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“Customers continue to view Dell as the most strategic systems vendor to their overall IT strategies in general, and to their server and storage strategies in particular, followed relatively closely by IBM and HP, and distantly by Sun. IBM, however, has an advantage leading customers to the “nirvana” that Summit Strategies calls dynamic computing.”

—Tom Kucharvy

Summit Strategies’ Dynamic

Computing Industry Report Card: Systems

VendorsMarch 2005

Vendor Leadership Strategies

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Table ofContents

Summit Strategies’ Dynamic Computing Industry Report Card: Systems Vendors | March 2005©2005 Summit Strategies, Inc. Unauthorized use or sharing of this document is strictly forbidden.

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NOTE: This report is based upon information believed to be accurate and reliable. Neither Summit Strategies, Inc. nor its agents make any warranty, express or implied, as to the accuracy of the information or the opinions expressed. We shall have no liability for any errors of fact or judgment or for any damages resulting from reliance upon this information.

Trademarked names appear throughout this report. Rather than list the names and entities that own the trademarks or insert a trademark symbol with each mention of the trademarked name, Summit Strategies uses the names only for editorial purposes and to the benefi t of the trademark owner with no intention of infringing upon that trademark.

©2005. Reproduction in whole or in part is prohibited except with the written permission of the publisher.

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Summit Strategies’ Dynamic Computing Industry Report Card: Systems Vendors

Sections Section 1 Dynamic Computing Systems Vendor Updates ....................... 3

Section 2 Customer Strategic Systems Vendor Ratings .......................... 7

Section 3 Summit Strategies’ Dynamic Computing Assessments of Leading Systems Vendors ........ 10

Section 4 The Bottom Line—The Role of Differentiating Strategies ...... 14

Figures Figure 1 Systems Vendors Most Strategic to Customer’s Overall IT Strategies .......................... 8

Figure 2 Vendors Strategic to Customer Server and Storage Strategies ................................ 9

Figure 3 Summit Strategies’ Systems Vendor Report Card ..................11

Figure 4 Systems Vendor Market/Solutions Focus Continuum ............ 15

Figure 5 Systems Vendors’ Differing Paths to the Future .................... 17

Addendum Appendix Related Analyses ................................................................... 19

Executive Summary

Summit Strategies’ Dynamic Computing Industry Report Card: Systems Vendors | March 2005©2005 Summit Strategies, Inc. Unauthorized use or sharing of this document is strictly forbidden.

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In July 2003, Summit Strategies launched its Dynamic Computing Report Cards scoring. Our mis-sion was to grade vendors’ progress towards becoming leaders in the then new utility-based, on demand world. Just as the dynamic computing market has evolved, so too have our report cards. This report marks the launch of the third round of our systems vendor ratings. It also marks some-thing of a change. In addition to expanding our analysis into a full, more comprehensive report, we’re placing the primary grade weight where it should be—on the customers, using customer survey data as part of our overall evaluation. As in past systems vendor report cards, we evaluate the four primary players—IBM, Hewlett-Packard (HP), Dell and Sun Microsystems.

While our business and IT buyer/decision maker survey is still in progress, the 200+ respon-dents that have shared their views with us rank Dell as the single most important vendor to their organizations’ server and storage strategy and the third most important partner in their overall IT strategy (behind Microsoft and Cisco Systems, but ahead of other server vendors). Although IBM and HP rank relatively closely to Dell in both categories (even after HP CEO Carly Fiorina’s departure), Sun continues to fall way behind and is, in fact, the leading major systems vendor that companies “prefer to avoid.”

But as interesting as the overall rankings are, the customers’ criteria for selecting and de-selecting strategic vendors—such as their understanding of and roles in enabling critical business pro-cesses, in offering deep discounts and in providing unique capabilities—are just as interesting. We also asked customers about the specifi c roles that different vendors play in supporting key elements of their IT strategies (from business transformation and IT architectural infl uence to technology innovation and pricing) and their perceptions of dealing with each vendors’ sales and account management organizations. All systems vendors will be happy to know that none of them made the cut as being among the most “poorly informed/disorganized” or having the most “adver-sarial/negative infl uence” in customer accounts.

Each of the four primary systems vendors received passing grades in Summit Strategies’ own grading/ranking of their dynamic computing strategies and execution. IBM was the leader, receiv-ing “Competitive Differentiator” grades in six of our eight evaluation criteria, and Dell was second. We judged HP to be generally on par with accepted standards for leading systems vendors, except in true critical categories. We agree with HP’s board that the company desperately needs a new CEO who can improve the company’s execution. We disagree, however, with the board’s judgment that the company’s strategy is sound. In fact, we believe that the company’s amorphous strategy is at the root of many of its current ills.

Sun, on the other hand, has a generally well articulated and internally consistent strategy. Unfor-tunately, Sun’s strategy—and its ability to execute on it—are subject to the constraints imposed on the company by market conditions, customer perception and its income statement. After all, customers in our survey rated “stable corporate structure and fi nancials” as the third most impor-

March 2005 | Summit Strategies’ Dynamic Computing Industry Report Card: Systems Vendors ©2005 Summit Strategies, Inc. Unauthorized use or sharing of this document is strictly forbidden.

The report summarized here was written as part of Summit Strategies’ Vendor Leadership Strategies Practice Area. For more information, contact us at 617-266-9050 or visit us online at www.summitstrat.com.

tant criteria in considering a vendor to be strategic or important to the success of the customer’s business. And while Sun’s strong balance sheet will certainly ensure its “viability” for many years to come, the company’s future “relevance” remains a deep question.

