IBM Corp. plans to combine its storage and server divisions at the start of next year, and will shift storage head Linda Sanford to take charge of the “on-demand” computing initiatives outlined last week by IBM Chief Executive Officer Sam Palmisano, according to a source familiar with the plan.

IBM’s Server Group and Storage Systems Group will be merged as of Jan. 1, operating as one organization under the direction of Bill Zeitler, currently senior vice president of the server group. The reorganization was announced internally Wednesday in a memo sent to employees.

“Two years ago, the new storage organization needed the intense focus of a start-up company. Since that time, we’ve won dozens of competitive battles,” the memo said. “As solutions and integration become more important, we are now in (a) good position to combine our leadership products and deliver a powerful, unified value proposition to customers.”

On-demand computing will be IBM’s focus, Palmisano said in his recent talk, describing a vision of IT infrastructure incorporating technology from a broad array of product areas aimed at maximizing businesses’ flexibility and responsiveness.

IBM has saved US$6.2 billion by adopting integration technologies, but its savings from on-demand technologies will be even bigger, Palmisano said. That internal adoption will be managed by Sanford, whose title is changing to senior vice president, enterprise on demand transformation.

Externally, IBM’s chief on-demand computing evangelist will be strategist Irving Wladawsky-Berger, who will team with Sanford on client communications.