100 days of IBM Malaysia, and maxing out the headroom

  • What IBM Malaysia has done right, where it was weak; advice for the CEO
  • New segments promise growth, game-plan needs to be flexible
100 days of IBM Malaysia, and maxing out the headroom

WHATEVER else you may say about IBM in Malaysia, you would have to acknowledge that the iconic US multinational’s presence is writ large on the technology and business space here.
 
In the 52 years the local subsidiary has been in existence, IBM Malaysia has managed to stave off the dark days of technology transformations and business upheavals to retain a certain cachet in terms of brand and reputation.
 
That is a powerful image, and one which the company has built up in a credible way, says IBM Malaysia managing director Paul Moung when asked about his first impressions coming into his role in February last year.
 
“What IBM Malaysia has done well over the years, before me, would be its reputation and image in the marketplace as a company that customers can partner with for the long haul.
 
“We have a track record that provides that credibility – that when we commit to a platform, strategy or a technology, we do it with a very clear view of the architecture behind it.
 
“That was my first impression when I got here – that it was quite easy for us to have dialogues with customers, at all levels, just because of the company’s reputation and image. That would be thing I would point to as the brand equity that in a way also gave us access to the market, including the Government,” he adds.
 
That market perception applies globally as well, acknowledges Moung, who has spent nearly three decades at IBM before taking the helm of IBM Malaysia.
 
He points to the fact that IBM is the only pure-play business-to-business (B2B) company in Fortune magazine’s top 20 list of ‘Most Admired Companies’ that was published this year – 16 are pure B2C (business-to-consumer) companies, while three play in a combined B2B and B2C space.
 
IBM rank in the list unfortunately slipped to No 16 from No 6 in the previous year, in a year that saw its sales and net revenue dipping 5% and 1% respectively, but still ringing in revenue of US$99.7 billion and net income of US$16.4 billion.
 
“That image is very important, but our challenge is of course to stay relevant,” says Moung, speaking to Digital News Asia (DNA) at his office in Petaling Jaya recently.
 
That was what IBM Malaysia was doing well. What wasn’t it doing well then?
 
“We were concentrating too much on a finite set of customers,” he says. “I think that was a blind spot we had.
 
“You can grow a business in many different ways. You can say I will go and find the biggest opportunities and biggest engagements, but IBM is not like an Accenture or a company focused on one line of business, like a boutique kind of outfit.
 
“We are not that, we are a broad-based player. We see opportunities and we look at adjacent markets, and so if you don’t leverage all your assets, you’re not using your built-in capability to really participate,” he adds.
 
Expectations and 100 days
100 days of IBM Malaysia, and maxing out the headroom 
Moung (pic) says that he tried to have an open mind coming into his new role, based on his experience working in other markets such as Japan, Hong Kong, mainland China and India.
 
“Honestly, I tried to have not too much expectation because I knew I would be surprised or disappointed … the reality on the ground would be very different,” he says.
 
His first few months were spent trying to understand what makes the industry here tick, what the driving forces are, and what the psyche of the customer is.
 
These driving forces are different for SMBs and large enterprises in Malaysia. For the former, the growth and profit motive is more predominant.
 
“The speed, the risk-taking, the innovation – we see that happening first in the SMB space,” says Moung.
 
For the large enterprise, the driving forces are increasing regulation and compliance in some industries. Many large enterprises in the country are also looking to go regional or global.
 
What challenges did he set himself then?
 
“The challenge has always been growth. How do we grow the business in the markets where the opportunities exist, and Malaysia is certainly one of them.
 
“This was the high-level challenge, if you will. That’s the only thing I came with. If you ask me about expectations, it was that this is a growth market. So I expected business here to grow.
 
“Then, after a hundred days, what I realised was that to grow, you have to participate in the market in a broader way,” he says.
 
This meant looking at the market and segmenting it. “You look at the areas where the growth opportunity or headroom is, and then you say, well, is IBM covering those markets? Do we have the presence? Do we have offerings? Do people [in those segments] know who we are? Do they know what our offerings are? Do they know what value we can offer them to improve their business?”
 
Moung’s first hundred days were spent trying to identify those segments, which IBM Malaysia did in the July 2013 time-frame.
 
The next question then would be, was IBM Malaysia participating in those markets?
 
“The answer to that, I think, was ‘No.’ We were participating heavily in the larger enterprise market, but not when it came to the other segments,” he says.
 
The identified segments
100 days of IBM Malaysia, and maxing out the headroom 
The first segment was what Moung calls the ‘broad IT consumption market,’ where customers – whether small and medium businesses (SMBs) or enterprises (which in IBM’s definition may include public sector organisations) – are just looking for particular components or products that they want to use to advance their business.
 
“They’re not looking at transformation; they’re not looking to overhaul their systems; not looking at a major upgrade or enhancement. It’s just a steady consumption – they want to buy a product or update it, or leverage a tool that may be useful to them, just to incrementally advance themselves,” he says.
 
This is a market which in a way has always been there for IBM Malaysia, one it approaches through its business partners and channels.
 
However, it was a market that was not being “fully exercised,” according to Moung. “In fact, the headroom there is like 90%, according to our assessment of the Malaysian market.”
 
The second segment involved the enterprise space, but with what IBM chooses to call ‘client-facing partners.’ These consists of systems integrator (SI) and hosting companies, as well as solutions providers.
 
