Ed Kilroy, President, IBM Canada

IBM Canada is now in the business of small business.

The firm would probably argue that it has catered to that market for decades, but 2004 was the year that Big Blue went small.

In September it said it will invest $35 million over five years in services for SMB clients. Centres in Calgary,

Toronto, Montreal and London, Ont. will offer packages such as managed services, security, business continuity and resiliency services.

“”The SMB market in Canada is the largest segment and therefore critically important to IBM Canada,”” said IBM Canada’s president Ed Kilroy.

“”The way we look at the market is we really try and break it down by both industry and by size of account. We’re very focused on the solution that these firms require to produce business value.””

The $35-million investment is IBM Canada’s 2004 cornerstone for improving relationships with its partners. It’s a mutually beneficial arrangement: Partners can wield the clout of IBM; IBM can reach SMBs.

“”We continue to see that many of the business partners out there today — regional systems integrators, regional software vendors — influence a lot of the decision-making going on in SMB companies,”” said Kilroy. “”In 2004, we became very focused on the clarity and the consistency of our strategy across IBM to go after this space.””

IBM has its work cut out for it: The SMB market is notoriously finicky. “”You really have to frame how difficult it is to crack the code in SMB. Throughout the whole industry, the SMB market continues to be a problem,”” said Bruce Stuart, analyst with Vancouver-based Channelcorp.

The margins may actually be bigger with SMB customers than enterprises, according to Sheldon Waters, CEO of IBM reseller DSM Computing Solutions. But the volumes are significantly smaller, which means VARs require a lot of clients in order to turn any substantial profit.

Hard to reach

Waters said his company specializes in this market because it’s so difficult to reach — there are fewer VARs competing for business, and larger channels haven’t necessarily figured out how to reach them yet.

SMBs require a great deal of attention, he said; they are less concerned with brand and more with finding a solution that meets their budget. “”It’s very relationship intense.””

A reseller that’s willing to do business on that level could have some success with smaller clients.

“”Probably the most important point of the whole discussion is that the customer is saying, ‘I’m buying solutions that deliver business value,'”” said Kilroy. “”We can’t deliver those solutions unless we’re working with partners across many fronts and across the country.””

IBM is on the right path with its $35-million investment in service centres, said Stuart, but it could take a few years for it to pay off. Meanwhile, it has done a good job of communicating with partners, he said, as well as making the world aware that Big Blue is willing to meet the needs of the SMB market.

IBM has also made room for partners to work through IBM Global Services by allowing them to resell managed services developed by the organization.

“”We probably made the biggest step toward what is viewed as the biggest irritant with our partners,”” said Kilroy, “”and that is partnering with our Global Services organization.””

“”It’s a make or buy decision, from a partner perspective,”” said Stuart.

“”Sometimes it’s financially advantageous to resell the services of IBM Global Services. Some of them, because they haven’t run the numbers on it, don’t even know that . . .

“”It’ll take the channel partners a little while to align their business models with the business opportunity that’s created by IBM Global Services.””

Outsourcing deals

IBM has also signed several outsourcing deals with enterprise clients recently, among them CP Rail and Bombardier Transportation.

The work is better described as “”business transformation”” rather than straight IT outsourcing, said Kilroy.

“”When Bombardier Transport outsourced procurement of indirect (supplies) to IBM, they were looking to drive down the cost of their indirect procurement and transform the procurement process itself,”” he said.

“”That is what we see as the next wave of opportunity. You can call it outsourcing if you want. We would call it business transformation services,”” he said.

“”If you’re a single play organization that says, ‘I outsource IT only,’ I would say, ‘You might want to think through your vision again.'””

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