Impacting the bottom-line A discussion around a transformation framework leveraging the value of IBM Services

Payers and Providers are focused on managing cost and operational efficiency while being responsive to an demanding/competitive consumer marketplace Business Imperatives Transformational Business Processing Aligning IT with Business Modernizing Core Systems & Processes Infrastructure Consolidation/ Virtualization Resiliency Medical Costs Healthcare Competitive Levers Disease Health & Wellness Management Consumerism Pay for Performance Mergers & Acquisitions Reduce Admin Costs & Improve Efficiency Grow the Business Provider Collaboration

Transformational Business Processing

Aligning IT with Business

Modernizing Core Systems & Processes

Infrastructure Consolidation/ Virtualization

Resiliency

CEO Business Model Question: How will I compete in the marketplace? What are my differentiating capabilities? What processes should I own? Source: IBM Institute for Business Value based on McKinsey analysis Source: The Global CEO Survey 2006 (Sample size = 765) Sourcing frees up resources and lower cost of non-differentiated activities Sourcing enables innovation & transformation to enhance differentiation 10% 20% 30% 40% 50% 0% Underperformers Outperformers Quantity of New Ideas from External Sources % of respondents Outperformers source 30% more ideas from external sources 0% Spending as percentage of sales 23 – 27% Product or service building blocks 32 – 47% Critical yet non - differentiated business processes and components Differentiated business processes and components 13 – 28% EBITDA 5 – 10% Prototypical company Sourcing funds innovative changes Sourcing: Leveraging Partners in Strategic Ways to Drive Higher Priorities, Gain Access to Skills, and Free Up Monies to Invest in Growth

A high-level framework for identifying opportunities for cost savings and operational improvements using outcomes based sourcing Sub-optimal Industry Standard Commodity Differentiator Strategic Criticality Measures a process or component’s level of importance in terms of adding value to a firms competitiveness. Optimized Develop/ Keep In House Sourcing Candidate Transformation Partnering Candidates Investment Candidates Critical yet non-differentiating (commodity) Unique and Differentiating (proprietary) Optimal Sub-Optimal Business Component Performance Measures how well a component functions vs. other competitors

IBM is a Services Led Company: IBM delivers the “full equation” by aligning business needs with enabling technologies Multi-Vendor Technology Profile Global Infrastructure Statistics Services is a significant contributor of value to our clients, and is a key growth area for IBM Services Revenue is Significant to IBM Upgrades, user support Network operations center help desk Application development, migration, maintenance Applications System support Telecom operations Hardware operations Desktop support Infrastructure Support processes Operational processes Management processes Business transformation Infrastructure management Data center e-business hosting Network management Desktop management Business transformation services Claims processing Human resources Finance and administration Procurement Customer relationship management Application services Package Custom Web-based Development Maintenance Business solutions Application innovation Business intelligence Customer relationship management Financial management Industry-specific solutions Secure identity solutions Human capital management Supply chain management Server Migration Services Storage Migration Services Proof-of-Concept Centers IBM Innovation Centers Middleware Development SOA Technology enablers IBM Global Services contribution to IBM total revenue IGS 55% 423 Data Centers 3,808,000 End User Seats Supported 11,205 Storage (TBs) 206,641 Mid Range Servers 84,628 Skills 1,110,289 MIPS 1,286 Mainframes

Infrastructure management

Data center

e-business hosting

Network management

Desktop management

Business transformation services

Claims processing

Human resources

Finance and administration

Procurement

Customer relationship management

Application services

Package

Custom

Web-based

Development

Maintenance

Business solutions

Application innovation

Business intelligence

Customer relationship management

Financial management

Industry-specific solutions

Secure identity solutions

Human capital management

Supply chain management

IBM's global sourcing footprint is unmatched Mexico Costa Rica Peru Venezuela Canada United States Legend Application Services Business Process Outsourcing Remote Infrastructure Management Argentina Brazil Romania Okinawa India China Czech Rep. Hungary Australia Philippines New Zealand Spain UK Poland Slovakia France South Africa Ireland Portugal Vietnam Work flows to the places where it will be done best – that is, most efficiently and with the highest quality. It’s like water finding its own level. The forces driving it are irresistible. The genie's out of the bottle, and there's no stopping it. It's only going to evolve from this point forward. -- Sam Palmisano, Oct 3, 2006, ISEAD Global Leaders Series