In the end, all four of the leading systems vendors certainly have work to do in executing on their dynamic computing (or what they call their On Demand, Adaptive Enterprise, Utility Computing and Scalable Enterprise) visions. IBM and Dell are already fully aligned around very different, but very well proven, strategies and business models. Sun, which has little real choice, is taking a rational, well-planned, but highly risky bet-the-business gamble. Now, its HP’s move.

What’s your opinion? E-mail the author:

Tom [email protected]

MarketStrategyReport

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In July 2003, Summit Strategies launched its Dynamic Computing Report Cards scoring. Our mission was to grade vendors’ progress towards becoming leaders in the then new utility-based, on demand world. Each report card examined a broad segment of the industry and graded the primary vendors in that segment based upon our understanding of their strategy. The grades gave buyers and vendors a quick indication of which vendors we believed were making the most progress in the dynamic computing journey and which ones were lagging.

This report marks the launch of the third round of our report card ratings on systems vendors. It also marks something of a change in the way we structure the report cards, and how we rate the vendors. And, due to popular demand, we’re expanding our report cards from an article in our monthly SummitVision

newsletter into a full report. What is not changing is our pull-no-punches analysis of how vendors are progress-ing on this critical journey. And, as in the past, each report card will focus on a particular segment. This report on systems vendors will be followed, once per quarter, with reports on IT services fi rms and systems integrators, followed by infrastructure software vendors and then management software vendors. Each report will show up in the appropri-ate Summit Strategies Practice Area.

Since we fi rst introduced our report cards, dynamic computing has evolved from the vision stage, to the execution stage. Most leading vendors have long-since announced their own dynamic computing visions and have embedded the concept deeply into their overall business strategies, their

Key Findings

� Dell leads customers’ choice as their most strategic systems vendor and comes in second in Summit Strategies’ own assessment, despite its narrow prod-uct line and customers’ relatively low regard for the vendor’s business process/transformation and IT innovation capabilities, and its lack of infl uence on their company-wide architectures.

� IBM’s lead in our assessment of systems vendors, and its close number two position in our customer survey stems largely from its broad hardware, soft-ware and services portfolio.

� HP’s position is holding relatively strong, despite the fi ring of its CEO and its ongoing critical weaknesses.

� Sun remains a distant fourth, but it leads system vendors in its efforts to “keep customers happy”. Moreover, fewer customers “prefer to avoid” the vendor than six months ago.

| Summit Strategies’ Dynamic Computing Industry Report Card: Systems Vendors ©2005 Summit Strategies, Inc. Unauthorized use or sharing of this document is strictly forbidden.

marketing messages and their product roadmaps. Moreover, Summit Strate-gies surveys of buyers and infl uencers of IT expenditures show that a growing number of customers—at least large, leading-edge corporations—understand and are buying into the principles of dynamic computing. Many have begun to implement individual dynamic computing tools and services, and some are developing formal plans for migrating large portions of their IT environ-ments to dynamic infrastructures. A few have even made a more fundamental leap—linking their architectural plans directly into their business strategies as a means of ensuring that IT will indeed serve as an enabler of, rather than as an inhibitor to, business change.

Given these shifts of vendor dynamic computing efforts from the concept stage to the execution phase, our views of a vendor’s strengths and weaknesses are becoming much less important than their customers’ views. We have decided, therefore, to expand this year’s report card series to give customers and IT buyers a bigger say in our vendor rankings and inviting them to grade vendors in terms of how strategic they—and by implication, the vendor’s underlying dynamic computing strategies—are to the success of customers’ businesses. By adding this customer-centric dimension to these report cards, our goal is to provide a broader and fuller assessment of where vendors really stand in the ongoing dynamic computing evolution.

How do we get our customer data? Through our Web-based surveys. In the autumn of 2004, we started asking customers to rate how strategic different IT products and services vendors are to their IT strategies. For example, we asked enterprise, midsize and small businesses customers to select:

� Their single most strategic vendor;

� Their three most strategic vendors;

� Those vendors from whom they buy tactically; and

� Those vendors they specifi cally try to avoid.

The results were so fascinating that we recently launched a new comprehen-sive survey to defi ne the exact criteria by which customers select strategic vendors, the benefi ts that accrue to these vendors and what vendors must do to attain—and also to lose—the exulted “strategic vendor” position. This survey also drills down deeply to determine how customer assessments and evalua-tion criteria differ depending on whether the customer is looking for a server or other “product” vendor, or for an overall IT strategy partner. While the results of each individual survey certainly promises to be interesting, we will be resurvey-ing customers approximately every six months and track how their perceptions evolve over time.

We support the ratings determined from our survey results with three additional qualitative Summit Strategies’ assessments—for a total of four sections measur-ing vendors’ progress. (In this report card, all sections focus on systems vendors.

Summit Strategies’ Dynamic Computing Industry Report Card: Systems Vendors | Page 3©2005 Summit Strategies, Inc. Unauthorized use or sharing of this document is strictly forbidden.

In subsequent reports, we’ll focus on services fi rms and SIs, infrastructure soft-ware vendors and management software vendors.) These sections are:

1. Dynamic Computing Vendor Updates. Here we’ll provide brief overviews of some of the most important changes in a vendor’s position since we pub-lished our previous report card on that particular vendor segment.

2. Customer Strategic Vendor Ratings. In this section, we’ll present the results of selected systems vendor results from our current survey, and compari-sons with previous survey results when they refl ect material changes. We then provide very brief interpretations of these results.

3. Summit Strategies Dynamic Computing Assessments. These are versions of our traditional report cards that use an updated set of criteria (see the Addendum for descriptions of these criteria), and a rating of each vendor’s capabilities relative to its competitors. These assessments are followed by brief explanations of those elements that require explanation.

