IBM (NYSE: IBM) is a huge company: 319,000 employees, a $160 billion market cap, and activity in an enormous number of widely dispersed fields. In addition, IDB is also a giant in R&D.
Among other things, IBM’s strength in R&D is reflected in its spending on innovation. In 2003, IBM invested $5 billion, over 5% of its annual revenue, in R&D. A considerable proportion of this R&D investment was channeled to the company’s laboratories in Israel, the largest of which is located on the Carmel mountain range on the University of Haifa campus.
The late Yosef Raviv founded IBM’s first laboratory in Israel, called the Scientific Center, in 1972. Raviv returned to Israel after working at IBM’s research department in the US, and led the company’s R&D activity in Haifa for 28 years. Today, the Israeli laboratories are part of a network of eight laboratories around the world, which are thought to be the largest company’s laboratories outside the US.
The number of employees in IBM’s development centers in Israel has grown by 8% a year in recent years, and currently stands at 550, including 100 students, divided among three locations. The University of Haifa site has 400 R&D personnel.
The Tel Aviv center, located on the Tel Aviv University campus, has 70 employees. Most of IBM’s work in Tel Aviv is in development of components for IBM’s microelectronics division, which was nurtured over the years as part of IBM’s development division, then became a separate entity in 1999.
The third and smallest location, with 45 employees, is in Rehovot. Activity there centers around Ubique, acquired by Lotus in 1995, which IBM later acquired. The Rehovot center’s main product is an instant messaging program for enterprises, called Virtual Places.
IBM’s development facilities in Israel have undergone many changes and metamorphoses over the years. “There was little motivation to use computers when the development laboratory was set up in Israel,” says Dr. Michael Rodeh, who has headed IBM’s research labs since 1999. “The concept then was that if use of computers spread to other fields, the laboratory would be able to focus on a variety of advanced developments, and benefit from market growth. At the time, we dealt in data processing in various fields, such as optimal operation of Israel’s water reservoirs and so forth.
”At the end of the 1970s, however, other types of advanced applications appeared, and it became apparent that the market was growing in any case, without our intervention. The center therefore searched for a new identity, and decided to become a center for advanced applications.”
Looking to Eastern Europe
Among the first developments on which the scientists in Haifa worked were ultrasound systems for diagnosing liver cancer, urban planning systems, hearing aids, and identification and document processing systems. Development of programming languages, upgrading computer performance, and activities that assumed great importance, such as development of storage, communications, and verification, were later added. “Over the years, all the scientific centers that has been established disappeared, except for the center in Haifa, which survived because it changed its orientation each time. In 1981, we had 22 employees. We changed our focus again, and started assisting IBM’s R&D groups. From that time on, we’ve been working in the same direction,” Rodeh says.
In 1997, the laboratories joined IBM’s R&D department, becoming an integral part of it. The laboratories focused on bolstering their direct activity with IBM’s service and sales sections, working closely and continuously with customers, which had not previously been done much.
What will be the next incarnation of IBM’s development center in Israel? According to Rodeh, IBM might establish additional development groups as part of its laboratory model, if it becomes necessary, while also focusing development activity on other countries. “Another direction is working with IBM’s service bodies, and with other companies. This is a process that we have been undergoing for a few years already, and it will continue.
”It’s also likely that we’ll use personnel in Eastern Europe, where there are currently no development laboratories. We may also expand our use of subcontractors in order to create a critical mass of activity.”
Why Eastern Europe?
Rodeh: ”The goal is to create in Israel a mix of people dealing with complex tasks, and exploiting good connections with laboratories in the US, while also creating value in emerging markets where we want to be present. We want a foothold there, and there’s no reason why we shouldn’t manage it from Israel, and create a kind of symbiotic relationship with Eastern Europe, while concentrating the more sophisticated work in Israel. For IBM’s management in the US, this is an advantage, because it will be easier for them to manage a single entity than a number of entities spread around.”
Storage, verification, search
The three main areas that the IBM Israel laboratories have developed over the years are storage, verification, and search. Storage is considered the oldest of the three, and has made the largest contribution to IBM’s revenue. The storage specialty is called copy services backup for data between various sites. This field is complex; data must be backed up in widely spread out locations, and an effort must be made to safeguard every piece of information, so that if a crash occurs, the damage to information will be minimal.
Recent products made by the Israeli development center include Global Mirror, which is part of IBM’s storage system, and software written in Israel, which has been included in IBM’s DS6000 and S8000 flagship storage control products.
Most verification activity involves verification of IBM processors, using methods developed by IBM Israel. Rodeh explains, “Our people are leaders in this field. The big challenge of this field is the quantitative volume of items that verification tools must check. As planning becomes more complex, there are more items to check per time unit, and the tools’ volume must therefore constantly grow.”
