How IBM Innovates

How IBM Innovates IBM has in a relatively short period re-innovated ourselves Business Model, Operating Model and Workforce Transformation Remixed our portfolio toward services, Shift in geographic mix… software, and integrated solutions…  2008 revenue: – 21% Asia Pacific – 37% Europe, Middle East, Africa  Exited commoditized businesses: – 42% Americas – PCs – Hard disk drives – Printing Systems  71% of employees outside US – 84K in India, 60K increase in 5 years  Strengthened position in: – 16K in China, 10K increase in 5 years – Business Consulting – Service-Oriented Architecture – Information on demand – Virtualization – Open, modular systems  Record Performance in 2008… – $103.6B revenue, up 5%  Acquired over 60 companies in last 5 years – $16.7B pre-tax earnings, up 15% – to complement and scale our portfolio of products and 20 $ 10 $ Pre Tax Income & Free Cash Flow ($B) offerings Revenue ($B) 15 $ Pre-tax income EPS EPS Free Cash Flow 6$ 16% 21% 9$ 2003 49% 2008 Segment 57% Segment Revenue Revenue Software 4$ 2$ Mix 21% Mix Services 2000 2001 2002 2003 2004 2005 2006 2007 2008 35% – $8.93 Earnings Per Share, up 24% Hardware & Financing – Strong performance in services, software and growth markets © 2010 IBM Corporation

Enabling cultureHow IBM Innovates changeCollaborative Innovation Why? What we’ve done  Become our clients’ “innovation partner”  Established an innovation agenda – Address client priorities that spans multiple dimensions: – Build deeper client relationships – Product  Respond to changing nature of innovation – Services  Organizations need each other to be – Business process successful – Business model – Pace of innovation outstrips an – Management and culture organization’s ability to “go it alone” – Policy and society  Changing workforce dynamics – Globalization  Enabled global collaboration – “Millennials” – Culture of collaboration – Innovation ecosystem Venture Capitalists ISVs Business IT Analysts Partners “We opened up our labs, said to the world, ‘Here Investors Alumni are our crown jewels, have at them’. The Jam -- Regulatory Bodies Universities Innovation Ecosystem  Technical and programs like it – are greatly accelerating Clients  Business our ability to innovate in meaningful ways for Community business and society.” - Sam Palmisano, Employees Leaders Standards Competitors IBM CEO Policy- Bodies makers © 2010 IBM Corporation

How IBM Innovates Innovation is about people – Getting ideas on the table – and implementing the best Paint a picture for your people that provides strategic context, both giving direction and setting boundaries for innovation. Stamp out fear by creating a culture Value and leverage the ideas residing that embraces risk and eliminates the within the diverse cadre of your stigma associated with failure. employees. “Connect the dots” within your Collaborate with external 0rganizations, organization by understanding and including partners and suppliers, and leveraging the informal networks that with customers to complement existing can improve innovation effectiveness. competitive advantages, speed up time to market, or spark new insights. Make ideas visible using a variety of Provide incentives and recognize your practices designed to elevate ideas people’s innovativeness through from all corners of the organization. programs that carefully complement both the passions that drive employees and a well-crafted organizational vision. © 2010 IBM Corporation

IBM StrategyHow IBM Innovates IBM Strategy and Values … 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 innovation to clients INTERCONNECTED. Smart energy grids Smart supply chains Become the premier Globally Integrated Enterprise All things are becoming INTELLIGENT. Smart Smart healthcare retail © 2010 IBM Corporation

Smart energy Smart traffic Smart oil fieldsHow IBM InnovatesSmarter water Smart food supplymanagement We Innovate because We mustSmart disease Smart architecture Smart healthcareprevention 9 © 2010 IBM Corporation 17

