IBM's Transformation Journey
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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.

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.

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  • 1. IBM‟s Transformation JourneyEnabling growth, productivity, and culture change George Mattathil 4/28/2011 © 2009 IBM Corporation
  • 2. IBM‟s Ongoing Transformation Journey Business Model, Operating Model and Workforce TransformationRemixed our portfolio toward services, Shift in geographic mix…software, and integrated solutions…  2008 revenue: Exited commoditized businesses: – 21% Asia Pacific – PCs – 37% Europe, Middle East, Africa – Hard disk drives – 42% Americas – Printing Systems  71% of employees outside US Strengthened position in: – 84K in India, 60K increase in 5 years – Business Consulting – 16K in China, 10K increase in 5 years – Service-Oriented Architecture – Information on demand – Virtualization  Record Performance in 2008… – Open, modular systems – $103.6B revenue, up 5% – $16.7B pre-tax earnings, up 15% Acquired over 60 companies in last 5 years $10 – to complement and scale our portfolio Pre Tax Income & Free Cash Flow ($B) of products and offerings $16 Revenue ($B) Pre-tax income EPS $6 Free Cash Flow EPS 16% 21% $10 2003 49% 2008 57% Segment Segment Revenue Software $4 $2 Revenue 2000 2001 2002 2003 2004 2005 2006 2007 2008 21% 35% Mix Mix Services – $8.93 Earnings Per Share, up 24% Hardware & Financing – Strong performance in services, software and growth markets © 2009 IBM Corporation
  • 3. IBM Strategy and Values IBM Strategy … Building a Smarter Planet Our world is becoming Focus on open technologies INSTRUMENTED. Smart food and high- value solutions Smart traffic systems systems Deliver integration and Our world is becoming INTERCONNECTED. Smart energy innovation to clients grids Smart supply chains Become the premier Globally Integrated Enterprise All things are becoming INTELLIGENT. Smart Smart healthcare retail © 2009 IBM Corporation
  • 4. The Evolution of the Enterprise IBM Strategy20th 21stCentury Century A globally integrated The international The multinational era enterprise-- business era -- exporting -- replicating in a connected world 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 Supply Global Production Global Demand Management Optimization Capture © 2009 IBM Corporation
  • 5. IBM‟s Approach to Transformation IBM Strategy Guided by the IBM Strategy and grounded in our Values IBM Values Transformation Framework Business Process Values-based Enable transformation at Excellence Culture the intersection of business process, technology Information and culture Technology Enablement Transformation Focus Areas Enabling Growth Enabling Productivity Enabling Culture Change Sustain our strength in the Growth markets leadership  Global shared services  Transformational global marketplace by focusing  Business Leadership Mergers & acquisitions on areas that enable growth, process excellence  Values-based culture Client value focus productivity, and culture change State-of-the-art  IT enablement  Collaborative innovation sales enablement © 2009 IBM Corporation
  • 6. Enabling Growth Enabling Growth  Growth Markets Leadership  Mergers & Acquisitions  Client Value Focus  State-of-the-art Sales Enablement © 2009 IBM Corporation
  • 7. Growth Markets Leadership Enabling Growth Why? What we’ve done  Emerging markets growing at  Mobilized resources and leadership more than twice the rate of to accelerate growth major economies  Leveraged established  Growth markets source of global business relationships innovation, high-value, and for competitive advantage competitively-priced skills  Taken disciplined approach to categorization of markets Central & Eastern Europe Middle East & Africa  Enabling clients with fast scaling and flexible environments  Capturing opportunities to build Asia Pacific out public & private infrastructures Latin America “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 © 2009 IBM Corporation
  • 8. Growth Markets Leadership (continued) Enabling Growth How we did it Impact  Created Growth Markets unit  IBM‟s business in growth markets in Shanghai grew by 10% in 2008 – Covers nearly 150 countries across Asia,  Revenue in Brazil, Russia, India and Africa, Eastern Europe & Latin America China (BRIC) up 15% in 2008  Leveraged efficiencies from global  Growth countries contributed 18% support functions to free up investments of IBM’s 2008 revenue  Focused management system  Constant currency revenue grew 8 on future and current period points higher in growth markets than major markets  Continued emphasis on integrity & business practice standards © 2009 IBM Corporation
  • 9. Mergers & Acquisitions Enabling Growth Why? What we’ve done  IBM growth strategy includes  Over past 5 years, invested nearly acquiring high-value $16B in acquiring more than solutions and exiting 70 companies commoditizing businesses  Continued to divest low growth, low margin, commoditizing product lines  IBM‟s revenue growth must come from both organic and  Acquired new technology AND non-organic sources to meet complementary business models investor expectations and channels to create new revenue “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 © 2009 IBM Corporation
