For 18 years in a row, IBM has been granted more patents than any other company. The company was way ahead of the curve in embracing diversity in hiring as a competitive advantage, in expanding its operations globally, and in moving away from the low-margin computer hardware business and into the more innovative and lucrative fields of software and services.

Still when most people think of IBM today, they still think of it as a company of the past (which is fair, since the company turned 100 years old this year). But, IBM continues to do some of the most important work in technology and is rivaled only by Google and Microsoft in the number of engineers and scientists that it hires to do basic research in computer science. And, while Google and Microsoft focus on lots of consumer-oriented whiz-band products, IBM ends to focus on big picture projects that can have a wider impact on society — in medicine, education business, the social sciences, etc. And, it’s to forget that IBM still has more annual revenue ($99 billion) than Microsoft and Apple combined, and more than twice as many employees (420,000) than Microsoft (90,000), Apple (50,000), and Google (30,000) combined.

“We’re in the background. Nobody hears about us much,” admitted David Barnes, IBM technology evangelist, on Friday at the IdeaFestival 2011 event in Louisville, Kentucky. But, in the IdeaFest session “Deep Innovation,” Barnes made the case that IBM is doing some of the most innovative and far-reaching work on the planet. He explained a little bit of how IBM systematically enables innovation and offered some tips to other aspiring innovators.

First and foremost, Barnes cited the IBM Watson computer — which I wrote about yesterday — as “the greatest advancement” of our time, “from a computer science perspective.” The Watson can process and understand natural language questions better than any computer ever has, and it can even respond in human terms. That’s why it has been able to trounce human beings in games of Jeopardy and why it is about to be used by doctors to consume all of the latest medical articles and studies and then allow doctors to question it about diagnosis possibilities.

Barnes emphasized that Watson is the culmination of a lot of research from many different teams at IBM. “This is years and years of research projects that came together,” he said. Of course, Watson stands on the shoulders of “Deep Blue,” the IBM computer that defeated world chess champion Gary Kasporov in 1997.

How IBM innovates

IBM has done a number of things to enable this kind of innovation, and here’s what Barnes cited:

  • Encourage diversity – Hiring lots of different kinds of people from different backgrounds, nationalities, and ethnic groups helps address the fact that there are lots of different kinds of people who are your potential customers. “We had civil rights within IBM for years and years before the U.S. government required it,” said Barnes.
  • Create a global company – IBM was early to the game in globalizing its company and opening offices around the world. This has given it a huge advantage in recent decades as most markets evolve to become global markets.
  • Take a practical approach to research – IBM is the world’s preeminent technology laboratory, with armies of researchers, scientists, and engineers, who are empowered to work in small teams to invent and innovate. In most cases, this isn’t just pure research, though. IBM expects these employees to eventually take the new ideas and effectively pitch them as business possibilities, and teams up the researchers with MBAs to help, when necessary.
  • Give employees time to think – IBM has implemented “Think Fridays” as a way to encourage employees to step away from their normal work environment and spend time each week on creative thinking. IBM refers to this as “free-thinking” time not spent in meetings and other daily obligations, and it is typically taken as a half-day on Fridays. Employees can use this time to develop new ideas, read, learn a new skill (such as a language), and even blog about the things they are learning or thinking about.

Part of the reason that we rarely hear about IBM these days is that it no longer produces consumer technology products like the iconic IBM PC. The company made the strategic decision years ago to get out of the PC hardware business and focus on servers, software and services. This was a puzzling move to the public at the time, but has worked out beautifully for IBM. PCs have become highly commoditized and the profit margin is only about 3%. Meanwhile, nearly all of the innovation in tech is now happening in software and services and the profit margin in software is 51% and it’s even higher for services.

If you look at the things IBM is doing in nearly every industry, from health care to banking to retail to energy to public transportation to construction, then it’s clear that the company made the right move at the right time in shifting its resources.

Next up: Big data

As for what’s next, Barnes was extremely bullish about “big data analytics.” We have more data available to us than we’ve ever had in human history and sorting out all of that data and turning it into useful, meaningful information that can make us more efficient, more effective, and more purposeful is going to be one of the big tasks of the next decade. It’s not going to be done by computer scientists alone, it’s going to be done by business analysts and social scientists who can ask the right questions and make sense of big data. Barnes said that over 1.2 million new jobs will be needed in big data analytics over the next decade.

He said, “Look at big data and big data analytics because it’s going to have fantastic jobs for the United States.”

To get an idea of the kind of thing he’s talking about in terms of big data, take a look at this 13-minute video that he put together: