IBM's Transformation Journey

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© 2009 IBM Corporation IBM‟s Transformation Journey Enabling growth, productivity, and culture change George Mattathil 4/28/2011
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IBM Strategy and Values: (1) Focus on open technologies and high- value solutions, (2) Deliver integration and innovation to clients, (3) Become the premier Globally Integrated Enterprise.

Transcript of IBM's Transformation Journey

Page 1: IBM's Transformation Journey

© 2009 IBM Corporation

IBM‟s Transformation Journey Enabling growth, productivity, and culture change

George Mattathil 4/28/2011

Page 2: IBM's Transformation Journey

© 2009 IBM Corporation

Business Model, Operating Model and Workforce Transformation

Remixed our portfolio toward services,

software, and integrated solutions…

Shift in geographic mix…

57%

21%

21%

2008

Segment

Revenue

Mix

49%

35%

16%

2003

Segment

Revenue

Mix

2008 revenue: – 21% Asia Pacific

– 37% Europe, Middle East, Africa

– 42% Americas

Hardware

& Financing

Software

Services

71% of employees outside US – 84K in India, 60K increase in 5 years

– 16K in China, 10K increase in 5 years

IBM‟s Ongoing Transformation Journey

Record Performance in 2008… – $103.6B revenue, up 5%

– $16.7B pre-tax earnings, up 15%

– $8.93 Earnings Per Share, up 24%

– Strong performance in services, software and

growth markets

$4

$10

$16

2000 2001 2002 2003 2004 2005 2006 2007 2008

$2

$6

$10

Pre-tax income

Free Cash Flow

EPS

EP

S

Pre

Tax Incom

e &

Fre

e C

ash F

low

($B

)

Revenue ($B)

Exited commoditized businesses: – PCs

– Hard disk drives

– Printing Systems

Strengthened position in: – Business Consulting

– Service-Oriented Architecture

– Information on demand

– Virtualization

– Open, modular systems

Acquired over 60 companies in last 5 years – to complement and scale our portfolio

of products and offerings

Page 3: IBM's Transformation Journey

© 2009 IBM Corporation

IBM Strategy and Values

Deliver integration and

innovation to clients

Become the premier Globally

Integrated Enterprise

Focus on open technologies

and high- value solutions

All things are becoming

INTELLIGENT.

Our world is becoming

INSTRUMENTED. Smart traffic

systems

Smart energy grids

Smart healthcare Smart

retail

Smart supply chains

Smart food systems

… Building a Smarter Planet

Our world is becoming

INTERCONNECTED.

IBM Strategy

Page 4: IBM's Transformation Journey

© 2009 IBM Corporation

A globally integrated

enterprise-- business

in a connected world

The multinational era

-- replicating The international

era -- exporting

20th Century

21st Century

The Evolution of the Enterprise

AGlobally Integrated Enterprise (GIE) is an open, modular organization that is

integrated into the fabric of the networked economy and operates under a business

model that makes economic sense in the new global landscape.

Global Demand Capture

Global Supply Management

Global Production Optimization

IBM Strategy

Page 5: IBM's Transformation Journey

© 2009 IBM Corporation

IBM‟s Approach to Transformation

Transformation Framework

Business Process

Excellence

Values-based Culture

Information Technology Enablement

Enabling Growth Enabling Productivity Enabling Culture Change

Growth markets leadership

Mergers & acquisitions

Client value focus

State-of-the-art

sales enablement

Global shared services

Business

process excellence

IT enablement

Transformational

Leadership

Values-based culture

Collaborative innovation

Transformation Focus Areas

IBM Strategy

IBM Values

Guided by the IBM Strategy

and grounded in our Values

Enable transformation at

the intersection of business

process, technology

and culture

Sustain our strength in the

global marketplace by focusing

on areas that enable growth,

productivity, and culture change

Page 6: IBM's Transformation Journey

© 2009 IBM Corporation

Enabling Growth

Growth Markets Leadership

Mergers & Acquisitions

Client Value Focus

State-of-the-art

Sales Enablement

Enabling Growth

Page 7: IBM's Transformation Journey

© 2009 IBM Corporation

Central & Eastern Europe Middle East & Africa

Latin America

Asia Pacific

Central & Eastern Europe Middle East & Africa

Latin America

Asia Pacific

Why?

Emerging markets growing at

more than twice the rate of

major economies

Growth markets source of global

innovation, high-value, and

competitively-priced skills

What we’ve done

Mobilized resources and leadership

to accelerate growth

Leveraged established

business relationships

for competitive advantage

Taken disciplined approach

to categorization of markets

Enabling clients with fast scaling

and flexible environments

Capturing opportunities to build

out public & private infrastructures

“You can’t “leapfrog” into being a global company.You’ve got to be committed for

the long term, and you have to invest, on multiple levels.” Sam Palmisano, 2007 IBM Annual Report

Growth Markets Leadership Enabling Growth

Page 8: IBM's Transformation Journey

© 2009 IBM Corporation

Growth Markets Leadership (continued) Enabling Growth

Impact How we did it

Created Growth Markets unit

in Shanghai

– Covers nearly 150 countries across Asia,

Africa, Eastern Europe & Latin America

Leveraged efficiencies from global

support functions to free up investments

Focused management system

on future and current period

Continued emphasis on integrity

& business practice standards

IBM‟s business in growth markets

grew by 10% in 2008

Revenue in Brazil, Russia, India and

China (BRIC) up 15% in 2008

Growth countries contributed 18%

of IBM’s 2008 revenue

Constant currency revenue grew 8

points higher in growth markets

than major markets

Page 9: IBM's Transformation Journey

© 2009 IBM Corporation

“In today’s rapidly changing marketplace, one must look atall sources of innovation to

sustain one’s value proposition to the customer. As a consequence, IBM has become

more and more acquisitive.” - Mark Loughridge, IBM Chief Financial Officer

Why?