4. The Bottom Line. A brief conclusion that provides, well, “the bottom line”—our summary of where each vendor stands now and how we expect their strategies and market positions to change during the next year.

So, let’s see how systems vendors are fairing in the dynamic computing market.

Section 1 Dynamic Computing Systems Vendor Updates

Since Summit Strategies focuses on dynamic computing, our market strategy reports and articles provide regular in-depth assessments of many important vendor initiatives and directional changes. For this report, however, let’s briefl y summarize a few key changes in the leading vendors’ offerings, organizations and priorities that we believe are most important to assessing their current and, most importantly, their future position in the dynamic computing industry—and therefore in the overall IT industry.

IBM

If anyone had any doubts about IBM’s commitment to on demand—or to how fundamental its On Demand initiative would be to IBM’s business—they should have been put to rest during the last year.

Virtually every major IBM software and services announcement (much less so for hardware) is based on, or linked into, On Demand and to the industry-focused go-to-market program by which IBM is delivering value to its customers. Some of the most important recent enhancements include:

� Development of Component Business Models (CBM) for each of IBM’s target industry segments and spreading the CBM “religion” across the entire company;


� Launch of the Component Infrastructure Roadmap (CIR) process for helping customers prioritize investments for migrating to IBM’s On Demand Operating Environment (ODOE) and announcement of the Ser-vice-Oriented Modeling Architecture (SOMA) for linking and providing a bi-directional path between the CBM business analysis and the CIR infra-structure analysis;

� Creation of integrated infrastructure solutions (for example, around IT optimization and business resilience/security) and business solutions (especially retail banking), and the training of sales to use these as founda-tions for “solutions sells”;

� Doug Elix’s (former SVP of Global Services) move to head of Sales and Distribution (S&D), and his decision to integrate hundreds of Business Consulting Services (BCS) consultants directly into the sales organiza-tion to help convert S&D from a product focused to a solutions selling organization; and

� Extension of IBM’s midsize business-focused Express Offerings and creation of PartnerWorld Industry Networks to incent and help partners approach customers via industry-focused value propositions that link directly into IBM’s.

In other words, IBM must and will continue to offer individual hardware, software and services offerings to the substantial percentage of customers that prefer to buy individual offerings. The company, however, is increasingly serious about selling solutions—both IT solutions (combinations of hardware, software and services that address burning infrastructure needs) and business solutions (com-binations that include applications and address overarching business needs). But it will increasingly tailor and present all of these solutions to customers within the context of the needs of their specifi c industry. And, regardless of whether customer engagements start from a product side (especially with components of the ODOE), or the business side (as with a BCS engagement), IBM will increas-ingly try to encourage customers to think holistically, by integrating technology decisions clearly and explicitly to overarching business requirements.

Hewlett-Packard

It’s been a rough 12 months for HP—especially with the company’s huge third-quarter embarrassments, defections of some strong executives and the recent fi ring of CEO Carly Fiorina. And possibly worst still, the company now admits to slowing growth and operating profi t erosion in the low-end of its critical printer business—an erosion which is almost certainly related to Dell’s incursions, although HP will not even utter the “D” word in this context. And then there’s the slow uptake of the Itanium processor and the growing role of 32/64-bit Intel and AMD chips, which could further slow migration to Itanium.

But having said this, there are certainly some positives including:


� HP’s ability to grow share in some key server spaces despite all its travails;

� Growing acceptance of HP OpenView in enterprise systems management, and HP’s rapid acquisition and integration of business services manage-ment capabilities;

� The rapid revenue and margin growth in HP’s services business, particu-larly the recovery of Consulting and Integration (C&I) and the continuing breakneck pace of the company’s Managed Services group;

� Growing alignment with and the 40+ percent annual growth in sales attrib-utable to its global systems integrator partners; and

� Fiorina’s departure, which clears the way for some much needed clari-fi cation of HP’s strategy, prioritization of its objectives, and execution of initiatives across the company.

HP must address fi ve core strategic questions, and it must do so soon (we will discuss this in more depth in our May 2005 SummitVision). Among the most important of these questions are whether it wants to be a product company or a solutions company, and how it will align its value propositions and its cost structures to this decision. While these decisions are not completely mutually exclusive, it has to defi ne a compelling HP-specifi c value proposition that plays to its own strengths, while simultaneously differentiating itself and its offerings from those of its primary competitors.

As we see it, HP’s enterprise value proposition will resolve primarily around IT process and horizontal business process expertise, while its consumer value proposition will revolve primarily around a seamless integration of its PC and imaging lines. HP’s small and medium business (SMB) value proposition will combine elements of both of these, with its strength around the Microsoft plat-form and, to a lesser extent, Linux—and will extend up through the application level and, ideally, the business process level.

Sun Microsystems

Sun’s business appears to be stabilizing, if not actually growing just yet. It has dramatically grown and has shown strong commitment to its Opteron server busi-ness, shipped its Solaris 10 operating environment, healed its longstanding rift with Microsoft and promised huge SPARC improvements with its Chip Multithreading (CMT) architecture. Just as importantly, Sun’s expanded relationship with Fujitsu will offl oad much of the burden of enhancing its high-end processor and systems development, and allow Sun to focus on its mid-range offerings. But, as important as many of these changes are, Sun’s biggest changes relate to its growing redefi -nition of its business model and go-to-market focus. For example, Sun’s:

� Community sourcing of Solaris, which has the potential of increasing devel-oper involvement, and ISV and customer adoption—or of undercutting Sun’s revenue model and leading to a forking of the Solaris code base;


� Commitment to rapidly growing its annuity services business and its introduc-tion of the fi rst of what will be a growing portfolio of remote, online preventative services offerings (see, for example, our December 2004 report, Sun Sees Remote and Preventive Offerings as Key to Services Growth);

� Announcement of its fi rst two subscription-based Sun Grid Utility services (CPU and storage) and its plans to introduce three others (development, desktop access and application);

� Creation of a new solutions-focused group (Client Solutions Organization, or CSO) between its product and sales organizations to realign the entire company’s efforts away from discrete products, and towards six higher-level horizontal solutions areas; and

� Formalization and extension of its vertical go-to-market efforts by aligning the sales organization around four primary and six secondary target industries.

