IBM is betting big on analytics, and Fred Balboni is leading the charge.

Big Blue has just launched a consulting practice in conjunction with its business analytics and optimization products. Such software sorts through vast amounts of data to reveal unseen patterns that help companies make better decisions.

A veteran of IBM's (NYSE:IBM - News) retail consulting practice, Balboni heads a new global team of 4,000 IBM consultants charged with helping clients improve how they manage and use data. IBM expects global sales of analytics and optimization to rise 8% a year from an estimated $105 billion this year. This includes hardware, software and services.

On a quarterly earnings call last month, IBM CFO Mark Loughridge called business analytics "one of our primary investment areas." IBM has spent more than $10 billion over the past four years buying makers of software designed to make corporate users more intelligent. The products include data warehousing software and predictive analytics software. The company has invested billions more in research and development in the field of business analytics and optimization services.

Last month, IBM bought RedPill Solutions of Singapore, which makes analytics software for financial services firms, telecom carriers and hotels. In July, IBM said it would pay $1.2 billion for SPSS, a maker of predictive analytics software. Two years ago, IBM spent $5 billion for Cognos, which makes budgeting and planning software.

Predictive analytics is the "perfect complement" to IBM's existing database, data management and business intelligence tools, according to Nucleus Research. Balboni recently analyzed the analytics trend, in an interview with IBD.

IBD: For users, what's the underlying goal of business analytics and optimization systems?

Balboni: It's about being able to draw information from what's going on in the business, and then being able to analyze that information and create insights from it.

The first thing you need is a report, or some way to get the information out. The second thing is to draw insight from the information.

As a result of that insight, the next step is to make smarter decisions.

Finally, it's being able to take action and execute on those decisions. So not only is it detecting what needs to be fixed, it also involves fixing it.

IBD: Can you give an example?

Balboni: Say you see a stoplight turning red and your brain detects that change. Now you need to take action to hit the brake pedal.

Using that same metaphor, say you see a tree falling in the middle of the road. Your brain detects a tree has fallen under non-normal conditions, so you must take action. This is where optimization comes in.

If you jam on your brakes, you'll still hit the tree. But if you turn the car to the right, the odds are better you can get around the tree and keep going. When you calculate probabilities between hitting the tree, braking or swerving, that's the domain of optimization.

IBD: What's the thinking behind so many acquisitions to build up this analytics practice?

Balboni: In the 1990s, IBM took all its hardware, software and consulting services and declared the advent of e-business. We said the entire industry is moving to where the Internet becomes the platform for business transformation.

We believe we are at a similar juncture now. We have 4,000 people and an amazing data warehousing practice, and a great optimization and delivery machine. Now we'll add research and technology and software to move into analytics and optimization.

IBD: How will these different analytics pieces work?

Balboni: Think of the impact in three different parts. At the business transformation level, we see clients becoming more analytical, or more like thinking organizations. To do that, they have to transform the way they operate.

The second part is the software layer for the intelligence that powers this thing. Our software stack is becoming a more integrated and powerful story to bring information together. We're creating trusted information that empowers people who actually use the information. That's where predictive analytics comes in.

Then there are the actual operations of the enterprise. We can put in new technologies or service offerings to run their analytics environment for them, if needed.

IBD: How does the new IBM Business Analytics Solution Center, which opened last month on Madison Avenue in New York, fit into your larger analytics scheme?

Balboni: That's a really exciting thing. We're on an invention path with analytics in many industries. We realized certain people and places are doing world-class innovation, so we've decided to create a hothouse for that client innovation.

We're working with the financial services industry and the city government in New York. Next month we'll start doing the same thing in Washington for the federal government (with a new solution center there), then in Berlin for European governments.

We're also planning a center in Beijing for air and rail transportation projects. These centers are like innovation hothouses where we can develop best practices and innovate with customers.

IBD: Why is IBM so committed to growing this analytics market?

Balboni: I believe we are creating a whole new category for how companies create value. For example, we have this client, a big power producer that takes 1.5 billion meter readings per day. In the old days, they would archive all that data on tape. But now they are using the data to understand people's energy-usage patterns.

In this way, they can suggest how to shift consumption to save money and use less energy. This benefits both consumers and the environment. And it's all coming from information that we used to throw away.