IBM growth strategy includes

acquiring high-value

solutions and exiting

commoditizing businesses

IBM‟s revenue growth must

come from both organic and

non-organic sources to meet

investor expectations

Mergers & Acquisitions

What we’ve done

Over past 5 years, invested nearly

$16B in acquiring more than

70 companies

Continued to divest low growth, low

margin, commoditizing product lines

Acquired new technology AND

complementary business models

and channels to create new revenue

Enabling Growth

Page 10: IBM's Transformation Journey

© 2009 IBM Corporation

How we did it

IBM has outperformed peers on acquisition

execution over the past 5 years:

– Growth in PTI margin

– Average cash realization

– Average return on invested capital

Across 39 acquisitions between 2002 and 2005, IBM’s

average acquisition doubled its direct revenue

within two years

Efficient divestitures from commodity businesses has

improved profitability

Mergers & Acquisitions (continued)

Impact

End-to-end M&A process with early

focus on integration:

– enables fast start

– reduces risk

– optimizes return

Integration Executives appointed

early to lead the integration

Best in class deal management tool

– IBM M&A Accelerator – to manage

global cross-functional teams

Post-acquisition performance

metrics aligned with our

management system

Enabling Growth

Page 11: IBM's Transformation Journey

© 2009 IBM Corporation

Client Value Focus

“Client success isn’t just “the customer is always right.” It means maintaining a long-

term relationship where what happens after the deal ismore important than what

happens before it’s signed.” – Sam Palmisano, Harvard Business Review, December 2004

Deployed Client Value Method to improve

end-to-end client experience – Recognized distinct types of client

buying behaviors

– Integrated process from solution design

through delivery

Increased industry orientation to serve

the client‟s agenda – Enhanced industry-focused skills

and capabilities

– Aligned market-facing teams around

an industry

Reinforced Values-based leadership

and enhanced employee experience

to deliver client value

To better meet our client’s expectation

of value; clients:

– expect IBM to align to what will make

them successful

– want IBM to consistently deliver

on commitments

– say we are strongest when we

collaborate across IBM

Client Value

– focuses on the client, not IBM

– is from the client’s perspective

– delivers positive impact

Why? What we’ve done

Enabling Growth

Page 12: IBM's Transformation Journey

© 2009 IBM Corporation

How we did it

Yansha, leading Chinese retailer, improves

competitiveness by combining supply chain

& ERP – Order lead time reduced from 2.5 days to 4.5 hours

– 50% revenue increase in supplier information service

– ROI achieved in 9 months

City of Stockholmbreaks gridlock with a

smart road management system – 25% reduction in traffic

– 40K more citizens on public transportation

– Less noise & carbon pollution

Kika-Leiner, European furniture retailer,

implements “green data centers” to support

rapid growth – Energy consumption reduction of up to 40%

Client Value Focus (continued)

Impact

Transformation based on an “outside-in” view:

Client Behavior Driven

– Client Buying Behaviors

– Client / Industry Value Propositions

Client based Measurements

– Client Value Assessment

– Client Balanced Scorecard

Client First Organization

– Industry Aligned Teams

– Serving Clients Globally

Client Value Ready Teams

– Just In Time Knowledge

– Networked Communities

– End-to-end Issue Management

Enabling Growth

Page 13: IBM's Transformation Journey

© 2009 IBM Corporation

“OnTARGET is the best resource for getting an overall picture of a territory

and identifying high potential accounts.” IBM Seller

Why?

Needed to capture new accounts

and grow organic revenue

Needed to improve sales

productivity by better aligning

resources with opportunities

Needed to support sellers in

developing proposals in

competitive timeframe

What we’ve done

Worked with IBM Research to apply

advanced analytics to sales issues

– OnTARGET – prospecting tool used by

sellers to identify clients with highest

propensity to buy

– Market Alignment Program (MAP) – tool

for sales managers to ensure that

resources shift to growth areas

Created Deal Hub – one-stop shop

to help sales teams coordinate:

– Technical Support

– Pricing

– Contracts

State-of-the-Art Sales Enablement

OnTARGET & MAP Ranked in InformationWeek’s

Top 20 Great Ideas

Enabling Growth

– Quality Assurance

– Proposal Generation

Page 14: IBM's Transformation Journey

© 2009 IBM Corporation

Analytic tools identified nearly $8B in

incremental revenue opportunity

worldwide in 2008

OnTARGET tool identified nearly 100K

new sales leads in 2008

Sellers who use Deal Hub spend

over 3 hours more per week selling

– Have the capacity to handle 2 – 5

additional opportunities per rep

Impact How we’ve addressed it

Worked with business units – front-

line to top management – to ensure

relevance, buy-in and ownership

Analytic toolsnow used by business

units in fall planning process

Conducted hundreds of training

workshops with local sales

teams worldwide

Established global Deal Hub team

with >2K people

– Common roles, responsibilities and

management systems

– Look locally...operate globally

State-of-the-Art Sales Enablement (continued) Enabling Growth

Page 15: IBM's Transformation Journey

© 2009 IBM Corporation

Enabling Productivity

Global Shared Services

Business Process Excellence

IT Enablement

Enabling Productivity

Consolidation/Standards Common Processes

Automation

Shared Services Web Enablement

Core vs. Non-Core

Global COEs

Enterprise Integration Globally Integrated Support Processes

Radical Simplification

Page 16: IBM's Transformation Journey

© 2009 IBM Corporation

Why?