Although Sun is laying out an interesting—if somewhat vague—long-term vision on how it plans to evolve from a company that is tuned to selling prod-ucts, to one that will sell renewable, annuity-based subscription services, it faces a much more immediate challenge. Sun must make its current offer-ings so compelling and so risk-free as to overcome many customers’ current skepticism/fear of risking their company’s IT future (not to speak of their own jobs) on Sun—a vendor which still faces questions about its long-term market relevance. While the company’s recent restructuring of its go-to-market strat-egy and its sales organization are strong steps in the right direction, we can only hope that these moves, combined with Sun’s forthcoming products and strong cash reserves, will be suffi cient to allow Sun to start growing its revenue base—a critical step in confi rming for customers that Sun will remain a strong and relevant player for years to come.

Dell

What can one say about a vendor that fl ew through the industry recession without missing a beat—continually growing its product lines, revenues, profi ts and market shares while virtually all its competitors fl oundered, or at least, retrenched?

Although Dell has made somewhat slower progress at the high end of its product line (as in four-way and blade servers), the industry and the market are indeed—as Dell has always claimed they would—migrating toward Dell’s approach of using ever more tightly linked clusters of continually higher-performance, industry-stan-dard servers and operating environments to perform jobs that were traditionally reserved to large-scale SMP boxes running “proprietary” versions of Unix. Although Dell will never play at the highest end of the server market, it will:

� Make full use of multi-core chips, which will effectively allow it to support up to eight-way within a four-socket server;


� Capitalize on the virtualization and provisioning capabilities that will become increasingly standard in Intel “server platforms” (optimized processors, chipsets and software) and Microsoft operating systems;

� Gradually extend its own portfolio of standardized professional architectural, implementation and managed services, and rely on closer relationships with partners (such as Electronic Data Systems) to help customers take the fi rst steps toward adapting their IT environments to dynamic computing infrastructures;

� Encourage and facilitate creation of standards for managing heteroge-neous, distributed dynamic computing environments; and

� Selectively expand its line of enterprise solutions (as with its current Oracle database and SAP confi gurations) and engage more closely with ISV and global SI partners to facilitate greater consideration of Dell solutions among both business- and IT-level decision makers.

Whatever one may think of Dell’s “enterprise-worthiness,” the company clearly understands what its customers want and how to deliver on its unique value proposition. And, as shown below, its performance has prompted customers to consider Dell to be their single most strategic server/storage vendor and the second most strategic partner in their overall IT strategies. The question is not whether customers will rely on Dell for their IT future. It is how rapidly Dell will choose to extend its own product family and value proposition to establish itself as even more critical to its customers’ IT environments, and how rapidly it will create the type of business partnerships required to estab-lish Dell as a seamless component of its customers’ business strategies, in addition to their IT strategies.

Section 2 Customer Strategic Systems Vendor Ratings

The next component of this report card is a customer assessment of those vendors that customers consider to be most strategic to their overall IT strategies in general, and to their server and storage strategy in particular (see Figure 1). Since our most current survey is still in process, this report card will draw on interim results based on responses from 216 business IT decision makers, primarily in North America. Our interpretations will draw selectively upon results from complementary questions and from results of a previous survey.

(Note: Once we complete our survey, we’ll publish the full results on all vendor segments—and our analysis of them—in three reports. One report will drill down into the responses from large enterprises of more than 1,000 employees and the implications for vendors who sell into this market. One report will focus on the results from small companies of under 100 employees and mid-market companies with 101 to 1,000 employees. And one report will examine the dos


and don’ts for achieving and retaining “strategic vendor” status among small, medium and large enterprise customers. For more information, see Related Reports section for a list of potential report titles and visit our Web site at www.summitstrat.com for updates.)

The fi rst thing to note in our survey results is that customers tend to look to server and storage hardware vendors as among their most strategic partners in defi ning their entire IT strategies—second only to infrastructure software vendors and neck-in-neck with networking vendors. No other type of IT product or services vendor is even close to these three classes of providers. As we’ll discuss in detail in the separate survey analysis reports where we examine all vendors, Microsoft is, by far, the single most strategic partner to the greatest percentage of companies, followed by Cisco Systems, IBM and then Hewlett-Packard. Sun ranks seventh on customers’ list of strategic IT partners, below Oracle/PeopleSoft.

Figure 1 Systems Vendors Most Strategic to Customer’s Overall IT Strategies

Source: Summit Strategies, Inc.www.summitstrat.com

Survey respondents ranked Dell and IBM almost identically in their roles as influencers of customers’ overall IT strategies—with HP not far behind.

Partial results,based on 214respondents

7%

12%

19%

21%

10%

35%

30%

30%

38%

37%

32%

30%

16%

10%

9%

12%

29%

6%

10%

7%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Sun Microsystems

Hewlett-Packard

IBM

Dell

Most strategic IT vendor Top 2 or 3 most important vendorsWill buy from them if the price is right Prefer to avoidDon't use/not familiar with their capabilities

Q: How important will the following vendors be to your organization’s overall IT strategy during the next 3 years?