How IBM InnovatesIBM’s innovation portfolio reflects the tremendous creativity andcontributions of many organizations – both within and outsideIBM Generally Available  IBM Industry Solutions  IBM Business Partner Solutions  Product & Service Offerings  VC Backed Firms (Late Stage) Maturity of Tech- nology/Solution  Emerging Business Opportunies  IBM Research Services  IBM Institute for Business Value – studies and PoVs  Joint Innovation Teams VC Backed Firms (Early Stage)  First Of A Kind  IBM Research Projects  Academy of Technology  Early Stage Incubation Projects  University Programs  Seed-stage “Bleeding  Extreme Blue Startups Edge”  Ideas IBM-led Involvement of External-led Innovation External Partners Innovation Innovation Management 11 © 2010 IBM Corporation

How IBM InnovatesAt IBM, ideas are generated from multiple sources within andoutside … Ideation Sources Market Institute for Intelligence Business Value Business Unit ThinkPlace Strategies Global Technology Emerging Business Idea Outlook Opportunity Program First-of-a-Kind New Technologies Program Venture program On Demand University Transformation Strategy Programs Global Innovation Outlook © 2010 IBM Corporation

How IBM InnovatesOverview of main innovation programs at IBMChallenge / Idea Generation Incubation Validation Value realizedOpportunity IBM’s key innovation programsResearch, Technology Innovation Jam BizTech IBM InternalCorporate Adoption ProgramIBM Lines of Extreme Blue ThinkPlace Alpha Works IBM OfferingsBusinessGTO / GIO / Communities Emerging Partners of Practice Business First of a KindIBV OpportunitiesClient (and IBM) ClientsChallengesClient Joint Innovation Partnerships ClientsChallenges13 © 2010 IBM Corporation

How IBM InnovatesIBM’s research and developmentIBM is 17. year in a row leading the way in IT- reasearch by having: – a yearly R&D-budget of six billion dollars – over 3.000 researchers, scientists and engineers – five Nobel prize winners – eight research laboratories in six countries – 24 development laboratories worldwideIBM has the most IT-patents in the world: – In 2009 IBM beat its own record with 4914 patents and can call itself world champion in ”most granted patents.” – Over 40.000 active patents globallyIBM’s number of non-IT-related patents is growing: – Patents regarding organisational- development, solutions and business processes 14 © 2010 IBM Corporation

IBM ResearchIBM Research ~3,000 employees China Zurich Tokyo Almaden Watson Haifa Austin India IBM Research Lab15

IBM ResearchIBM Research: Collaborative Innovation China Pangoo Zurich Tokyo Almaden Watson Haifa Austin India IBM Research Lab Global, Smarter Planet Collaborations16

How IBM InnovatesCollaborative Innovation - connecting the dots in IBMHow we did it Impact Provide platforms to foster open dialog  IBM Research – Single Portal: On Demand Workplace – #1 on the US patent list for 17 years – Innovation incubator: Technology – Collaboration with clients on real-world Adoption Process challenges and solutions – Information sharing: Lotus Connections  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 © 2010 IBM Corporation

How IBM InnovatesThe IBM Institute for Business Value creates fact based industry and businesslevel thought leadership and tools that help IBM and clients realize business value Our Objectives Our Focus Our Research Types Our Deliverables  Content: Create  Distribution  Future Agendas  Executive Briefs extraordinary, fact based business insights  Financial Services  3 to 10 year industry  Quick Read (Executive  Market Impact: Differentiate  Industrial and/or functional area Summary) IBM in the marketplace  Public outlook with action  Event and Conference  Value Creation: Value-based oriented next steps Presentations approach to identify and  Strategy & Change deliver client results  Innovation  Value Realization Studies  Blue Paper (What and  People Growth: Attract,  CRM  In-depth assessment of How to Sell) retain and motivate top GBS today’s critical issues, talent  Human Capital  Knowledge e-cards opportunities, and value  Pod/Webcasts  Supply Chain potential  Financial Management  Books  CXO Surveys  By-lines and articles  Application Innovation  Chief officer studies  Emerging Markets 20 © 2010 IBM Corporation

