How Watson Changed IBM

When IBM’s “Watson” computer competed on “Jeopardy” and won, it demonstrated that machines could understand and interact in a natural-language, question-and-answer format and learn from their mistakes. That meant that machines could deal with the non-numeric information that is getting hard for humans to keep track of, including the knowledge coming out of human genome research and medical information in patient records.

So IBM asked how the fullest potential of this breakthrough could be realized and how the company could create and capture a significant portion of that value.

IBM decided to release Watson to the world as a platform, to run experiments with a variety of organizations to accelerate development of natural language applications and services. It is spending millions of dollars to support startups and businesses that are building Watson-powered apps using the “Watson Developers Cloud.”

So how does IBM’s strategy work? First, with multiple business models. One involves industries that use “cognitive” (natural language) computing, such as financial services and health care, the second looks at patterns across industries and the third will create and work with an ecosystem of entrepreneurs, Mike Rhodin, the company’s senior vice president responsible for Watson, told me.

IBM also had to make some structural moves to create an organization that could both function as a platform as well as collaborate with outsiders for open innovation. It made The Watson Group, a new, semi-autonomous, vertically integrated unit, reporting to the CEO. It brought in new projects, consultants and thousands of people. IBM’s traditional annual budget cycle and business unit financial measures weren’t right for Watson’s fast pace, so Rhodin threw out the annual planning cycle and replaced it with a looser, more agile management system.

More and more, organizations will need to make choices in their research and development activities to either create platforms or take advantage of them. Those with deep technical and infrastructure skills, like IBM, can shift the focus of their internal research and development activities toward building platforms that can connect with ecosystems of outsiders to collaborate on innovation. The second and more likely option for most companies is to use platforms like IBM’s or Amazon’s. In either case, new, semi-autonomous agile units, like IBM’s Watson Group, can help to create and capture huge value from these new customer and entrepreneur ecosystems.

(Brad Power has consulted and conducted research on process innovation and business transformation for the last 30 years.)