For now, however, let’s focus on systems vendors. Dell and HP’s results remained about the same as those in our August 2004 survey. This is interesting since our new survey was conducted after Fiorina was fi red and during a period in which HP had no CEO. IBM and Sun’s rankings, by contrast, both fell slightly. How-ever, based on our preliminary results, Sun does appear to be making progress in one particularly critical category. The percentage of customers who “prefer to avoid” working with Sun fell from 22% in August, to 15% in our current survey.

IBM and Dell ranked almost identically in their roles as infl uencers of cus-tomers’ IT strategies—with HP not far behind (see Figure 2). However, the differences were much more pronounced when customers were asked to rate the level of importance of each vendor to their server and storage strategies (in contrast to their broader overall IT strategies). Somewhat surprisingly, at least to us, Dell holds a fairly signifi cant lead as customers’ single most strategic server and storage vendor, despite its narrow, highly-focused product line. In terms of overall ratings, Dell is followed by HP and then IBM. Sun is a distant fi fth in our tentative rankings, behind storage powerhouse EMC.

Figure 2 Vendors Strategic to Customer Server and Storage Strategies


Dell holds a fairly significant lead as customers’ single most strategic server and storage vendor, despite its narrow, highly-focused product line.

Partial results,based on 214respondents

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Sun Microsystems

IBM

Hewlett-Packard

Dell

Our most strategic vendor in this category Top 2 or 3 most important vendorsWill buy from them if the price is right Prefer to avoidDon't use/not familiar with their capabilities

5%

13%

17%

23%

16%

30%

30%

29%

9%

12%

15%

7%

28%

11%

12%

10%

36%

39%

32%

26%

Q: How important will the following vendors be to your organization’s overall IT strategy during the next 3 years?


What does this all mean? Why do customers consider Dell to be more strategic to their server and storage strategies—much less to their over-all IT strategies—than IBM or HP? This can seem paradoxical, especially when one considers the importance that customers attribute to “detailed understanding of our unique business process requirements” and “unique product capabilities” in assessing strategic vendors (both of which were factors included in our survey). After all, Dell ranks seventh, well behind IBM (but not far behind HP) as a business transformation partner and eighth (way behind HP and IBM, who ranked one and two, respectively) as a technology innovator.

Perhaps these factors are outweighed by the fact that a vendor’s ability to provide “the most aggressive and fl exible pricing, discounts and service agreements” is the second most important factor in assessing strategic vendors—a category in which Dell leads all leading hardware and software vendors. This status is supported by Dell’s account/sales team’s reputation for “giving great deals.”

Interpreting customers’ true meanings will require deeper and fi ner-grained analysis, all of which will be included in our forthcoming survey analysis reports. But keeping in mind this customer-centric information from our surveys, let’s now shift to Summit Strategies’ Systems Vendor Report Card.

Section 3 Summit Strategies’ Dynamic Computing Assessments of Leading Systems Vendors

Now that we’ve reviewed where customers rate each vendor on the broad issue of their strategic importance to their IT strategies, and server and storage strategies, let’s focus specifi cally on these vendors’ progress in building their own value propositions around what promises to be the strategic IT architec-ture of tomorrow—dynamic computing.

All four of the leading global systems vendors, plus virtually all of their com-petitors, have embraced the dynamic computing vision. Let’s evaluate their progress in establishing themselves as strategic providers of the types of inte-grated IT/business solutions that dynamic computing will enable.

Figure 3 provides Summit Strategies’ assessment of each of the big four server vendors’ progress in building their own dynamic computing ecosystems and value propositions. But, instead of trying to assign specifi c grades, as we have in previous report cards, this and future report cards will rate each vendors’ progress in eight key areas, based on whether we see them as being “On Par” with their competitors, or whether their efforts are “Competitive Differentiators” or “Competitive Liabilities.”

As with any ratings, they are probably raising far more questions than they answer. So, let’s briefl y explain why we graded each vendor as we did.


Corporate Strategy

Although IBM and Dell’s strategies are almost diametrically different, both are clear, consistent and well articulated. Sun has been forced to effectively recon-stitute a strategy. Although we have to give Sun an “A” for crafting a dramatic “game-changing” strategy based on current exigencies, we have to withhold judgment as to whether this, or any strategy, can really save Sun from a deadly loss of relevance. HP’s board is apparently so confi dent of the company’s cur-rent strategy that it wants the company’s new CEO to execute on it, rather than change it. We wish we could share the board’s confi dence. As our May 2005 SummitVision article will discuss in detail, HP must fully address at least fi ve key strategic questions, and a number of more tactical ones, before we can really buy into its corporate vision and strategy.

Systems Competitiveness

IBM has, by far, the broadest, most comprehensive server line, a solid RISC processor and some very innovative technology. It also has the most inter-

Figure 3 Summit Strategies’ Systems Vendor Report Card


Competitive differentiator – “Differentiator”On par with competitors – “On Par”Competitive liability – “Liability”

Corporate Strategy

Systems Competitiveness

Portfolio Effectiveness

Value Proposition

Business/IT Alignment

Partnering

Market Credibility

Ability to Execute

Differentiator

On Par

Differentiator

Differentiator

Differentiator

Differentiator

Differentiator

On Par

IBM

Liability

On Par

On Par

On Par

On Par

On Par

On Par

Liability

Hewlett-Packard

On Par

On Par

On Par

On Par

Liability

On Par

Liability

Liability

SunMicrosystems

Differentiator

On Par

On Par

Differentiator

Liability

On Par

Differentiator

Differentiator

Dell

AEDCB

SYSTEMSVENDORREPORTCARD


nally inconsistent server line, although it hopes that its commitment to Linux, Java and Web services standards will alleviate much of the impact of these incompatibilities. Sun provides the single most scalable, fully compatible server line in the industry with its SPARC systems (and the promise of Chip Multithreading), and an aspiration to become a differentiated player in the x86 space with its next-generation Opteron servers. For now, however, its current SPARC line is pretty long-in-the-tooth, and its x86 line has only a tiny market share. HP has a nice plan to migrate its current broad range of platforms to x86 and Itanium, but remains a hostage to Itanium’s limited application base and market pick-up. Dell, meanwhile, has a comparatively narrow, generally technologically “me-too” line of 1- to 4-way x86 servers. However, it delivers exactly what its rapidly growing customer base wants, and is now preparing for new generations of technology (multi-core processors, clusters, grid, etc.) and implementations (distributed, grid-based and scale-out) to bring the rest of the industry into Dell’s own market sweet spot.