Vertically-aligned support

functionsinefficient and incompatible

with

global integration

Ongoing productivity improvements

essential to meet financial goals

Rigorous management of back-office

needed to enable shift of resources to

front-line roles that deliver client value

Global Shared Services

What we’ve done

Created globally integrated

support functions

Established disciplined approach:

– Integrate: Place all resources under

one global leader

– Automate: Use tools and technology

to streamline the workflow

– Optimize: Decide where each

process is best performed – locally,

regionally, globally

– Elevate: Move resources to higher

value-add work to drive further

efficiency and effectiveness

Enabling Productivity

Finance HR IT Sales Ops

Mktg &

Comms

Real Estate

Legal &

Contract

Gov’t Relation

Integrating Globally

Page 17: IBM's Transformation Journey

© 2009 IBM Corporation

How we did it

Shared Services reduced spending

by $3B over the last three years

Supply chain averaging $3-5B in savings

every year for the last five years

Each Shared Service driving ongoing

efficiency & effectiveness:

– Finance E/R reduced from 3% to 1%

– Real Estate improved E/R by 50%

– HR HC Ratio to Employee: improved

from 1:122 to 1:169

Global Shared Services (continued)

Impact

Established consistent set of

processes, measures, systems and

governance for global shared services

Global function owners accountable

for meeting productivity goals based

on benchmarked targets

Shared Services Council provides a

common approach for identifying

opportunities to improve efficiency

and effectiveness

“We no longer have to replicate IBM from floor to ceiling in every country.We are optimizing key

operations in the right places in the world– eliminating redundancies and excess overhead –

andintegrating those operations horizontally and globally.…This is aboutdoing the right tasks,

with the right skills, in the right places.”– Sam Palmisano, May 20, 2005 Analyst Meeting

Enabling Productivity

Page 18: IBM's Transformation Journey

© 2009 IBM Corporation

Why?

Complexity of processes major

source of frustration for employees,

partners and clients

Unit-specific, geo-specific

approaches contributed to complexity

and inefficiency

Siloed processes inconsistent with

vision of globally integrated enterprise

Business Process Excellence

What we’ve done

Took an outside-in approach to address

critical client and employee pain points

Focused first on client-facing teams

Established IBM Enterprise Process

Framework with owners for 12 processes

Launched enterprise-wide program to

provide common global processes,

based on SAP

– Key opportunity-to-cash processes

– Financial management processes

Geos Brands Sectors/ SMB

Support Functions

Horizontal Integration Horizontal Integration

Enabling Productivity

Page 19: IBM's Transformation Journey

© 2009 IBM Corporation

How we did it

Process improvements contributing

to growth & productivity:

– Lean Sigma projects drive $100M cost

benefit in 2008, doubling benefit from

previous year

Improved client-facing processes:

– Reduced cycle time on automated special

bid by 75%

• from 2 days to 4 hours

– Reduced time to execute signatures on

contracts for all brands in U.S.

• 2-signature contracts from 2 days to 15 mins

• 3-signature contracts from 1 wk to 2 hrs

Business Process Excellence (continued)

Impact

Focused on driving horizontal, end-to-

end process improvements and

put senior leaders in charge of

key processes

Developed hundreds of professionals

with business process skills, including

Lean Sigma black belts

Simplified and standardized processes

across business units and geographies

Identified principles for

radical simplification

Current Baseline

Horizontal Integration

Simplification

Radical Change

Enabling Productivity

Page 20: IBM's Transformation Journey

© 2009 IBM Corporation

Why?

IT representsbiggest spend aside

from workforce

Unlocking new IT efficienciesfrees up

resources to fund investments

for growth

Common IT platformsrequired for

global integration & growth

Need for faster collaboration across

global, mobile employee population

What we’ve done

Consolidated disparate systems,

created common platforms and

standards worldwide

Centralized CIO role

Established enterprise-wide

governance model

Built a flexible, responsive and

open global infrastructure

Embraced open standards & Web

2.0 technologies

“".The IT organization plays a strategic rolein driving a firm’s global competitiveness.

Rather than remain on the sidelines, globally-minded CIOs must help shape and

drive their companies business transformation initiatives.” – Forrester Research

IT Enablement Enabling Productivity

Page 21: IBM's Transformation Journey

© 2009 IBM Corporation

$1.5B in IT savings over past four

years; IT E/R reduced by 1.7 pts

Project Green initiative to deliver 80%

energy cost savings & 85% floor

space reduction

SOA delivering $125M in business

value based on $35M investment

Web 2.0 fueling collaboration: – 110,000 employees participate in

Technology Adoption Program

– 50K BlogCentral users

– 150K in InnovationJam 2008

Impact How we did it

Began with a massive consolidation: – 128 CIOs to one

– 155 data centers to 5

– 16,000 applications to 4500

Capitalized on open standards

& virtualization – 1500+ servers running Linux

Leveraged SOA to enable integration &

faster development

Developed intranet into robust social

networking platform

IT Enablement (continued)

IBM Strategic Delivery Model

GlobalResources

Strategic IGA Location

Strategic Web Locationfor IGA

Ethernet & Power9 Networks

TAP: Driving Early Adoption Application Portfolio Mgmt SOA for Enterprise Flexibility Global Data Centers Security for Global Business Project Big Green

