and the 2010 Chile earthquake….”

    9) http://www.ibm.com/ibm100/us/en/icons/mathandscience/
    In 2010, IBM spent US$33.7 million on nearly a dozen K-12 education programs, with almost half of those funds supporting programs outside the United States

    A companion site launched in 2011, Teachers TryScience, provides middle school teachers with free, standards-based STEM lessons integrated with instructional strategies. Grace Suh, senior program manager with Corporate Citizenship and Corporate Affairs at IBM, says, “Teachers TryScience is designed to give teachers the comprehensive supports they need to implement a lesson effectively, with a focus on hands-on projects that showcase what it is like to work as an engineer.” The site offers teachers a range of resources, including pedagogical information—such as how to work with students in groups or how to teach students with different learning needs and styles—and practical how-to guides, like how to build a wind turbine or a solar car.
    The Professional Sales Force
    A key aspect of this initiative is the new IBM Industry Academy composed of sellers and consultants who are recognized for their deep and insightful knowledge of particular industries. They’ll meet regularly to take on strategic projects.

    10) New Business Models for Telecom

    11) The First Nationwide Smart Energy and Water Grid
    “…These challenges led to a 2008 collaboration between IBM and the Maltese national power and water utilities on the world’s first national smart utility grid. It involves replacing 250,000 analog electric meters with smarter meters that can monitor electricity usage close to real time, identify water leaks and electricity losses, set variable rates, and reward customers who consume less power. IBM will also integrate water meters and advanced IT applications as part of the five-year project, enabling remote monitoring, management, meter readings and meter suspensions. …”

    12) In 2009, TAKMI debuted commercially as IBM ® Content Analytics, a stand-alone analytics platform. Of particular value to clients is the system’s ability to bridge previously disconnected structured and unstructured data, analyzing enterprise content from emails, blog posts and chat logs alongside structured data, such as sales figures or customer postal codes.

    13) Medicine On Demand
    “…In 2009, IBM helped lead a humanitarian effort in a remote part of Africa that used everyday technology to get supplies of medicine to where they were needed the most. The project served as an example of how simple, inexpensive technologies used in innovative ways can improve the medicine supply chain and help save lives. …”

    14) In 2004, IBM received the US National Medal of Technology for “four decades of innovation in semiconductor technology that has enabled explosive growth in both the information technology and consumer electronics industries through the development and fabrication of smaller, more powerful microelectronic devices.” IBM’s copper technology breakthrough was featured among the innovations.

    15) In October 2005, IBM became the first major corporation in the world to establish a genetics privacy policy.

    16) The Professional Sales Force
    A key aspect of this initiative is the new IBM Industry Academy composed of sellers and consultants who are recognized for their deep and insightful knowledge of particular industries. They’ll meet regularly to take on strategic projects.

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