  • 10. Mergers & Acquisitions (continued) Enabling GrowthHow we did it Impact End-to-end M&A process with early  IBM has outperformed peers on acquisition focus on integration: execution over the past 5 years: – Growth in PTI margin – enables fast start – Average cash realization – reduces risk – Average return on invested capital – optimizes return  Across 39 acquisitions between 2002 and 2005, IBM’s average acquisition doubled its direct revenue Integration Executives appointed within two years early to lead the integration Best in class deal management tool  Efficient divestitures from commodity businesses has – IBM M&A Accelerator – to manage improved profitability global cross-functional teams Post-acquisition performance metrics aligned with our management system © 2009 IBM Corporation
  • 11. Client Value Focus Enabling Growth Why? What we’ve done  To better meet our client’s expectation  Deployed Client Value Method to improve of value; clients: end-to-end client experience – Recognized distinct types of client – expect IBM to align to what will make buying behaviors them successful – Integrated process from solution design – want IBM to consistently deliver through delivery on commitments  Increased industry orientation to serve – say we are strongest when we the client‟s agenda collaborate across IBM – Enhanced industry-focused skills and capabilities  Client Value – Aligned market-facing teams around an industry – focuses on the client, not IBM – is from the client’s perspective  Reinforced Values-based leadership and enhanced employee experience – delivers positive impact to deliver client value“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 whathappens before it’s signed.” – Sam Palmisano, Harvard Business Review, December 2004 © 2009 IBM Corporation
  • 12. Client Value Focus (continued) Enabling Growth How we did it Impact Transformation based on an “outside-in” view:  Yansha, leading Chinese retailer, improves competitiveness by combining supply chain  Client Behavior Driven & ERP – Client Buying Behaviors – Order lead time reduced from 2.5 days to 4.5 hours – Client / Industry Value Propositions – 50% revenue increase in supplier information service  Client based Measurements – ROI achieved in 9 months – Client Value Assessment  City of Stockholmbreaks gridlock with a – Client Balanced Scorecard smart road management system  Client First Organization – 25% reduction in traffic – Industry Aligned Teams – 40K more citizens on public transportation – Serving Clients Globally – Less noise & carbon pollution  Client Value Ready Teams  Kika-Leiner, European furniture retailer, – Just In Time Knowledge implements “green data centers” to support – Networked Communities rapid growth – End-to-end Issue Management – Energy consumption reduction of up to 40% © 2009 IBM Corporation
  • 13. State-of-the-Art Sales Enablement Enabling Growth Why? What we’ve done  Needed to capture new accounts  Worked with IBM Research to apply and grow organic revenue advanced analytics to sales issues – OnTARGET – prospecting tool used by  Needed to improve sales sellers to identify clients with highest propensity to buy productivity by better aligning – Market Alignment Program (MAP) – tool resources with opportunities for sales managers to ensure that resources shift to growth areas  Needed to support sellers in  Created Deal Hub – one-stop shop developing proposals in to help sales teams coordinate: competitive timeframe – Technical Support – Quality Assurance – Pricing – Proposal Generation – Contracts OnTARGET & MAP Ranked in InformationWeek’s Top 20 Great Ideas “OnTARGET is the best resource for getting an overall picture of a territory and identifying high potential accounts.” IBM Seller © 2009 IBM Corporation
  • 14. State-of-the-Art Sales Enablement (continued) Enabling Growth How we’ve addressed it Impact  Worked with business units – front-  Analytic tools identified nearly $8B in line to top management – to ensure incremental revenue opportunity relevance, buy-in and ownership worldwide in 2008  Analytic toolsnow used by business  OnTARGET tool identified nearly 100K units in fall planning process new sales leads in 2008  Conducted hundreds of training  Sellers who use Deal Hub spend workshops with local sales over 3 hours more per week selling teams worldwide – Have the capacity to handle 2 – 5  Established global Deal Hub team additional opportunities per rep with >2K people – Common roles, responsibilities and management systems – Look locally...operate globally © 2009 IBM Corporation
  • 15. Enabling Productivity Enabling Productivity  Global Shared Services  Business Process Excellence  IT Enablement Enterprise Integration  Globally Integrated Support Processes  Radical Simplification Shared Services  Web Enablement  Core vs. Non-CoreConsolidation/Standards  Global COEs Common Processes Automation © 2009 IBM Corporation
  • 16. Global Shared Services Enabling Productivity Why? What we’ve done  Vertically-aligned support  Created globally integrated functionsinefficient and incompatible support functions with global integration  Established disciplined approach: – Integrate: Place all resources under  Ongoing productivity improvements one global leader essential to meet financial goals – Automate: Use tools and technology  Rigorous management of back-office to streamline the workflow needed to enable shift of resources to front-line roles that deliver client value – Optimize: Decide where each Sales Mktg Legal process is best performed – locally,Finance HR IT & Real & Gov’t Ops Comms Estate Contract Relation regionally, globally – Elevate: Move resources to higher value-add work to drive further efficiency and effectiveness Integrating Globally © 2009 IBM Corporation
  • 17. Global Shared Services (continued) Enabling Productivity How we did it Impact  Established consistent set of  Shared Services reduced spending processes, measures, systems and by $3B over the last three years governance for global shared services  Supply chain averaging $3-5B in savings every year for the last five years  Global function owners accountable  Each Shared Service driving ongoing for meeting productivity goals based efficiency & effectiveness: on benchmarked targets – Finance E/R reduced from 3% to 1%  Shared Services Council provides a – Real Estate improved E/R by 50% common approach for identifying – HR HC Ratio to Employee: improved opportunities to improve efficiency from 1:122 to 1:169 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 © 2009 IBM Corporation
  • 18. Business Process Excellence Enabling Productivity Why? What we’ve done  Complexity of processes major  Took an outside-in approach to address source of frustration for employees, critical client and employee pain points partners and clients  Focused first on client-facing teams  Unit-specific, geo-specific  Established IBM Enterprise Process approaches contributed to complexity Framework with owners for 12 processes and inefficiency  Launched enterprise-wide program to  Siloed processes inconsistent with provide common global processes, vision of globally integrated enterprise based on SAP – Key opportunity-to-cash processes – Financial management processes Brands Sectors/ Support Geos SMB Functions Horizontal Integration Horizontal Integration © 2009 IBM Corporation
  • 19. Business Process Excellence (continued) Enabling Productivity How we did it Impact  Focused on driving horizontal, end-to-  Process improvements contributing end process improvements and to growth & productivity: put senior leaders in charge of – Lean Sigma projects drive $100M cost key processes benefit in 2008, doubling benefit from previous year  Developed hundreds of professionals with business process skills, including Lean Sigma black belts  Improved client-facing processes: – Reduced cycle time on automated special  Simplified and standardized processes bid by 75% across business units and geographies • from 2 days to 4 hours  Identified principles for – Reduced time to execute signatures on radical simplification 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 Radical Change Simplification Current Horizontal Integration Baseline © 2009 IBM Corporation
  • 20. IT Enablement Enabling Productivity Why? What we’ve done  IT representsbiggest spend aside  Consolidated disparate systems, from workforce created common platforms and  Unlocking new IT efficienciesfrees up standards worldwide resources to fund investments  Centralized CIO role for growth  Established enterprise-wide  Common IT platformsrequired for governance model global integration & growth  Built a flexible, responsive and  Need for faster collaboration across open global infrastructure global, mobile employee population  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 © 2009 IBM Corporation
  • 21. IT Enablement (continued) Enabling Productivity How we did it Impact  Began with a massive consolidation:  $1.5B in IT savings over past four – 128 CIOs to one years; IT E/R reduced by 1.7 pts – 155 data centers to 5 – 16,000 applications to 4500  Project Green initiative to deliver 80% energy cost savings & 85% floor  Capitalized on open standards space reduction & virtualization – 1500+ servers running Linux  SOA delivering $125M in business value based on $35M investment  Leveraged SOA to enable integration & faster development  Web 2.0 fueling collaboration: – 110,000 employees participate in  Developed intranet into robust social Technology Adoption Program networking platform – 50K BlogCentral users – 150K in InnovationJam 2008 IBM Strategic Delivery Model Global Strategic Strategic Ethernet & Resources IGA Web Power9 Location Location NetworksTAP: Driving Early Adoption Application Portfolio Mgmt SOA for Enterprise Flexibility for IGA Global Data Centers Security for Global Business Project Big Green © 2009 IBM Corporation
  • 22. Enabling Culture Change Enabling Culture Change  Transformational Leadership  Values-based Culture  Collaborative Innovation © 2009 IBM Corporation