“So the question again is, what is the headroom? It’s in the very high double-digits. Why is that? It’s because these companies, for whatever historical reasons, selected other, non-IBM components to integrate [solutions around].
 
“Basically, we were not talking to them, and instead were going straight to their customers. If they had the incumbency, and you don’t work with them and instead try to unseat them, you’re going to have to prepare for the long haul because it may never happen.
 
“And even if happens, at what cost for you to break into that long-term relationship they may have?” says Moung.
 
It’s what he describes as “denial of built-in market access,” adding that it exists in a lot of markets.
 
A third piece of the puzzle is related to the above segment: Enterprise customers that IBM had no access to unless it went through the partners above.
 
These partners “have a lot of value to create together with IBM, but they basically have the captive audience in terms of the end-customer, which they built up over a long period of time. So, let’s work with them. Let’s not try to unseat them,” he says.
 
It is this type of thinking that led IBM Malaysia to enter an alliance with the AIMS Group in July that would see the carrier-neutral data services provider offering its customers managed security services from IBM.
 
At the time, AIMS said that this initiative would address the need to help small and medium enterprises (SMEs) in Malaysia access enterprise-grade security infrastructure services.
 
Finally, there was IBM Malaysia’s ‘bread-and-butter’ – the large enterprise. Even here, there were gaps of sorts.
 
“With the large enterprise, it was quite simple really – we looked at the top 30 IBM customers, which we normally do,” says Moung.
 
“But then I asked, what about the top 30 companies on the Malaysian stock exchange (Bursa Malaysia)? And we discovered that we do no business with half of them.
 
“Given the breadth of our portfolio, there must be something that they’d be interested in,” he says, adding that IBM Malaysia’s participation level in this segment was “very low,” and that its headroom to grow in this space was a real opportunity.
 
All these new segments do not mean that IBM Malaysia would be neglecting its installed base, Moung stresses.
 
“We also looked at our installed base of customers, to make sure we’re not missing out on their major initiatives like transformation; new-wave solutions like mobile, social media, analytics; and so on.
 
“It’s not implying that somehow we overcorrect and shift everything to this side; the question is to shift some of our focus and the time that we spend to the headroom areas that we have identified,” he says.
 
Flexible execution the key
 
That has been the IBM Malaysia game-plan over the last 12 months, according to Moung.
 
“My approach was to make sure that every one of my leaders here treat this as their strategy and their plan, and then execute,” he says.
 
At the time Moung spoke to DNA, the company had just completed its latest ‘checkpoint’ on what progress it had made.
 
“I’m happy to say that after 12 months … the progress has been very encouraging,” he claims, declining to give any numbers to quantify that progress. As with many US multinationals, IBM does not break down its performance on a country basis.
 
“We’re making progress, we’re gaining ground, we’re gaining traction – but it’s more of an internal yardstick to see whether or not we’re making a difference with what we’re doing,” he says.
 
Getting his management team vested in the game-plan was one aspect; the other key was to remain as flexible as possible.
 
“We wanted the model to be about a better way to reach the customer, so it was more about the sales and coverage, distribution and the engagement methodology – rather than the products, because history has proven that those things will change over time and evolve,” he says.
 
Indeed, this certainly happened in the high-volume consumption base Moung identifies above.
 
“When we started, the focus was on what kind of hardware and software products these customers would be interested in; the business partners which can bring those products to these customers; and what can IBM Malaysia do.
 
“And guess what? Three months later IBM announces we’re going to acquire SoftLayer, so the physical became virtual. It became a service model, not a piece of product,
 
“And of course, we recently announced the sale of the low-end x86 servers to Lenovo,” he adds.

100 days of IBM Malaysia, and maxing out the headroom

In June 2013, Armonk, New York-based IBM said it was acquiring Dallas, Texas-based webhosting company SoftLayer Technologies in a deal worth around US$2 billion, to beef up its cloud services offerings.
 
IBM said it expected to gain US$7 billion annually in revenue from cloud services by the end of 2015, Reuters said in a report. IBM created a new division called Cloud Services, which will combine SoftLayer and IBM's existing offerings into a global platform.
 
Then in August this year, IBM said that US regulators had approved the US$2.3 billion sale of its low-end server business to Lenovo Group Ltd. “IBM has already divested US$16 billion in annual revenue over the past decade from low-margin businesses like personal computers and printers,” Reuters noted in another report.
 
What impact did these deals have on IBM Malaysia’s game-plan?
 
“We just swapped it out – nothing changes. It’s the same customer, the same model, but how we reach them has now changed,” says Moung.
 
“We need different kind of partners, different ways to distribute, and different ways to sell. More self-service elements came in, and digital marketing came to the fore because the previous inhibitors we had to reach those customers started to disappear with something like a cloud service or SaaS (Sofware-as-as-Service) model.
 
“There are no barriers anymore. Customers don’t even need to talk to anyone in IBM if they want to use the service. There’s a free trial, they only need a credit card.
 
“Self-demo, self-service, self-consumption – if you don’t like it, you can stop using it. There are no billing issues, it’s all automated.
 
“So the good thing is that even as we roll out new offerings that are compelling, we adapt them to the model, but the model itself doesn’t fundamentally change. It’s the same target customer, the same value proposition, just a different way of reaching them,” he adds.

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