Portfolio Effectiveness

IBM has, by far, the most comprehensive dynamic computing hardware, soft-ware and services portfolio. It is also making the greatest progress in aligning this entire portfolio around the goal of helping customers develop on demand businesses. HP, meanwhile, owns a critical and highly strategic management software family and signifi cant, albeit much more narrowly focused, services portfolio. Although Sun has a broad line of middleware, we have frequently ques-tioned whether this is more of a disadvantage, than an advantage. Generally speaking, HP, Dell and Sun have all intentionally limited the breadth and depth of their portfolios relative to IBM. While they intend to rely heavily on best-of-breed partners to provide solutions that are better, more fl exible and more open than are IBM’s, these partnerships often deliver less value than is promised in initial partnership announcements (see Partnering Effectiveness below).

Value Proposition

IBM and Dell have different, but very clear and focused, value propositions. Sun’s new CSO organization is a big step in the right direction, but it must still prove it can execute. Although HP’s “Adaptive Enterprise” theme and design principles (simplifi cation, standardization, modularity and integration) do pro-vide the foundation for a strong value proposition, the company must sharpen and more consistently and effectively deliver these messages, and clearly demonstrate how its solutions deliver on them.

Business/IT Alignment

IBM is currently leagues ahead of its systems vendor competitors in explicitly addressing, and aligning its product offerings around, a customer’s business needs. HP, and to a slightly lesser extent Sun, are making good progress in partnering with leading ISV and SI partners to address business needs. Dell,


meanwhile, is very effective in aligning its products and services to address customers’ IT needs, but does not yet have a true mechanism for evaluating, enhancing or aligning its offerings with business processes.

Partnering Effectiveness

There are so many different types of partners and partnering strategies that it is almost impossible to grade this in a single category. IBM currently has a big advantage in partnering with application ISVs and regional systems integrators (RSIs). It is also establishing itself as a strong “partner” in many open source com-munities. However, its own aggressive middleware and services efforts make it tough for IBM to align strategically with most middleware and enterprise services players. But, this not withstanding, the company’s industry power does make it a critical tactical partner for even its most direct competitors. HP, meanwhile, has a great mid-market reseller channel and works very well with global SIs and a hand-ful of key ISVs. It, however, has been less successful in managing programmatic relationships. Sun partners with “everybody” around Java, its iForce program is state-of-the-art and the vendor is emerging as a preferred partner to outsourc-ers. However, Sun’s mid-market channel remains limited and its credibility makes it tough for the vendor to establish itself as a truly strategic partner. Dell works extremely well with infrastructure partners (especially Intel, EMC, Microsoft and Oracle) and with a few leading application ISVs. The company, however, has few particularly close go-to-market relationships and relies primarily on partners (espe-cially Microsoft and Red Hat) for application ISV relationships.

Market Credibility

Rather than provide our own interpretations of what customers think, we will let the customers speak for themselves. These grades rely primarily on the customer ratings portrayed in Section Two, fl avored sparingly with Summit Strategies’ own perceptions.

Ability to Execute

Dell has established itself as a veritable execution machine and IBM seems to be doing better and better in aligning its entire organization around on demand. While Sun can generally execute, it faces big challenges during the current period of market skepticism, big product transitions and shifting business models. Although HP’s execution is very mixed, we believe it needs a much clearer, better communicated strategy on which to execute.

The customer ratings in Section Two may be enlightening, and Summit Strat-egies’ own report card ratings may have been an interesting and educating (albeit ultimately subjective) exercise. But what does it all mean in practice? Which systems vendors are positioned most effectively and how will their strat-egies and execution evolve over time? Most importantly, what does any of these mean for a vendor’s future?


Section 4 The Bottom Line—The Role of Differentiating Strategies

Vendor comparisons can be very straightforward and objective. For example, one can match the price/performance and unit sales of different servers within a particular class, or prepare a very logical checklist as to the numbers of professionals each vendor has dedicated to a particular type of service. But what is the sense, and what is the value of trying to measure how “strategic” a vendor is to its customers, or the strength of its dynamic computing strategy and how well it is executing on it?

Although the questions and the metrics are certainly abstract and subjec-tive, Summit Strategies believes that they are ultimately better predictors of a vendor’s success than focusing solely on “speeds and feeds” in products or “bench strength” for services and solutions selling. More importantly, our met-rics provide better, albeit certainly less objective and quantifi able, guidelines as to what a vendor must do to establish itself as a strong player in tomorrow’s markets, rather than just in today’s.

But, for all the comparisons, categories or metrics one uses to assess a ven-dor’s positioning and strengths, customer perception and competitive success ultimately hinges on two factors: the strength of the vendor’s strategy and its ability to execute on this strategy.

