Can IBM Be an Innovation Mechanic?

There's been little reason for investors to get excited about IBM (NYSE: IBM  ) . Growth has stalled in many areas of its business, including the signature services arm, which reported sales down roughly 1% year over year during the second quarter.

But help could be on the way. According to an illuminating article from Friday's edition of Investor's Business Daily, IBM is aiming to transform some of its expertise in research and development into a new offering from its Global Services team.

It's a potentially huge opportunity. U.S. firms spent $1 trillion on R&D over the past five years, according to Forrester Research. This year, the total could equal $320 billion, according to a September survey performed by Battelle, an industry think tank, and R&D Magazine.

More importantly, the move plays to IBM's historic strength in innovation. Indeed, despite its stodgy reputation, it is the only services firm ranked in the top 10 of BusinessWeek's list of corporate innovators. Others in that exclusive club include R&D legend 3M (NYSE: MMM  ) , General Electric (NYSE: GE  ) , and Google (Nasdaq: GOOG  ) .

Surprised? Don't be. IBM has earned more patents than any other American firm in each of the last 13 years. Plus, Big Blue has used innovations in infrastructure management (WebSphere), hardware (the eServer series), and chips (the Cell microprocessor) to maintain growth in the face of an eroding mainframe business and fierce competition in services from the likes of Accenture (NYSE: ACN  ) and InfoSys (Nasdaq: INFY  ) .

Obviously, there's a chance that clients won't want to do innovation the IBM way. If that's the case, then this initiative is a non-starter. But I can't see that occurring. There's just too much allure to having access to some of the world's smartest researchers.

What's more, with productivity languishing versus emerging rivals in India and China, Corporate America has never needed a beefed-up R&D machine more than it does right now. Who better to rev the engine than Big Blue?

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Fool contributor Tim Beyers has owned two IBM PCs in the past. Today, he prefers his Mac. Tim didn't own shares in any of the companies mentioned in this story at the time of publication. You can find out what is in his portfolio by checking Tim's Fool profile. The Motley Fool has an ironclad disclosure policy.


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