  • 23. Transformational Leadership Enabling Culture ChangeWhy? What we’ve done Need to develop global leaders for  Established and periodically refreshed a core set the 21st Century who: of leadership competencies for all IBMers - are culturally adaptable - unleash IBMers‟ energy  Pervasive use of competencies for development, succession planning and selection - leverage IBM‟s enterprise-wide capabilities  Defined a new Leadership Framework emphasizing - enable IBMers to execute IBM‟s business results and employees‟ experience strategy in the face of uncertainty  Created a collective leadership force of senior Employee Experience leaders accountable to integrate IBM and lead by Values Leader Organiza- Employee BusinessBehavior tional Engagement Results Climate  Defined a clear methodologyto link strategy to execution IBM Values IBM’s Leadership Framework Corporate Social Responsibility Environmental Influences © 2009 IBM Corporation
  • 24. Transformational Leadership (continued) Enabling Culture ChangeHow we did it Impact Identified leader behaviors that impact  IBM‟s leaders’ competencies have steadily employees’ experience and performance improved each year (with 360 feedback for development)  IBM‟s leaders, at all levels, demonstrate a Embedded Leadership Competencies in all broader set of effective leadership behaviors leadership development programs  I&VTleaders driving integration and Senior IBM leaders participate in all leadership enabling key transformation efforts programs as role models, mentors  IBM‟s performance continues to improve and coaches year to year Launched I&VT Initiatives sponsored by SVPs and Chairman to solve strategic enterprise challenges Leadership Competencies Deployed Business Leadership Model to Client Partnering Passion for IBM’s Future identify and resolve performance/opportunity gaps Embracing Challenge Strategic Risk Taking Earning Trust Informed Judgment Enabling Performance Thinking Horizontally and Growth Collaborative Influence Developing IBM People and Communities © 2009 IBM Corporation
  • 25. Values-based Culture Enabling Culture Change Why? What we’ve done  Needed to re-establish a set of  Engaged employees globally in Values Jam Values as the core of IBM’s to refresh our Values culture and brand  Conducted World Jam with employees to  Expanding the IBM brand collaborate on solutions for growth, innovation and bringing the Values to life experience beyond products to integrated solutions and people – Implemented 32 top-rated ideas  Evolving the IBM management  Employee Values Survey conducted system to leverage global and annually to measure progress in operating cross unit integration and behaving consistently with our Values  Engaged leaders at all levels on enabling our Values-based culture locally and globally © 2009 IBM Corporation
  • 26. Values-based Culture (continued) Enabling Culture ChangeHow we did it Impact Named a global leader to work with  IBM‟s Values are integral in our performance, leaders and teams worldwide to drive recognition and talent management systems our culture transformation  IBM employees actively participate in Identified actions focused on advancing our Values-based culturevia organizational enablers of culture collaborative technologies change, including: – 1500 communities of practice with 250,000+ – Leadership Behaviors IBMers build organizational capability – People Practices  Majority of IBMers worldwide believe: – Management Systems – IBM management is committed to making the changes necessary to enable us to operate Building leader accountability consistently with the Values for role modeling and enabling Values-based culture – The Values influence how IBMers interact with clients Engaging all employees in the transformation“So if theres no way to optimize IBM through organization or management dictate... youve got tocreatea management system that empowers peopleand provides a basis of decision makingconsistent with who we are at IBM” – Sam Palmisano, Harvard Business Review, December 2004 © 2009 IBM Corporation
  • 27. Collaborative Innovation Enabling Culture ChangeWhy? What we’ve done Become our clients‟ “innovation partner”  Established an innovation agenda – Address client priorities – Build deeper client relationships that spans multiple dimensions: – Product Respondto changing nature – Services of innovation – Business process Organizations need each other – Business model to be successful – Management and culture – Pace of innovation outstrips an – Policy and society organization‟s ability to “go it alone” Changing workforce dynamics  Enabled global collaboration – Globalization – Culture of collaboration – “Millennials” – Innovation ecosystem Venture Capitalists ISVs Business ITAnalysts Partners “We opened up our labs, said to the world, „Here Alumni Investors are our crown jewels, have at them‟. The Jam -- Regulatory Bodies Universities and programs like it – are greatly accelerating Innovation Ecosystem  Technical our ability to innovate in meaningful ways for Clients  Business Community business and society.” Employees Competitors Leaders - Sam Palmisano, IBM CEO Standards Policy- Bodies makers © 2009 IBM Corporation