Of course, there is no one correct strategy. Every vendor has its own unique capabilities, its own culture and its own market position. They must build strat-egies atop these individual capabilities. And, unless one can clearly beat all competitors at executing on this strategy, the strategy—and the value proposi-tions that is delivered under it—must be both compelling to a vendor’s target customers, and well differentiated from its competitors. As discussed above, and as suggested in Figure 4, IBM, Dell and Sun have all laid out very different strategies and each offers customers a generally distinct value proposition.

IBM, at one end of the continuum, is on track to establishing itself as a com-prehensive provider of fully integrated, leading-edge, business/IT solutions to large and midsize companies in specifi c industries. It has aligned its sales and consulting organizations by vertical and, while it continues to design gen-erally horizontal products, it is increasingly packaging and marketing them around the needs of specifi c customers. It is approaching customers with two types of increasingly interrelated value propositions—one (led primarily by BCS) at the business process level, and one (led primarily by SWG) at the infrastructure solutions level. While it will continue to offer individual—ideally best-of-breed—hardware and software products and services to customers that require them, it will focus its primary go-to-market efforts around much higher-level value propositions.

Dell lies at the other end of the spectrum. It manufactures a relatively narrow line of standards-based products which it differentiates primarily on the basis of


cost and customer experience. It markets products horizontally, and its value proposition is built primarily at the discrete product level. Dell is beginning, how-ever, to make gradual, selected forays up to the infrastructure solutions level, as with reference architectures around Linux, clusters, Microsoft Exchange and SAP applications and, where appropriate, bundles such as with a SMB version of the Oracle database and VMware.

As one can judge by these companies’ customer ratings, revenue growth and earnings performance, customers have embraced both IBM and Dell’s strate-gies and value propositions, and the vendors are doing generally good jobs (great, in the case of Dell) in communicating and delivering on them.

Sun recognizes that it cannot directly compete with either of these strate-gies or value propositions. While it has laid out its long-term “vision thing” around the Sun Grid and utility services, its immediate focus is on trans-forming the ways in which it prices and sells—and customers acquire—IT products and services (from up-front product sales, to subscription ser-vices). It is also converting its value proposition from a traditional focus at the product level, to one that is focused on selling horizontal IT solutions (essentially reference architectures built around common, cross-industry needs) though an increasingly vertically-focused sales organization. Sun will use this vertical knowledge to increasingly coat its horizontal offerings with vertical veneers.

Figure 4 Systems Vendor Market/Solutions Focus Continuum

IBM, Dell and Sun have all laid out differing combinations of markets andsolutions.


Company

IBMHP**Sun

Dell

PrimaryMarket Focus

VerticalHorizontal/verticalHorizontal/vertical

Horizontal

PrimarySolution Focus*

Business process/infrastructureBusiness process/infrastructure

Infrastructure

Product

* Vendors at the higher levels of the continuum typically offer some subset of the solution focuses of those lower on the continuum.

** HP has not yet detailed a primary solution focus. This is Summit Strategies’ best guess of the strategy HP will adopt.


HP’s strategy, meanwhile, is something of an amalgam of all three models. Although HP intends to compete primarily at the infrastructure solutions level, it competes with Dell primarily at the product level, and has three reason-ably established and increasingly formalized vertical industry-focused efforts (around Network Service Providers and some segments of the fi nancial ser-vices and manufacturing industries). While HP must continue to compete at all these levels, as shown in Figure 4, we believe that it must upgrade its value proposition to compete increasingly at the horizontal business process level (i.e., IT processes, document management processes, supply chain manage-ment processes), with vertical veneers. This will require a continued focusing of its sales organization and dramatic expansion and signifi cant redirection of its consulting organization.

These differing combinations of market and solutions focus will certainly help each of these vendors differentiate themselves from each other. And, if they are executed properly, each has the potential of delivering compelling cus-tomer value propositions and sustainable business models. Although there is plenty of evidence to suggest that models near either the top or bottom ends of this continuum can be successful, there is much less experience in the middle. Summit Strategies believes that each of these models (plus a number of others for other types of vendors) have the potential of being successful, if they are well crafted, well articulated and well executed. This success, however, still remains to be proven.

In practice, however, these forms of market and solutions focus are only two of many forms of differentiation. Sun and Unisys, for example, are already applying different forms of business model differentiation (around subscription-based annuity pricing and business transformation utility models, respectively). Vendors, as shown in Figure 5, can also take very different market direction, segmentation and prioritization focuses.

Although each of the four vendors we rate in this report card (as well as most other IT vendors) are placing greater emphasis on midsize business markets, each has its own, somewhat distinct, primary market focus. IBM, for example, is moving increasingly up toward the Accenture-like corner of the enterprise business solutions market, where it will increasingly lead with business ser-vices that pull through IT solutions. Sun is also confi ning itself to the business computing market, but will move increasingly from a product focus to a solu-tions focus. HP seems to have primary expansion focuses in all directions at once, which it must either prioritize or dramatically “synergize” (i.e., prove and institutionalize the consumer/business market synergies that HP insists, but has not really proven, exist). Dell, meanwhile, is generally content with its cur-rent position, although it is gradually moving more and more of its offerings from products, toward solutions.

While all four of the leading systems vendors certainly have work to do, IBM and Dell are fully aligned around very different, but very well proven, strategies


and models. Sun, which has little real choice, is taking a rational, well planned, but highly risky bet-the-business gamble. Now, its HP’s move.

What’s your opinion? E-mail the author:

Tom [email protected]

Figure 5 Systems Vendors’ Differing Paths to the Future

Vendors can take very different market direction, segmentation and prioritization focuses.