Another specialty for which the Israeli laboratories are known is search not Internet searches of the Google (Nasdaq: GOOG) or MSN.com type, but work station or enterprise searches using IBM’s enterprise portal. The Haifa center specializes in searching for files using texts and tags. This field is newer than the Israeli laboratories other specialties, and its contribution is the least of the three.
Is the initiative for new developments dictated by global management, or are the laboratories in Israel responsible?
”Most of our achievements began with our employees, and continued upwards. If an idea is accepted, management tries to move it forward. The best example is searches, which became economically valuable only in recent years. The Israeli center, however, has been working on and developing it for over fifteen years. Global management also refers subjects to us, but these are few, and usually come when we already have activity in a given field, which management wishes to expand.”
How do you measure up to other development centers?
”There are formal indicators used to measure products. There are products that have become great achievements, and can be quantified, while seeing if they were accomplished in Haifa, or in other centers. In general, our share of the successes is large, compared with our size within IBM. At the same time, other indicators are considered, such as customer satisfaction, in which our feedback is very good, and business growth or contraction. In general, the impression is that we are viewed favorably outside. We have received compliments.”
30% have doctorates
How likely is it that IBM will decide to cut down on its research activity in Israel, and transfer it to Asia, instead of expanding its activity here?
”The risk that some work will be sent elsewhere exists. The question is how we handle the problem. I think that move activity elsewhere can be a lever for increasing activity, not just a risk. One way of coping with this is to participate in these processes, and play a bigger role in them. We believe that if IBM decides to add groups in Eastern Europe, there’s no reason why we shouldn’t take part in the process. The model we want to develop is to put some of our people there, and grow in Eastern Europe through subcontractors.
”In Israel, we deal with Israeli personnel, and pay according to the salary structure in Israel. The composition of our employees stands out in two measures. The first is the proportion of employees with doctorates. 30% of our research employees hold a doctorate, and 40% have master’s degrees. I don’t like that measure much, however, because some enormously talented people lack education.
”The other measure is high acceptance requirements. Graduates of the Haifa Technion need an 85 average in order to be hired in our research laboratories. That’s not an easy standard to meet.”
What opportunities have you missed over the years?
”We had great capabilities in applied mathematics in the late 1980s and early 1990s, which were ahead of their time. Our capabilities in this field were excellent, but IBM Israel left the field and didn’t return to it. The importance of optimization problems (whose solutions are derived from applied mathematics) has increased over the years, making it a hot field. IBM now has a group that is developing this specialty.
”Another field we abandoned after investing in it is parallel computing. During the 1990s, we employed three people in the field.”
Can you give several examples of developing fields?
”We made a substantial contribution to what IBM did in information systems that support health systems. The uniqueness of what we did in the field was to look at things from an overall viewpoint, combining individual files and genetic findings. We looked at the general picture of information sources. This field, which is not large today, requires coping with the problem of data integration, but it’s very important. One product that IBM is selling in the field is Clinic Genomic, which weighs genetic data, and integrates information from old and modern sources.
”Other key developments are in systems for handling complex events (active technologies), which make it possible to track complex situations, integrate theory in business processes, and monitor complex situation. For example, one share rises several days in a row, while another goes down. The system can draw conclusions about a third share. The system learns to identify a pattern in many events that must be followed. It is suitable mostly for financial, military, and insurance applications. In contrast to business intelligence, this system sees things while they are being created, not just existing databases. The development of active technologies is included in one IBM product, but its main value is in the future.
”We also have a large part in collaboration in the recently announced Lotus work place system. This system supports business dialogues and processes, mostly in reporting and communications between all entitles linked in the system.”
”On what is development focusing now?
”In general, I think that research is a focus. We’re continuing to do a lot in storage and verification development, and in search solutions, in which we are concentrating a lot of effort. We’re also developing tools for software of various types, tools for converting between systems, and a specialty in integrated management of blade and storage servers. Another field on which we’re focusing now is voice verification in a mobile environment. We’re inclined to believe that developments in speech and audio will make progress at a time when our hands and feet are dealing in other things.”
How are the laboratories’ expenses distributed?
”40% of spending and activity is in research, and 60% is in development.”
What do you think characterizes the laboratories in Israel?
”What characterizes Haifa is exceptional flexibility under the changing market conditions. I think that there are no flexible systems. There are flexible people, who are capable of adapting themselves to changing conditions. The fundamental component is the professionalism that characterizes everything we do. To a great extent, that’s what motivates people, and provides the basis for their professional pride.”
Published by Globes [online], Israel business news - www.globes.co.il - on December 13, 2004