How IBM InnovatesOur philosophy of innovation is: Fail many, but fail cheap- A new paradigme in innovation enabled by Web 2.0: Yesterday – as was 1 Today – As is  Ideation and Product Inception from the Ideas source: expanding source for Ideas source: Internal innovation Internal, partners and customers idea idea idea idea idea  Use Collaborative idea ideaidea ideaidea idea idea tools to solicit idea idea idea idea interactive feedback. Weeks to months idea 18 months to 2 years  Limited community to foster new innovation Service Service Service  Little user interaction and market feedback  “Build it and Service  Service silos  Limited reuse they will 3 2  Use of exposed come”  Larger variety of approach compelling offerings common capabilities to offer customers to enable rapid service assembly Breadth © 2010 IBM Corporation

How IBM Innovates What are How do How IBM How customers Jams? Jams work? has used Jams are using Jams An introduction • A massive online discussion using the Internet. • A time-limited event that can elicit participation from thousands of individuals anywhere in the world. • Subject-matter experts and moderators guide participants to build on each other’s ideas. © 2010 IBM Corporation

How IBM Innovates Examples“Ideas” Jam IBM WorldJam 2004: Develop pragmatic ideas Actionable ideas about a particular topic / and solutions to drive company’s growth and challenge the business (enterprise) faces innovation strategy Quantifiable inputs from jammers Global Customer Electronics Manufacturer: collaborating to bring the ideas to life Develop ideas to realise the company’s new strategy with it’s new values as the framework Establishing company (enterprise)-specific Nato Security Jam: AFGHANISTAN , CRISIS MANAGEMENT , best practices and an action plan CLIMATE CHANGE, DEVELOPMENT , HUMAN RIGHTS, COMPREHENSIVE APPROACH CAPABILITIES & TRAINING, RELATIONS WITH RUSSIA & CHINA, PIRACYPossible questions Example of topics/questionsGetting closer to our customers: How can weget better at delivering what our customersexpect — and more?Understanding ourselves: What do ourstrategies and values imply for each one of us?Driving growth: How can we see and seize newgrowth opportunities?Creating a better company: What will it take tomake our company the envy of our industry? © 2010 IBM Corporation

How IBM Innovates Executive Report – 2008 Innovation 16 Jam Participation with Breadth and Depth – During the 90-hour period of the Jam, Jammers: • Represented people in 80 countries from over 1,000 companies across 20 industries • Generated nearly 90K logins • Created over 32,000 posts • Read roughly 1.5 million pages, averaging 76 pages per Jammer. © 2010 IBM Corporation

How IBM InnovatesObjectives of Thinkplace  Demonstrate that every employee can be an innovator  Provide a single, consistent global management system for innovation  Create a culture in which collaboration and interaction across silos is possible  Educate employees on approach to innovation  Reward innovators and innovative ideas in tangible, visible ways © 2010 IBM Corporation

How IBM InnovatesThinkPlace The main employee innovation program Focus on collaboration No review board for ideas Innovation Catalysts Stimulating the community Executive innovation challenges Rewarding28 © 2010 IBM Corporation

How IBM Innovates ThinkPlace: BizTech prototypes deliver proof points  Top talent from across the company gain opportunity to work on innovative projects one “[ThinkPlace Prototyping] day per week for 6-8 months provides a stage for people who have an innovative idea  Senior business and technical leaders serve and want that idea to be as project mentors transformed into valuable  Projects sponsored by business unit managers business for IBM.” - Participant and executives  Staffing and project support provided by ThinkPlace corporate innovation team  Measurable results presented at Showcase event twice annually © 2010 IBM Corporation

How IBM InnovatesThe rise of the enterprise mashups “Good enough” Free enterprise data and build data feeds (consumables) Mashup editors IT supporting the business for them to solve their business problems Agility, cost savings and an ecosystem for new innovations32 © 2010 IBM Corporation