Enabling Productivity

Page 22: IBM's Transformation Journey

© 2009 IBM Corporation

Enabling Culture Change

Transformational Leadership

Values-based Culture

Collaborative Innovation

Enabling Culture Change

Page 23: IBM's Transformation Journey

© 2009 IBM Corporation

IBM Values Corporate Social Responsibility

Environmental Influences

Transformational Leadership

Established and periodically refreshed a core set

of leadership competencies for all IBMers

Pervasive use of competencies for development,

succession planning and selection

Defined a new Leadership Framework emphasizing

business results and employees‟ experience

Created a collective leadership force of senior

leaders accountable to integrate IBM and lead

by Values

Defined a clear methodologyto link strategy

to execution

Need to develop global leaders for

the 21st Century who:

- are culturally adaptable

- unleash IBMers‟ energy

- leverage IBM‟s

enterprise-wide capabilities

- enable IBMers to execute IBM‟s

strategy in the face of uncertainty

Why? What we’ve done

IBM’s Leadership Framework

Leader Behavior

Organiza-tional

Climate

Employee Engagement

Business Results

Employee Experience

Enabling Culture Change

Page 24: IBM's Transformation Journey

© 2009 IBM Corporation

Transformational Leadership (continued)

Impact How we did it

Identified leader behaviors that impact

employees’ experience and performance

(with 360 feedback for development)

Embedded Leadership Competencies in all

leadership development programs

Senior IBM leaders participate in all leadership

programs as role models, mentors

and coaches

Launched I&VT Initiatives sponsored by

SVPs and Chairman to solve strategic

enterprise challenges

Deployed Business Leadership Model to

identify and resolve performance/opportunity gaps

IBM‟s leaders’ competencies have steadily

improved each year

IBM‟s leaders, at all levels, demonstrate a

broader set of effective leadership behaviors

I&VTleaders driving integration and

enabling key transformation efforts

IBM‟s performance continues to improve

year to year

Leadership Competencies

Client Partnering

Embracing Challenge

Earning Trust

Enabling Performance

and Growth

Developing IBM People

and Communities

Passion for IBM’s Future

Strategic Risk Taking

Informed Judgment

Thinking Horizontally

Collaborative Influence

Enabling Culture Change

Page 25: IBM's Transformation Journey

© 2009 IBM Corporation

Values-based Culture

Needed to re-establish a set of

Values as the core of IBM’s

culture and brand

Expanding the IBM brand

experience beyond products to

integrated solutions and people

Evolving the IBM management

system to leverage global and

cross unit integration

Why? What we’ve done

Engaged employees globally in Values Jam

to refresh our Values

Conducted World Jam with employees to

collaborate on solutions for growth, innovation

and bringing the Values to life

– Implemented 32 top-rated ideas

Employee Values Survey conducted

annually to measure progress in operating

and behaving consistently with our Values

Engaged leaders at all levels on enabling our

Values-based culture locally and globally

Enabling Culture Change

Page 26: IBM's Transformation Journey

© 2009 IBM Corporation

Values-based Culture (continued)

Impact How we did it

Named a global leader to work with

leaders and teams worldwide to drive

our culture transformation

Identified actions focused on

organizational enablers of culture

change, including:

– Leadership Behaviors

– People Practices

– Management Systems

Building leader accountability

for role modeling and enabling

Values-based culture

Engaging all employees in

the transformation

IBM‟s Values are integral in our performance,

recognition and talent management systems

IBM employees actively participate in

advancing our Values-based culturevia

collaborative technologies

– 1500 communities of practice with 250,000+

IBMers build organizational capability

Majority of IBMers worldwide believe:

– IBM management is committed to making the

changes necessary to enable us to operate

consistently with the Values

– The Values influence how IBMers interact

with clients

“So if there's no way to optimize IBM through organization or management dictate... you've got to

createa management system that empowers peopleand provides a basis of decision making

consistent with who we are at IBM” – Sam Palmisano, Harvard Business Review, December 2004

Enabling Culture Change

Page 27: IBM's Transformation Journey

© 2009 IBM Corporation

Collaborative Innovation

Established an innovation agenda

that spans multiple dimensions:

– Product

– Services

– Business process

– Business model

– Management and culture

– Policy and society

Enabled global collaboration

– Culture of collaboration

– Innovation ecosystem

Why? What we’ve done

Become our clients‟ “innovation partner” – Address client priorities

– Build deeper client relationships

Respondto changing nature

of innovation

Organizations need each other

to be successful – Pace of innovation outstrips an

organization‟s ability to “go it alone”

Changing workforce dynamics – Globalization

– “Millennials”

Venture Capitalists ISVs Business

Partners

Universities

Technical Business

Community Leaders

Competitors Employees

Regulatory Bodies

Investors

ITAnalysts

Alumni

Standards Bodies

Policy- makers

Clients Innovation Ecosystem

“We opened up our labs, said to the world, „Here

are our crown jewels, have at them‟. The Jam --

and programs like it – are greatly accelerating

our ability to innovate in meaningful ways for

business and society.”

- Sam Palmisano, IBM CEO

Enabling Culture Change

Page 28: IBM's Transformation Journey

© 2009 IBM Corporation

Impact How we did it

Provide platforms to foster open dialog

– Single Portal: On Demand Workplace

– Innovation incubator: Technology

Adoption Process

– Information sharing: Cattail

– Brainstorming, idea creation: Jams

– Content creation: BluePedia

– Dynamic interaction: Sametime

Collaborate with everyone

– Collaboration with client

– Societal Innovation

– Social network participation

IBM Research

– #1 on the US patent list for 16 years

– Collaboration with clients on real-world

challenges and solutions

On Demand Workplace

– One of the world’s top 10 intranets

JAMs

– $100M investment to bring 10 ideas

to reality

– 35 Innovative solutions in 4 areas

Global Innovation Outlook

– Entire ecosystem to create new and

unforeseen opportunities

CollaborativeInnovation (continued) Enabling Culture Change

Page 29: IBM's Transformation Journey

© 2009 IBM Corporation

Dear IBM Investor:

“Put it all together, and

IBM today is very

different from what it

was when we entered

the decade.”

