IBM's German lab bucks outsourcing trend

As blue chip companies in developed markets scramble to outsource high-cost jobs to low-cost countries, one of the world's biggest technology companies -- IBM Corp. -- seems content to keep more than 1,800 highly trained, well-paid IT engineers at its R&D (research and development) lab in Böblingen, Germany.

You wonder why. The German lab, IBM's first in Europe, was launched in 1957 by Thomas Watson, who believed the company had to develop and manufacturer products in markets where it had large customers bases. In recent years, however, IBM has either shut down or sold many of its computer manufacturing operations around the world, Germany notwithstanding.

Yet the Böblingen lab, one of the group's largest, has remained largely intact. This is no small feat given that it's located in a country with high taxes, strict labor laws and long vacations -- not what you would call useful qualities when competing with markets such as China and India.

Despite the growing importance of China and India, where IBM is beefing up its R&D activities, Herbert Kircher, director of development and chairman of IBM Deutschland Entwicklung GmbH, sees a continued strong role for his lab and the others in France, Switzerland and the U.K. as well as those in the U.S.

"Yes, an Indian engineer may cost one third of what an engineer costs in Europe or the U.S., and we need to take advantage of this as we are doing," he said. "But we will not exit high-cost regions such as Europe and the U.S. We need the balance."

The German lab has strengths of its own, Kircher is quick to point out. "We are able to retain highly skilled, highly motivated engineers," Kircher said. "Unlike IBM engineers in India and China who work for the company for an average two years, our engineers in Germany stay around 10 years, with some as many as 20 years, bringing with them a lot of project and customer experience as well as market know-how."

Whereas IBM R&D executives in China or India often assign development projects to engineers with two years' experience or less, Kircher relies on what he calls "the right mix" of engineers. On the one side are engineers and researchers who are fairly new to the company and bring fresh ideas; on the other are staffers with a wealth of experience. "This mix contributes to our success in developing new products," he said.

To make sure innovative ideas don't die in committee, the IBM lab in Böblingen invites engineers and researchers who have been with the company less than five years to participate in an annual, day-long event to present their ideas to senior executives. "This is a great opportunity to discuss and share ideas," Kircher said.

In addition, all young researchers are assigned a mentor who can help push through ideas that, for whatever reason, are blocked in their teams.

Staff turnover at the German lab is around 1 percent per year. Of these engineers, a number leave Germany -- not IBM -- to work for the company in the U.S., according to Kircher. "Many of our people are approached by competitors who offer more pay and other benefits but they stay because they like their work and their working environment," he said. "We attach great importance to a corporate culture that honors values and high performance."

The IBM labs have developed specific competencies over the years. The German lab, for instance, took a lead in engineering the open-source Linux operating system to run on IBM's Z series mainframe computers. The lab also has expertise in workflow software, collaborating closely with German business software vendor SAP AG, which, it so happens, was founded by a group of former German IBM employees. "Some of our people have their own office at SAP's headquarters," Kircher said. "That's how close the cooperation is."

In addition to its RFID (radio frequency identification) competency stemming from research conducted more than 15 years ago, the German lab is developing specialized know-how in the area of data analysis. Researchers in Böblingen are working on an intelligent software system that, for instance, can automatically analyze huge volumes of data collected from millions of video surveillance cameras. "In the future, we could have systems that recognize and interpret a picture, say, of people who enter an airport with luggage," Kircher said.

"The system, for instance, could be designed to automatically detect travellers who enter certain areas with bags and leave without them without having people view all this footage."

There are plenty more projects underway, according to Kircher, but they must remain confidential for competitive reasons.

"We have a very nice, productive working atmosphere in Böblingen," the head of IBM's German development said. "People like to work here, and we aim to keep it that way."