How IBM InnovatesFirst of a Kind Program (FOAK):IBM jointly invests with clients on cutting edge innovations A Collaboration among Research, Sales & BPI for Core Insurance Distribution, Clients and Partners • 50%-60% reduction in work effort Experimental technology-based solutions • 55%-65% reduction in engagements project duration Testing tomorrow’s innovations on real business problems and new growth opportunities Yielding prototype solutions across a range of industries Smart Surveillance for Clarifies client requirements and tests market Intelligent Oil Fields readiness • Breakthrough in discovery of anomalous patterns Established in 1995 • Accurately demonstrated sand  20 – 25 projects funded each year production prediction 23 days in  70% successfully transfer assets for reuse advance during trial  75% drive or influence additional business Some Danish / Nordic FOAK projects:  Intelligent Oil Fields for Statoil, Aker a.o Customer Lifetime Equity • Reduced marketing costs by  ASME – medical information hub – with Aarhus University 20% • Improved response rates by Intelligent Trade Lane – Maersk 10% • Improved customer sat by 10% © 2010 IBM Corporation

How IBM InnovatesExtreme Blue Summer intern project for IBM. The brightest and best students globally Extreme Blue teams in client projects Mix of business and technolgy students per team Mentored by IBMers - business and technology37 © 2010 IBM Corporation

How IBM Innovates Innovation Discovery Client movement through the program Extreme Blue for ClientsClients who need an Innovationintroduction to Discovery FOAKInnovation at IBM Explore Curriculum New IBM Offerings Strategic Value Creation & MajorClients that are ready to Innovation transformationfocus on specific Innovationproblems and look for Discovery Discovery 360/Collaborative Innov partnershipsinnovative opportunities Focus Define Customize Incubate Software Business Dev • Academy Studies for Clients • Virtual Collaboratories Channels for Development • Project Definition of Cross-Brand Solutions Workshops • + others Existing IBM Offerings © 2010 IBM Corporation

How IBM Innovates IBM develops the future of shopping with one of the world’s largest retailers Comfort Smart Shopping Check-out Infrastructure WLAN Server Content Bus RFID Inventory In-store Information Management 40 © 2010 IBM Corporation

How IBM InnovatesAlphaWorks- Speeding IBM Emerging Technologies to the outside early-adoptercommunity  Promising software programs in research not yet commercialized.  Outside companies and developers contribute valuable ideas about bringing them to market.  First-cut versions of research technology available for free trial attracting thousands of early adopters, innovators, and entrepreneurs to site.  40% of technologies on the site graduate into IBM products or industry standards. © 2010 IBM Corporation

How IBM Innovates alphaworks is connected Internal to IBM External to IBM Open source licence Open Not all nodes are IBM Research Sources represented, e.g. Lab Tours User Developers are not in feedback the diagram Technology Legal&Naming Prototype IBM Open/source Software alphaworks End-user AWS infos evaluation Technology Prototype AWS Software IBM Dev Labs End-user Market/ Alphaworks Alphaworks Software Community Internal alphaBrief feedback? to IBM DevelopersWorks support IBM PromotionExternal IBM Software Product to IBM Brand developerWorks SWG Information Academic Initiative GR Efforts PR Efforts Coordination Conferences Tangible transfer Intangible transfer © 2010 IBM Corporation

How IBM Innovates alphaworks and the enterprise… Did you know? 92% of the Fortune 100 downloaded technologies from alphaworks in ’06. 15,000 Companies downloaded techs 250,000+ Total number of technologies downloaded © 2010 IBM Corporation

How IBM InnovatesLinks: IBM Innovation: http://www.ibm.com/innovation IBM Research: http://www.research.ibm.com/ Institute for Business Value: http://www-935.ibm.com/services/us/gbs/ bus/html/bcs_whatwethink.html IBM Global Innovation Outlook: http://domino.research.ibm.com/comm/ www_innovate.nsf/pages/world.gio.html# IBM Jams: https://www.collaborationjam.com/ Alphaworks: http://www.alphaworks.ibm.com/ © 2010 IBM Corporation

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How IBM Innovates

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