  • 28. CollaborativeInnovation (continued) Enabling Culture ChangeHow we did it Impact Provide platforms to foster open dialog  IBM Research – Single Portal: On Demand Workplace – #1 on the US patent list for 16 years – Innovation incubator: Technology – Collaboration with clients on real-world Adoption Process challenges and solutions – Information sharing: Cattail  On Demand Workplace – Brainstorming, idea creation: Jams – One of the world’s top 10 intranets – Content creation: BluePedia  JAMs – Dynamic interaction: Sametime – $100M investment to bring 10 ideas to reality Collaborate with everyone – 35 Innovative solutions in 4 areas – Collaboration with client  Global Innovation Outlook – Societal Innovation – Entire ecosystem to create new and – Social network participation unforeseen opportunities © 2009 IBM Corporation
  • 29. 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 © 2009 IBM Corporation
  • 30. 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 © 2009 IBM Corporation
  • 31. IBM Transformation Journey: Lessons learnedKey Lessons Learned Strategy Enabling Productivity  CEO sponsorship is critical  Business transformation and IT should be  Create a “sense of urgency” that the closely aligned organization can rally around  Don‟t automate a mess – fix processes first,  Think, act and optimize globally then apply IT  Implement governance, performance  Sunset legacy systems and tools as new ones goals and reporting discipline are deployed  Take an end-to-end, outside-in view of processes Enabling Growth  Build process skills and methodologies  Focus on high growth customer segments  Need cross-unit leadership and and new markets clear accountability  Leverage business analytics to better align resources with opportunities and inform fact-based decisions Enabling Culture Change  Consider both organic and non-organic  Engage leaders at all levels sources for revenue growth  Address the underlying drivers of behavior  Enhance end-to-end client experience  Engage employees broadly  Make culture tangible  Recognize that changing culture is a journey © 2009 IBM Corporation
  • 32. How to get started? GBS Services – Portfolio SnapshotKey questions for consideration… Clarity of Strategy Enabling Productivity  Who are our target client /customer segments?  Are we leveraging scale, global talent and  What is our value proposition to our resources across our organization? client/customer segments?  Do we have the capabilities to quickly cut low-  How do we differentiate ourselves? value spending and redeploy to activities,  Are we clear on what we do versus where to products, markets that generate partner externally? growth/productivity?  How effective and efficient are our support Enabling Growth functions (e.g., supply chain)?  What percent of our business is coming  Do we have the tools and support to make our from outside our home market? Are we people as effective as possible? well positioned?  Do we have the right data and analytical tools Enabling Culture Change to understand our changing clients/customers  Do we have senior executives engaged and and market? accountable to be change leaders?  Do we understand our clients‟/customers‟ needs?  Are our people aligned with and committed to our How well are we positioned to meet them? strategy/direction?  Do we have a clear M&A strategy and process?  Does our culture support the strategy and Are we well positioned to effectively capture its execution? share and build future capabilities?  Are we effectively collaborating and innovating? © 2009 IBM Corporation
  • 33. IBM‟s GBS portfolio GBS Services – Portfolio Snapshotsupports Transformation Practice Areas Snapshot of our Services  Business Strategy Strategy & Change  Operations Strategy (S&C)  Technology Strategy  Organization Change Strategy  Business Intelligent Services Customer Relationship  CRM Strategy Management (CRM)  CRM Outsourcing  Contact Center Optimization  SCM strategy and planning Supply Chain Management  Complex Supply Chain Optimization (SCM)  IT services for SCM  Supply Chain Enterprise Applications  Finance Transformation Financial Management  Business Performance Management (FM)  Business Risk Management  Finance Enterprise Applications  HR Strategy & Transformation Human Capital Management  Learning Solutions (HCM)  Knowledge & Collaboration  Workforce Transformation © 2009 IBM Corporation
  • 34. IBM Strategy and Change - What we offer GBS Services – Portfolio Snapshot IT Strategy & Planning  Merger & Service Oriented & Acquisition support Enterprise Architecture  Growth & Innovation Technology Strategy IT Performance Interact between Business Strategy  Business Model Management business and technology Create and realize Innovation and GIE business value  Green & CSR Strategy Better Change Operations  Strategic Organization Organization Design Change Strategy Strategy Profit Improvement Improve efficiency  Target Operating Model Collaboration & Make change work and productivity Partnering (including  Lean Six Sigma Jam & Mini-Jam)  Green Sigma™ ERP Transformation  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 Key benefits 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 © 2009 IBM Corporation