– Sam Palmisano, 2007 Annual

Report, Letter to Investors

Page 30: IBM's Transformation Journey

© 2009 IBM Corporation

Appendix

Lessons Learned

How to get started?

Global Business Services – Portfolio Snapshot

Other topics:

– IBM at a Glance

– IBM‟s History of Transformation

– IBM‟s Leadership Governance

– Business Transformation / Information Technology Governance

– Enterprise Risk Management

– Corporate Social Responsibility

Other Shared Services Examples:

– Integrated Supply Chain

– Human Resources

– Finance Transformation

Page 31: IBM's Transformation Journey

© 2009 IBM Corporation

IBM Transformation Journey: Key Lessons Learned

Strategy CEO sponsorship is critical

Create a “sense of urgency” that the

organization can rally around

Think, act and optimize globally

Implement governance, performance

goals and reporting discipline

Enabling Growth Focus on high growth customer segments

and new markets

Leverage business analytics to better align

resources with opportunities and inform

fact-based decisions

Consider both organic and non-organic

sources for revenue growth

Enhance end-to-end client experience

Enabling Productivity Business transformation and IT should be

closely aligned

Don‟t automate a mess – fix processes first,

then apply IT

Sunset legacy systems and tools as new ones

are deployed

Take an end-to-end, outside-in view

of processes

Build process skills and methodologies

Need cross-unit leadership and

clear accountability

Enabling Culture Change Engage leaders at all levels

Address the underlying drivers of behavior

Engage employees broadly

Make culture tangible

Recognize that changing culture is a journey

Lessons learned

Page 32: IBM's Transformation Journey

© 2009 IBM Corporation

How to get started? Key questions for consideration…

GBS Services – Portfolio Snapshot

Clarity of Strategy Who are our target client /customer segments?

What is our value proposition to our

client/customer segments?

How do we differentiate ourselves?

Are we clear on what we do versus where to

partner externally?

Enabling Growth What percent of our business is coming

from outside our home market? Are we

well positioned?

Do we have the right data and analytical tools

to understand our changing clients/customers

and market?

Do we understand our clients‟/customers‟ needs?

How well are we positioned to meet them?

Do we have a clear M&A strategy and process?

Are we well positioned to effectively capture

share and build future capabilities?

Enabling Productivity Are we leveraging scale, global talent and

resources across our organization?

Do we have the capabilities to quickly cut low-

value spending and redeploy to activities,

products, markets that generate

growth/productivity?

How effective and efficient are our support

functions (e.g., supply chain)?

Do we have the tools and support to make our

people as effective as possible?

Enabling Culture Change Do we have senior executives engaged and

accountable to be change leaders?

Are our people aligned with and committed to our

strategy/direction?

Does our culture support the strategy and

its execution?

Are we effectively collaborating and innovating?

Page 33: IBM's Transformation Journey

© 2009 IBM Corporation

Strategy & Change

(S&C)

Business Strategy

Operations Strategy

Technology Strategy

Organization Change Strategy

Human Capital Management

(HCM)

Supply Chain Management

(SCM)

Customer Relationship

Management (CRM)

Financial Management

(FM)

Practice Areas Snapshot of our Services

HR Strategy & Transformation

Learning Solutions

Knowledge & Collaboration

Workforce Transformation

Business Intelligent Services

CRM Strategy

CRM Outsourcing

Contact Center Optimization

SCM strategy and planning

Complex Supply Chain Optimization

IT services for SCM

Supply Chain Enterprise Applications

Finance Transformation

Business Performance Management

Business Risk Management

Finance Enterprise Applications

IBM‟s GBS portfolio supports Transformation

GBS Services – Portfolio Snapshot

Page 34: IBM's Transformation Journey

© 2009 IBM Corporation

IBM Strategy and Change - What we offer

Business Strategy Create and realize

business value

Operations

Strategy Improve efficiency

and productivity

Organization

Change Strategy Make change work

Technology Strategy Interact between

business and technology

Merger &

Acquisition support

Growth & Innovation

Business Model

Innovation and GIE

Green & CSR Strategy

Strategic

Profit Improvement

Target Operating Model

Lean Six Sigma

Green Sigma™

Business

Process Management

Catalyst for Transformation – We create strategies and design operating models that drive innovation from strategy through execution

Focal point for Innovation – We bring strategy together with the range of IBM services and solutions to deliver end-to-end client value

Intersection of Business & Technology – We enhance client competitiveness through innovative business models that leverage IBM‟s unique research and technology capabilities

Key benefits

Better Change

Organization Design

Collaboration &

Partnering (including

Jam & Mini-Jam)

