Thursday 22 March 2018

Head in the cloud but feet firmly on ground

Certainty and stability are key factors for those considering capital investment, but revolution is constant and should be embraced says the Irish chief of computer giant. By Donal O'Donovan

IBM's Irish head Peter O'Neill is used to constant revolution. The comparison might surprise the low-key, no nonsense IBM lifer, but as boss of the country's "oldest US multinational" he espouses something very close to the mantra of "constant revolution" once favoured by hirsute Trotskyites.

In O'Neill's view, radical change now has to be treated as a given -- adapting to change, either as a company or as an employee, is now the key to corporate survival. A look at the revolution under way at IBM makes its hard to argue with that view.

In the past decade, IBM slashed it's once huge Irish manufacturing business to nothing. It was part of a global shift as declining returns in the mainstream IT sector forced IBM worldwide to take a long, hard look at its business model.

"Go back 10 years and 60pc of IBM revenue came from hardware -- we made machines," says O'Neill. Many of those machines -- computers, printers, servers, had only recently been cutting edge technology -- and constituted a big capital cost for IBM's core business customers. By the 2000s the same machines were commodities, piled high and sold increasingly cheap by new entrants especially from the emerging markets.

The company, founded in 1911 and renamed as International Business Machines in 1924 came to a radical realisation; IBM was in the wrong business.

"We looked to our strengths and made the decision to get out of low-value businesses and to target becoming the number one provider in the services sector, which we had to grow from scratch."

Over coffee, and within the calm interiors of IBM's plush Dublin 4 offices, it sounds like a neat trick, but it meant radical departures, including firing 170,000 people around the world, with dramatic repercussions for employees and managers in Ireland.

Between 2002 and 2011, IBM shut four manufacturing lines that had employed thousands in Dublin. The company turned over much of its vast production centre in Dublin's Mulhuddart for use as a "cloud computing" data centre. Emptied of production staff, it became home to vast banks of computer servers.

That sounds less like a benign investment coup and more like an industrial relations horror story. "We did it in a controlled way -- a staged way, over years," O'Neill explains.

The fact that some production shut down, in a period when the wider employment market was booming, helped to soften the blow in terms of individuals, and IBM itself made efforts to retrain employees to adapt to the changing circumstances -- with some surprising results.

"We make a commitment to developing staff, and take it seriously. There are people who previously worked in manufacturing that now work in the treasury unit, which manages the corporation's complex finances. We all have a greater capability than we tend to think," he says.

With that in mind, there was a focus where possible on retraining of staff and finding alternative uses for the buildings, -- including incorporating a data centre at the existing Mulhuddart plant site.

"It's a great a location -- a secure, fenced industrial site and IBM owned the building. It is now also a living laboratory, because we use the plant for research into green technology and green data centres," O'Neill explains.

The prudent, parsimonious approach, reusing and recycling, squeezing capital, is a reminder that the company itself is over 100 years old -- geriatric by tech standards, even in comparison to most industrial heavyweights.

The flexibility of employees in the face of so much upheaval is something Peter O'Neill is clearly proud of -- something he says marks the Irish operations out within the global corporations.

"The wind-down of manufacturing had no impact from a business perspective, the last box rolled off the line on schedule and up to quality," O'Neill points out.

It's something no corporation can take for granted when a business is going through radical changes, says O'Neill, and has proved important in terms of selling Ireland as a place to do business. "The business environment changes, the market changes. Ireland proved itself in terms of having the flexibility to manage change."

Few things illustrate the extent of what needed to be managed as the employee statistics. In 1995, IBM employed 350 people in Ireland, with a domestic focus. A year later came the launch of a major investment in manufacturing that eventually drove job numbers up to 3,000. At the start of 2011, even as manufacturing was being left behind, IBM employed some 3,200, a figure probably closer to 3,500 today. There are plans to increase the figure even further by the end of the year.

Acquisitions of large software development houses that already had significant operations in Ireland -- notably Valent and last year's deal to buy Irish- owned software firm Curam, have been a major factor in maintaining the jobs levels -- though it's meant the employee profile has changed.

But many jobs are simply new -- including at IBM's Smarter Cities Technology Centre, a €66m initiative launched in 2010, that is home to a "brain trust" of research scientists and programmes collaborating to develop commercial solutions for managers of large-scale urban systems.

"It's the jewel in the crown," he says with pride, but O'Neill is brutally frank in pointing out that Ireland would not have been capable of pitching for the centre without the previous, long-term commitment from the State to the science agenda.

"In 1997, you just could not have envisioned how things have developed; initiatives like Science Foundation Ireland and the research done at the universities have absolutely paid off. We would not have won the decision within IBM to get the lab here without those foundations," he says.

That's a cautionary tale in an environment of cutbacks and Government retrenchment.

The centre is funded to grow to 200, and employ 100 researchers and 100 software developer at PhD level, and with a track record of being published in peer review journals.

It's a major fixed cost -- but one that after only two years is already generating commercially viable products.

One factor behind the decision to locate the centre in Ireland is the access provided to the IBM researchers by Dublin city authorities to its information and systems .

In effect, Dublin, small enough to be studied but big enough to be worth studying, has become a living lab for IBM -- which can use the information to model everything from how to improve the water system to links between bus times and rainfall. In turn, Dublin gets access to the solutions being developed by the brain trust, and Ireland Inc has a facility that attracts world-class scientists to work here.

The centre is a niche in the wider IBM Ireland business, but it's the logical progression of the decision to shift out of manufacturing IBM and up the value chain. It fits with the wider IBM business today -- which is heavily focused on providing IT services to industry and to state sector bodies.

In practice, it means IBM will no longer build you a printer -- but it will run your IT department and create the software to do it.

Unusually for a large multinational operating here, around a fifth of IBM revenues come from Irish clients. IBM is presently in far more places than most of us realise, says O'Neill, from the check-in system at airports, to the systems running mobile phone services and that process your motor tax payments. The Irish customer base includes banks, other multinationals and State agencies.

"We think the overall market is flat, but companies are looking to cut costs and at the same time focus on their core competence -- in that environment, outsourcing rises," says O'Neill.

Competition for IT staff is a challenge -- not just in Ireland but globally. "At IBM, the IT people are core people; that makes a difference in attracting and keeping staff. The visa system can be a challenge but we are working through it, and longer term reforms are being put in place."

Meanwhile, it's a question of getting on with the job in hand -- for O'Neill that includes his role as president of the American Chamber of Commerce in Ireland -- where he is on the campaign trail backing a Yes in the Fiscal Treaty referendum.

"Any company making capital-intensive decisions is looking for certainty and stability. The government has done a good job in terms of restoring the country's reputation -- which in January 2011 was a key concern. We've come a long way in addressing that, but if there is a No on May 31, I think it would be a step backwards."

Indo Business

Business Newsletter

Read the leading stories from the world of Business.

Also in Business