  • 35. Six Major Elements to Successfully GBS Services – Portfolio SnapshotManage Change Program Strategy and Management Organization Design  Create strategy for managing and measuring  Clarify work responsibilities and redefine the change to ensure the alignment of the jobs as well as their relationships to one another organization towards transformation objectives (structure), governance mechanisms, and other and contributing initiatives organizational elements to drive new behaviors  Help to manage all dependencies,  Realign key performance measures (e.g., job organizational risks and conflicting interests measures, rewards and incentives) to meet the across initiatives requirements of the future state operating model  Understand the readiness and ability of the organization to absorb / adopt the change from the top down and bottom up Skills and Knowledge  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 © 2009 IBM Corporation
  • 36. Six Major Elements to Successfully GBS Services – Portfolio SnapshotManage Change (continued) Program Leadership and Governance Stakeholder Engagement and Communications Create approach and tools to build and  Identify, classify, align, engage, and effectively sustain support among executive leaders communicate to impacted and / or influential and stakeholders stakeholders to prepare them for the Provide guidance and establish organizational changes governance mechanisms  Obtain buy-in and ownership of the changes Create a compelling and comprehensive vision to be implemented from leaders as well as employees for the change with collective accountability  Establish awareness, set expectations, and create Help prepare and align leaders for the change buy-in, or commitment, to the change and inform them of their role in the transformation‟s success Culture Transformation  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 © 2009 IBM Corporation
  • 37. IBM at a Glance: Y/E 2008 IBM at a Glance Revenue $103.6B Pre-Tax Profit $16.7B Global Presence 170 Countries Employees 398,455 Business Segments Services, Software, Hardware, Research and Financing Business Model 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 © 2009 IBM Corporation
  • 38. IBM‟s Transformation: An Ongoing Journey IBM’s History of Transformation  Keeping company together & stabilizing business “I think the greatest challenge  Bringing massive decentralization under facing the company is … to adapt Focus Areas control (e.g., 128 CIOs to 1; 70 ad agencies to 1) our strategy, structure and culture to a world of constant change.  From country to global brand P&L statements I can’t promise this journey will be easy or fast… the steps we will  Move to integrated solutions take will not be pussyfooting but  Dramatic growth in services bold strides.” -- Lou Gerstner, 19931993 1995 1997 1999 2001 2003 2005 2007 2009 Phase One Gerstner era (’93 thru 2002) © 2009 IBM Corporation
  • 39. IBM‟s Transformation: An Ongoing IBM’s History of TransformationJourney (continued)  Shift to high-value solutions  Move to Values-based culture “Thecrisis in our financial marketshas jolted us  Lowering center of gravity for Focus Areas awake to therealities and dangers of highly decision-making complex global systems. But in truth, the first  Becoming premier globally decade ofthe 21st century has been a series of integrated enterprise wake-up callswith a single subject:the reality  Maintain focus and execute of global integration.”- Sam Palmisano, Nov. 6, 2008 in a radically shifting market  A Smarter Planet1993 1995 1997 1999 2001 2003 2005 2007 2009 Phase Two Palmisano era (‘03 thru present) © 2009 IBM Corporation
  • 40. IBM Leadership Governance Model IBM’s Leadership Governance IBM Organization At a Glance IBM Leadership GovernanceGeographies Business Units Sectors Sales & Operating Team Public Distribution (S&D) North America Day-to-day marketplace execution Global Technology Communications Services (GTS) Northeast Europe Strategy Team Software IBM’s strategic direction and emerging Group (SWG) Financial Services business opportunities Southwest Europe Systems & Technology Distribution Technology Team Group (STG) Japan Near- and long-term emerging technologies, Global Business technical developments and issues Industrial Services (GBS) Growth Markets Performance Team Integrated Supply General Business Chain (ISC) Accountable for business performance & results. Develop cross-unit strategies. Globally Integrated Support Functions Integration and Values Team (I&VT) HR Marketing/ Sales Comms IT Finance Legal Strategy Operations Integrate IBM’s enterprise-wide capabilities, and align and communicate strategies and values © 2009 IBM Corporation