ERP Transformation

IT Strategy & Planning

Service Oriented &

Enterprise Architecture

IT Performance

Management

GBS Services – Portfolio Snapshot

Page 35: IBM's Transformation Journey

© 2009 IBM Corporation

Six Major Elements to Successfully Manage Change

Create strategy for managing and measuring

the change to ensure the alignment of the

organization towards transformation objectives

and contributing initiatives

Help to manage all dependencies,

organizational risks and conflicting interests

across initiatives

Understand the readiness and ability of the

organization to absorb / adopt the change from

the top down and bottom up

Clarify work responsibilities and redefine

jobs as well as their relationships to one another

(structure), governance mechanisms, and other

organizational elements to drive new behaviors

Realign key performance measures (e.g., job

measures, rewards and incentives) to meet the

requirements of the future state operating model

Organization Design

Skills and Knowledge

Program Strategy and Management

Clearly define and agree to skills and

knowledge targets

Assess and implement required skills

and knowledge

Provide education that delivers the right

tools and solutions to support individuals

through the change

GBS Services – Portfolio Snapshot

Page 36: IBM's Transformation Journey

© 2009 IBM Corporation

Six Major Elements to Successfully Manage Change (continued)

GBS Services – Portfolio Snapshot

Stakeholder Engagement and Communications

Culture Transformation

Program Leadership and Governance

Create a shared vision of the desired culture

and assess alignment of the existing culture

Design/deploy interventions that align both

the hard-wired (operating guidelines,

measurements, structures, processes, etc)

and soft-wired (mindsets, business practices,

behaviors) components

Identify, classify, align, engage, and effectively

communicate to impacted and / or influential

stakeholders to prepare them for the

organizational changes

Obtain buy-in and ownership of the changes

to be implemented from leaders as well as employees

Establish awareness, set expectations, and create

buy-in, or commitment, to the change

Create approach and tools to build and

sustain support among executive leaders

and stakeholders

Provide guidance and establish

governance mechanisms

Create a compelling and comprehensive vision

for the change with collective accountability

Help prepare and align leaders for the change

and inform them of their role in the

transformation‟s success

Page 37: IBM's Transformation Journey

© 2009 IBM Corporation

Helping clients succeed in delivering business value

by becoming more innovative, efficient and competitive

through the use of business insight and information

technology (IT) solutions, and providing long-term value

to shareholders

Business Model

Business Segments

398,455 Employees

$16.7B Pre-Tax Profit

$103.6B Revenue

170 Countries Global Presence

Services, Software, Hardware,

Research and Financing

IBM at a Glance: Y/E 2008 IBM at a Glance

Page 38: IBM's Transformation Journey

© 2009 IBM Corporation

Phase One Gerstner era (’93 thru 2002)

1993 1995 1997 1999 2001 2003 2005 2007

Keeping company together

& stabilizing business

Bringing massive decentralization under

control (e.g., 128 CIOs to 1; 70 ad agencies to 1)

From country to global brand P&L statements

Move to integrated solutions

Dramatic growth in services

IBM‟s Transformation: An Ongoing Journey

2009

Fo

cu

s A

rea

s

IBM’s History of Transformation

“I think the greatest challenge

facing the company is … to adapt

our strategy, structure and culture

to a world of constant change.

I can’t promise this journey will be

easy or fast… the steps we will

take will not be pussyfooting but

bold strides.” -- Lou Gerstner, 1993

Page 39: IBM's Transformation Journey

© 2009 IBM Corporation

1993 1995 1997 1999 2001 2003 2005 2007

Phase Two Palmisano era

(‘03 thru present)

Shift to high-value solutions

Move to Values-based culture

Lowering center of gravity for decision-making

Becoming premier globally integrated enterprise

Maintain focus and execute in a radically shifting market

A Smarter Planet

IBM‟s Transformation: An Ongoing Journey (continued)

2009

Fo

cu

s A

rea

s

IBM’s History of Transformation

“Thecrisis in our financial marketshas jolted us

awake to therealities and dangers of highly

complex global systems. But in truth, the first

decade ofthe 21st century has been a series of

wake-up callswith a single subject:the reality

of global integration.”- Sam Palmisano, Nov. 6, 2008

Page 40: IBM's Transformation Journey

© 2009 IBM Corporation

IBM Leadership Governance Model

Systems &

Technology

Group (STG)

Global Business

Services (GBS)

Software

Group (SWG)

Global Technology

Services (GTS)

Sales &

Distribution (S&D)

Integrated Supply

Chain (ISC)

Business Units

Globally Integrated Support Functions

Geographies

North America

Northeast Europe

Southwest Europe

Japan

Sectors

IBM Organization At a Glance IBM Leadership Governance

Strategy Team

IBM’s strategic direction and emerging

business opportunities

Technology Team

Near- and long-term emerging technologies,

technical developments and issues

Integration and Values Team (I&VT)

Integrate IBM’s enterprise-wide capabilities, and

align and communicate strategies and values

Performance Team

Accountable for business performance & results.

Develop cross-unit strategies.

Distribution

Industrial

Financial Services

Communications

Public

General Business

HR Comms IT Finance Legal Marketing/

Strategy

Sales

Operations

Growth Markets

Operating Team

Day-to-day marketplace execution

IBM’s Leadership Governance

Page 41: IBM's Transformation Journey

© 2009 IBM Corporation

Interlock on business unit

and Geo requirements

and priorities

STG SWG GBS GTS STG SWG GBS GTS STG STG SWG SWG GBS GBS GTS GTS

Enterprise Process

OwnerTeam CIO Operating Team

Run Management

Team

Globally Integrated Enterprise

SVP Forum

Transformation Executive IPMT Transformation

Executive IPMT Transformation Executive IPMT

Transformation Executive IPMT Transformation

Executive IPMT Transformation Executive IPMT

BT/IT Transformation Programs

Process

transformation priorities

Funding allocation Program governance Enterprise architecture

Strategy Funding approval

Value realization

Strategy Value realization

GMU NA NE SW Japan GMU NA NE SW Japan GMU GMU NA NA NE NE SW SW Japan Japan

Unique Business Unit

& Geo requirements

BT/IT Governance Model

Globally

Integrated

Support

Processes

Enterprise

Process Owner

(EPO)

Page 42: IBM's Transformation Journey

© 2009 IBM Corporation

Why?