Where they are todayPrimary extension focusSecondary extension focus

Targ

et M

arke

t

Primary Value Proposition

LargeEnterprises

Consumer

Small/Midsize

Businesses

IT Products Business Solutions

IBM

Personalcomputer

TraditionalCE Products

500-1,000Employees

1-100Employees

CEO

IT

Dell

Hew

lett-Packard

Sun


Addendum

Summit Strategies’ report cards evaluate vendors in seven key areas:

1. Corporate Strategy. The comprehensiveness and strength of the vendor’s entire business strategy and how com-mitted it is to this strategy. Note that this absolutely does not imply that there is one single “right” strategy for every vendor, nor that dynamic computing must necessarily be at the center of this strategy. Each vendor must tailor its own strategy around its own broader corporate objectives, its unique capabilities and the types of capabilities that customers look to purchase from the vendor. We, however, do believe that dynamic computing principles must be at the center of all vendors’ enterprise customer strategies and that the vendor must have at least a plan for migrating selected capabilities into mid-market and even small business customers.

2. Systems Competitiveness. A high-level assessment of the relative richness of capabilities, performance, pricing and overall competitiveness of the server lines in which the vendor competes. It does not emphasize what are often relatively minor and temporary performance and price/performance advantages of each vendor’s line, since small variances are generally of only secondary consideration in customer purchase decisions. It also assesses the vendors only in those areas in which they chose to compete. It does not, for example, penalize Dell for its focus on 1- 4-way servers and does not reward IBM for offering everything from xSeries through zSeries.

3. Portfolio Effectiveness. The breadth of complementary dynamic computing products and services and the effective-ness by which the vendor integrates these capabilities to deliver compelling, well-differentiated dynamic computing solutions to its customers.

4. Value Proposition. How the vendor defi nes “solutions” and how consistently and effectively these value proposi-tions are conveyed to customers. This category acknowledges that each vendor must have generally different value propositions, based on its unique capabilities, the types of customers it wishes to serve and how it wants to be viewed by these customers. We also explain and compensate for the fact that every vendor counts on partners for some part (although often very different parts) of their value propositions.

5. Business/IT Alignment. The extent to which the vendor attempts to, and is effective in aligning its offerings to the needs of the customer’s business, and to its business processes. This combines the breadth, depth and maturity of the vendor’s business solutions-selling capabilities (both horizontal and industry-specifi c), its portfolio of and plans for business solutions “bundles”, its business process consulting and alignment capabilities and its use of closely aligned business partners to tailor IT solutions to business needs.

6. Partnering Effectiveness. The importance of partners to the vendor’s strategy and its effectiveness in dealing with those partners whom it considers to be particularly strategic. This category acknowledges this effectiveness, and the text explains how different vendors view, and engage with different types of partners in very different ways. The grades, therefore, are often amalgams that integrate strong grades on one category with weak grades in another. It does, however, take into account explicit vendor tradeoffs, such as where the vendor specifi cally decides to enter a business itself, even at the expense of close partnerships.

7. Market Credibility. The degree to which Global 2000-class customers are aware of, and embrace the vendor’s IT and business visions and offerings, and are confi dent in the vendor’s future and long-term role in their company’s IT environment.

8. Ability to Execute. The vendor’s ability to execute on its strategy, deliver on its roadmap, evangelize its unique vision and value propositions, drive customer adoption and effectively implement its vision across many accounts simultaneously, either on its own, or in concert with partners.

Summit Strategies’ Dynamic Computing Industry Report Card: Systems Vendors | Page 19 ©2005 Summit Strategies, Inc. Unauthorized use or sharing of this document is strictly forbidden.

Appendix

Related Analyses

For more information on any Summit Strategies Report, contact Billie Farmer at (703) 897-5188 ([email protected]).

Related Market Strategy ReportsWanna Buy A Business Process? A Vendor Strategy Critique .................... February 2005

The Virtualization Ecosystem Race: What The Leaders are Doing and Why ..........................................................January 2005

Dynamic Computing Management Innovators: Start-Ups Fill the Gap in Service Delivery Management ............................December 2004

Sun Sees Remote and Preventive Offerings as Key to Services Growth .......December 2004

The 2005 Summit Seven: Dynamic Computing Gets Down to Business ..... December 2004

Survey Shows Enterprise Customers Planning Three Year Journey Towards Dynamic Computing .....................November 2004

Survey Uncovers Enterprise Dynamic Computing Decision Triggers and Pain Points ............................November 2004

Top Enterprise IT Spending Priorities for 2005-2009: A Scenario Analysis ................................................October 2004

Service Management Selection Goes Beyond Feeds and Speeds ................. August 2004

Upcoming Related Market Strategy Reports (tentative titles and dates)Data from our current survey of business and IT buyers/infl uencers will be incorporated into the forthcoming reports listed below. Please visit our Web site at www.summitstrat.com for changes to this schedule.

Enterprise Account Strategic Vendor Imperatives—A Survey Based Analysis . .......May 2005

SMB Accounts Strategic Vendor Imperatives—A Survey Based Analysis ...........May 2005

Dos and Don’t for Attaining Strategic Vendor Status ...........................................June 2005

Related SummitVision ArticleSummit Strategies Dynamic Computing Report Card: Systems Integrators ............................................November 2004

Summit Strategies is a market strategy and consulting fi rm focused on helping IT vendors quickly identify and capitalize on disruptive industry infl ection points. Since 1984, our breakthrough thinking and one-to-one consulting engagements have provided vendors with objective, hard-hitting insight critical for creating successful market, channel and product strategies in changing markets. Our current focus is on the adoption of dynamic (a.k.a. utility or on demand) computing among enterprise, mid-market and small business customers. For more information, please visit our Website at www.summitstrat.com or contact Ms. Billie Farmer at [email protected] or 703-897-5188.

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