  • 41. BT/IT Governance Model Globally Integrated Enterprise SVP Forum Strategy Strategy Value realization Funding approval Value realization Enterprise Process CIO Operating Team OwnerTeam Process transformation priorities Transformation Run Transformation Executive IPMT Globally Enterprise Transformation Transformation Executive IPMT Management Integrated Executive IPMT Executive IPMT Team Process Owner Support (EPO) ProcessesInterlock on business unit and Geo requirements Unique Business Unit Funding allocation and priorities & Geo requirements Program governance Enterprise architecture STG SWG GBS GTS BT/IT Transformation Programs GMU Japan NA NE SW © 2009 IBM Corporation
  • 42. Enterprise Risk Management ERM Why? What we’ve done  Contribute to consistent growth and  Inform strategic decisions with economic return by improving the explicit consideration of risk company‟s ability to take calculated  Anticipate issues and problems in & fully-informed risks executing growth plans and prepare  Key indicator of good corporate for them governance and as important  Analyze variations in ongoing components of controls and operations and take action to compliance programs 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 isnt adequate.”- Mike Daniels, SVP GTS © 2009 IBM Corporation
  • 43. Enterprise Risk Management (continued) ERM How we did it Impact  Benchmarked best practices  Prioritized enterprise level risk map – 25 Risk Action plans in place  Established Governance Model  Risk assessments in Brazil, Russia, & Enterprise Steering Committee India, China, and Argentina established common frameworks  Engaged senior executive team and improved risk outcomes: in identification of enterprise risks – Integrity in the Hiring Process: 13K new hires, 128 approved vendors through revised process  Developed a structured risk – Resource Optimization across 43K assessment methodology service employees – Health & Safety: 51 sites upgraded  Integrated risk into the strategic  Enterprise IT Risk assessment with & operational planning process focus on company-wide actions in: – Data Security & Privacy  Risk owners performed assessments, 99.7% compliance implemented actions, and defined metrics for ongoing monitoring © 2009 IBM Corporation
  • 44. Corporate Social Responsibility CSR Why? What we’ve done  Need for CSR strategy to align with  Moved from scattered grants with global business goals limited ROI to strategic focus on education – Gerstner era  75% of executives needed to better  Defined corporate citizenship as the understand their stakeholders‟ intersection between business CSR expectations and society  Identified critical issues that  Despite growth in developing intersect with IBM capabilities economies, 2.8 billion people live on  Pursued global approach to less than $2 a day corporate citizenship  Empowered IBMers to be  Desire to create real solutions (not global citizens just make donations) – and deliver innovation that matters the world “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 © 2009 IBM Corporation
  • 45. Corporate Social Responsibility (continued) CSR How we’ve done it Impact  Empowering IBMers to acquire new  Corporate Services Corps skills, transition to new careers and – sending 1,500 employees over next three make a difference in the world years to work on economic development projects in emerging markets  Created the Global  Transition 2 Teaching Citizen’s Portfolio: – bringing seasoned IBMers into second careers in classroom – Corporate Service Corps – 100+ new math & science teachers – Personal Learning Accounts – Transition2  World Community Grid – harnessing power from 1M+ devices to aid research on AIDS, cancer, dengue fever,  Applied own technology & talent muscular dystrophy & hunger to tackle societal problems  Meedan – On Demand Community – using social computing & IBM translation tools – World Community Grid to advance dialogue between Western and – AccessibilityWorks Arab worlds – KidSmart © 2009 IBM Corporation
  • 46. Integrated Supply Chain ISC Why? What we’ve done  The ISC is accountable for $40 billion,  Established online links to suppliers, partners or roughly 50 percent, of IBM’s total and clients, cutting processing time for average cost and expense PO from a month to less than a day  ISC was a fragmented cost center  95% of business partner orders now “touchless” and not mission critical  In 2002, formed the Integrated Supply Chain  Distributed and hard-wired to as a single business unit business units  Manage entire ISC – from procurement and  Pockets of integration in functional logistics to strategy and planning -- on a global basis (moved procurement HQ from Westchester silos but no enterprise-wide to Shenzhen, China) common processes  Consolidated transaction processing in global delivery centers in Malaysia, Bratislava, Spain Procurement Fulfillment Logistics Manufacturing and Brazil Supply Chain “IBM has been on the forefront of globalizing the supply chain...I think the interesting thing is the strategic Automate Optimize implications. For IBM it sayswe are shifting, yet Integrated Globally Integrate again,from being a traditional manufacturing business, Process Technology Global Capabilities to a solutions business.” - Kevin O‟Marah, AMR Research © 2009 IBM Corporation