Contribute to consistent growth and

economic return by improving the

company‟s ability to take calculated

& fully-informed risks

Key indicator of good corporate

governance and as important

components of controls and

compliance programs

What we’ve done

Inform strategic decisions with

explicit consideration of risk

Anticipate issues and problems in

executing growth plans and prepare

for them

Analyze variations in ongoing

operations and take action to

improve performance and

increase consistency

Take advantage of experience

in other parts of the enterprise

“Managing risk within silos, for example, country by country, or contract by contract

isn't adequate.”- Mike Daniels, SVP GTS

Enterprise Risk Management ERM

Page 43: IBM's Transformation Journey

© 2009 IBM Corporation

Prioritized enterprise level risk map

– 25 Risk Action plans in place

Risk assessments in Brazil, Russia,

India, China, and Argentina

established common frameworks

and improved risk outcomes:

– Integrity in the Hiring Process: 13K new

hires, 128 approved vendors through

revised process

– Resource Optimization across 43K

service employees

– Health & Safety: 51 sites upgraded

Enterprise IT Risk assessment with

focus on company-wide actions in:

– Data Security & Privacy

99.7% compliance

Impact How we did it

Benchmarked best practices

Established Governance Model

& Enterprise Steering Committee

Engaged senior executive team

in identification of enterprise risks

Developed a structured risk

assessment methodology

Integrated risk into the strategic

& operational planning process

Risk owners performed assessments,

implemented actions, and defined

metrics for ongoing monitoring

Enterprise Risk Management (continued) ERM

Page 44: IBM's Transformation Journey

© 2009 IBM Corporation

Why?

Need for CSR strategy to align with

global business goals

75% of executives needed to better

understand their stakeholders‟

CSR expectations

Despite growth in developing

economies, 2.8 billion people live on

less than $2 a day

Desire to create real solutions (not

just make donations) – and deliver

innovation that matters the world

Moved from scattered grants with

limited ROI to strategic focus on

education – Gerstner era

Defined corporate citizenship as the

intersection between business

and society

Identified critical issues that

intersect with IBM capabilities

Pursued global approach to

corporate citizenship

Empowered IBMers to be

global citizens

“With more than 100,000 registrants and over 6 million total hours of volunteer time,the On

Demand Community is an extraordinary example of corporate philanthropy. Even more than the

massive numbers, it is notable for leveraging the core strengths of IBM – its technology and the

vast skills of its employees – to make a global difference.” - David Eisner, CEO, Corporation for National and Community Service

Corporate Social Responsibility

What we’ve done

CSR

Page 45: IBM's Transformation Journey

© 2009 IBM Corporation

Corporate Services Corps

– sending 1,500 employees over next three

years to work on economic development

projects in emerging markets

Transition 2 Teaching

– bringing seasoned IBMers into second

careers in classroom

– 100+ new math & science teachers

World Community Grid

– harnessing power from 1M+ devices to aid

research on AIDS, cancer, dengue fever,

muscular dystrophy & hunger

Meedan

– using social computing & IBM translation tools

to advance dialogue between Western and

Arab worlds

Impact How we’ve done it

Empowering IBMers to acquire new

skills, transition to new careers and

make a difference in the world

Created the Global

Citizen’s Portfolio:

– Corporate Service Corps

– Personal Learning Accounts

– Transition2

Applied own technology & talent

to tackle societal problems

– On Demand Community

– World Community Grid

– AccessibilityWorks

– KidSmart

Corporate Social Responsibility (continued) CSR

Page 46: IBM's Transformation Journey

© 2009 IBM Corporation

Why?

The ISC is accountable for $40 billion,

or roughly 50 percent, of IBM’s total

cost and expense

ISC was a fragmented cost center

and not mission critical

Distributed and hard-wired to

business units

Pockets of integration in functional

silos but no enterprise-wide

common processes

Established online links to suppliers, partners

and clients, cutting processing time for average

PO from a month to less than a day

95% of business partner orders now “touchless”

In 2002, formed the Integrated Supply Chain

as a single business unit

Manage entire ISC – from procurement and

logistics to strategy and planning -- on a global

basis (moved procurement HQ from Westchester

to Shenzhen, China)

Consolidated transaction processing in global

delivery centers in Malaysia, Bratislava, Spain

and Brazil

“IBM has been on the forefront of globalizing the supply

chain...I think the interesting thing is the strategic

implications. For IBM it sayswe are shifting, yet

again,from being a traditional manufacturing business,

to a solutions business.”

- Kevin O‟Marah, AMR Research

Integrated Supply Chain

What we’ve done

ISC

Supply Chain

Procurement Fulfillment Logistics Manufacturing

Integrated Globally

Automate

Optimize

Process Technology Global Capabilities

Integrate

Page 47: IBM's Transformation Journey

© 2009 IBM Corporation

Driving EPS growth for 23

straight quarters

Averaging $3-5B in savings every year

for the last five years

A 5-point improvement in margins

since 2003

Improving sales force productivity; now

spending 38% more time with clients

Turning orders 32% faster and improving

client satisfaction

Impact How we’ve done it

Tied ISC together with shared

measurements to support

end-to-end operation

Focused on client satisfaction along

with operational results

Leveraged global scale – nearly 20K

employees at 100 locations in 62

countries, speak 80 languages, 31K

suppliers connected online

In 2005, introduced world‟s first supply-

chain business transformation

outsourcing capability

Applied supply chain principles

to services business

Integrated Supply Chain (continued) ISC

Page 48: IBM's Transformation Journey

© 2009 IBM Corporation

Why?