  • 47. Integrated Supply Chain (continued) ISC How we’ve done it Impact  Tied ISC together with shared  Driving EPS growth for 23 measurements to support straight quarters end-to-end operation  Focused on client satisfaction along  Averaging $3-5B in savings every year with operational results for the last five years  Leveraged global scale – nearly 20K employees at 100 locations in 62  A 5-point improvement in margins countries, speak 80 languages, 31K since 2003 suppliers connected online  In 2005, introduced world‟s first supply-  Improving sales force productivity; now chain business transformation spending 38% more time with clients outsourcing capability  Applied supply chain principles  Turning orders 32% faster and improving to services business client satisfaction © 2009 IBM Corporation
  • 48. Human Resources Shared Services Why? What we’ve done  Need to deliver more HR support for  Centralized the HR function and less and evolve the function from manage globally as a shared service administrative to strategic role  Outsourced benefits enrollment and  Better support the requirements of pension administration a diverse and mobile workforce  Rolled out self-service online tools  Empower employees to continuously for HR applications and learning upgrade their skills  Aligned HR resources to focus on  Recruit and on-board 30,000 new growth markets employees a year globally “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 © 2009 IBM Corporation
  • 49. Human Resources (continued) Shared ServicesHow we’ve done it Impact Aligned Talent, Learning and Diversity  Reduced ratio of HR to employees from as one integrated function 1:122 to 1:169 from 2001 to 2007 Established HR Integrated Services  Increased focus on strategic work from Team with specialized skills 15% to 30% and practices – Increased focus on HR programs and policies from Transformation to a new HR partner 25% to 60% model; partners aligned to businesses – Reduced HR administrative work from 60% to 10% in areas or regions  Delivered 50% more learning hours while – Including growth markets focus reducing education budget by almost $300M Established global standards for HR from 2001 to 2007 – almost 70% of learning is currently online technologies and performance management across business units  Hired more than 100,000 new employees in growth markets in past five years Suppliers Suppliers Manufacturing Manufacturing Relationship Relationship Clients End-to-end focus on the talent value Development Development Delivery chain to innovate Clients for clients Bus. Partners Bus. Partners Support Support Delivery © 2009 IBM Corporation
  • 50. Finance Transformation Finance Why? What we’ve done  IBM Finance was highly  Drove 3-prong approach to finance decentralized – a maze of systems transformation: process, data, IT  14K finance employees was 2  Standardized processes & controls times competition  Created common ledger, common  High percent of time spent on data definitions, common administrative tasks worldwide planning system  Lack of integration and unique  Created global centers measurement systems led to of excellence inconsistent data  Focused on supplying headlights  Finance function viewed as low to the business value add What does it mean to be Revenue and Stock Price Growth of IFOs out an Integrated Finance Organization (IFO)? perform peers in growth markets IFOs achieve increased effectiveness through greater Revenue Growth 5 Yr 24% CAGR 14% integration of information Stock Price 5 Yr CAGR - 10% Globally Standard Industry 6% Standard Standard mandated Data CoA Processes standards Definitions Non-Integrated Finance Organizations Integrated Finance Organizations © 2009 IBM Corporation
  • 51. Finance Transformation (continued) Finance How we did it Impact Evolution of our Finance processes …  Optimized global capability  Focused on the basics (‟94 – ‟98) – Increased use of global support – Standard / Common Process from 12% in‟05 to 40% in ‟08 – Automation  Shift to higher value work – Functional Best Practices – Increased decision support work – Financial Reporting from 30% in ‟94 to 70% in ‟07  Integrated the Enterprise (‟98 – ‟02)  Lowered expenses – Shared Services – Lowered expense to revenue share – Web Enablement from 3% in ‟94 to 1% in „ 07 – Core Competency – Decision Support  Moved to globalization (‟02 – present) Change – Process Outsourcing /Global COEs 1994 1996 2005 vs. 1994 – Technology Exploitation Financial data centers 67 15 6 -91% – Rationalized ERP Key applications 145 95 44 -70% – Information On Demand 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 © 2009 IBM Corporation
  • 52. 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. © 2009 IBM Corporation
  • 53. Support for your vision IBM Global Financing We are well positioned We can help accelerate delivers the IT financial to assist you with not only the implementation of expertise and capabilities financing but also IT life- innovative solutions or you need today to cycle management projects such as cloud support your vision for challenges computing or business tomorrow analytics53 © 2009 IBM Corporation