Need to deliver more HR support for

less and evolve the function from

administrative to strategic role

Better support the requirements of

a diverse and mobile workforce

Empower employees to continuously

upgrade their skills

Recruit and on-board 30,000 new

employees a year globally

Human Resources

Centralized the HR function and

manage globally as a shared service

Outsourced benefits enrollment and

pension administration

Rolled out self-service online tools

for HR applications and learning

Aligned HR resources to focus on

growth markets

What we’ve done

“The globally integrated enterprise will require fundamentallydifferent approachesto

production, distribution, andwork-force deployment….New kinds of managerial skillsare

also needed.” - Sam Palmisano, Foreign Affairs, 2006

Shared Services

Page 49: IBM's Transformation Journey

© 2009 IBM Corporation

Impact

Human Resources (continued)

How we’ve done it

Aligned Talent, Learning and Diversity

as one integrated function

Established HR Integrated Services

Team with specialized skills

and practices

Transformation to a new HR partner

model; partners aligned to businesses

in areas or regions

– Including growth markets focus

Established global standards for HR

technologies and performance

management across business units

End-to-end focus

on the talent value

chain to innovate

for clients

Manufacturing

Development

Support

Suppliers

Bus. Partners

Relationship

Delivery

Clients

Manufacturing

Development

Support

Suppliers

Bus. Partners

Relationship

Delivery

Clients

Reduced ratio of HR to employees from

1:122 to 1:169 from 2001 to 2007

Increased focus on strategic work from

15% to 30%

– Increased focus on HR programs and policies from

25% to 60%

– Reduced HR administrative work from 60% to 10%

Delivered 50% more learning hours while

reducing education budget by almost $300M

from 2001 to 2007

– almost 70% of learning is currently online

Hired more than 100,000 new employees

in growth markets in past five years

Shared Services

Page 50: IBM's Transformation Journey

© 2009 IBM Corporation

Why? What we’ve done

Finance Transformation

What does it mean to be

an Integrated Finance Organization (IFO)? Revenue and Stock Price Growth of IFOs out

perform peers in growth markets

Globally

mandated

standards

Standard

CoA

Standard

Processes

Standard

Data

Definitions

IFOs achieve increased

effectiveness through greater

integration of information

6%

14%

10%

24%

Stock Price 5 Yr CAGR -

Industry

Revenue Growth 5 Yr

CAGR

Non-Integrated Finance Organizations Integrated Finance Organizations

Finance

IBM Finance was highly

decentralized – a maze of systems

14K finance employees was 2

times competition

High percent of time spent on

administrative tasks

Lack of integration and unique

measurement systems led to

inconsistent data

Finance function viewed as low

value add

Drove 3-prong approach to finance

transformation: process, data, IT

Standardized processes & controls

Created common ledger, common

data definitions, common

worldwide planning system

Created global centers

of excellence

Focused on supplying headlights

to the business

Page 51: IBM's Transformation Journey

© 2009 IBM Corporation

Optimized global capability

– Increased use of global support

from 12% in‟05 to 40% in ‟08

Shift to higher value work

– Increased decision support work

from 30% in ‟94 to 70% in ‟07

Lowered expenses

– Lowered expense to revenue share

from 3% in ‟94 to 1% in „ 07

Impact How we did it

Evolution of our Finance processes …

Focused on the basics (‟94 – ‟98)

– Standard / Common Process

– Automation

– Functional Best Practices

– Financial Reporting

Integrated the Enterprise (‟98 – ‟02)

– Shared Services

– Web Enablement

– Core Competency

– Decision Support

Moved to globalization (‟02 – present)

– Process Outsourcing /Global COEs

– Technology Exploitation

– Rationalized ERP

– Information On Demand

Finance Transformation (continued) Finance

1994 1996 2005

Change

vs. 1994

Financial data centers 67 15 6 -91%

Key applications 145 95 44 -70%

Days for accounting close 18 8 7 -62%

Estimated Finance operations expense* $2.1B $1.4B $1.2B -43%

Estimated Finance ops exp / revenue* 3.3% 1.8% 1.3% -2.0 pts

Page 52: IBM's Transformation Journey

© 2009 IBM Corporation

Trademarks and notes

IBM Corporation 2011

IBM, the IBM logo and ibm.com are registered trademarks, and other company, product

or service names may be trademarks or service marks of International Business

Machines Corporation in the United States, other countries, or both. A current list of

IBM trademarks is available on the Web at “Copyright and trademark information” at

www.ibm.com/legal/copytrade.shtml

Adobe, the Adobe logo, PostScript, the PostScript logo, Cell Broadband Engine, Intel,

the Intel logo, Intel Inside, the Intel Inside logo, Intel Centrino, the Intel Centrino logo,

Celeron, Intel Xeon, Intel SpeedStep, Itanium, IT Infrastructure Library, ITIL, Java and

all Java-based trademarks, Linux, Microsoft, Windows, Windows NT, the Windows

logo, and UNIX are trademarks or service marks of others as described under “Special

attributions” at: http://www.ibm.com/legal/copytrade.shtml#section-special

Other company, product and service names may be trademarks or service marks of

others.

References in this publication to IBM products or services do not imply that IBM intends

to make them available in all countries in which IBM operates.

Page 53: IBM's Transformation Journey

© 2009 IBM Corporation 53

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