Legend

Application Services

Business Process Outsourcing

Remote Infrastructure Management

Examples of Outcome Based IT Outsourcing Engagements & Business Value Data Center Outsourcing 15-Year IBM outsourcing client, contract extension recently signed Expected savings of 33% over life of extension Focus on new business opportunities Improved market visibility and competitiveness Increased systems availability Minimized maintenance of existing processes eBusiness Hosting Speed to market: 6 weeks vs/ 6 months Dynamically manage costs to growth as business expands Quickly meet HIPPA/CMS security requirements Quick access to skills not readily available Access to leading technical capability: IBM Partnership Top 15 BCBS Payer Top 10 BCBS Payer BCBS Claims Processor Data Center Outsourcing/End User Services Enabled more responsive capability development Improved customer service Improved service levels Consistent system availability Improved system response time Heightened operational efficiencies Delivered expected customer savings Comprehensive IT Outsourcing Agreement Saving $100M over 5 year term Significantly improved PMPM costs Labor, Hardware and Cost Avoidance Flexible, responsive and resilient infrastructure that increases business effectiveness and improves customer satisfaction while decreasing risk Data Center Move to Hardened Facility Improved visibility and competitiveness in the marketplace Met efficiency expectations of financial markets Top 10 For Profit Payer

Data Center Outsourcing

15-Year IBM outsourcing client, contract extension recently signed

Expected savings of 33% over life of extension

Focus on new business opportunities

Improved market visibility and competitiveness

Increased systems availability

Minimized maintenance of existing processes

eBusiness Hosting

Speed to market: 6 weeks vs/ 6 months

Dynamically manage costs to growth as business expands

Quickly meet HIPPA/CMS security requirements

Quick access to skills not readily available

Access to leading technical capability: IBM Partnership

Data Center Outsourcing/End User Services

Enabled more responsive capability development

Improved customer service

Improved service levels

Consistent system availability

Improved system response time

Heightened operational efficiencies

Delivered expected customer savings

Comprehensive IT Outsourcing Agreement

Saving $100M over 5 year term

Significantly improved PMPM costs

Labor, Hardware and Cost Avoidance

Flexible, responsive and resilient infrastructure that increases business effectiveness and improves customer satisfaction while decreasing risk

Data Center Move to Hardened Facility

Improved visibility and competitiveness in the marketplace

Met efficiency expectations of financial markets

Examples of Outcome Based Busines Process Outsourcing Engagements & Business Value Claims Pend Processing: $80M of annualized savings through: Accuracy Improvement Labor Savings $3M savings in productivity improvement of 15%/3 Years Processing Accuracy 99.75%+, TAT reduction by 48% Out-performed onsite contact over 14% Increased Productivity 80% from 140 to 240 Claims/day Enrollment Processing: $1M of annualized savings $300K savings in 12-15% productivity gains/3 years Improvement in Accuracy TAT reduction by 50% and errors by 35%. Robust, real-time and flexible reporting Sales team focuses on core responsibility. Stable workflow environment supports high compliance Claims Finalization-Other Payment Liability Processing: Over $4M of estimated annualized savings through: Accuracy Improvement Process improvement Labor Savings Lowering cost while improving service levels. Reinvesting savings for customer facing growth activities Payer Top 5 Payer Top BCBS Payer Top 5 BCBS Payer Hardcopy Claims Processing Business Value: Savings estimated $4M+ Consistently exceeding 99% data quality Processing 6,341,000+ hardcopy claims/year Implementation of Six Sigma quality efforts Optimized existing processes Introduction of technology improving accuracy

Claims Pend Processing:

$80M of annualized savings through:

Accuracy Improvement

Labor Savings

$3M savings in productivity improvement of 15%/3 Years

Processing Accuracy 99.75%+, TAT reduction by 48%

Out-performed onsite contact over 14%

Increased Productivity 80% from 140 to 240 Claims/day

Enrollment Processing:

$1M of annualized savings

$300K savings in 12-15% productivity gains/3 years Improvement in Accuracy

TAT reduction by 50% and errors by 35%.

Robust, real-time and flexible reporting

Sales team focuses on core responsibility.

Stable workflow environment supports high compliance

Claims Finalization-Other Payment Liability Processing:

Over $4M of estimated annualized savings through:

Accuracy Improvement

Process improvement

Labor Savings

Lowering cost while improving service levels.

Reinvesting savings for customer facing growth activities

Hardcopy Claims Processing Business Value:

Savings estimated $4M+

Consistently exceeding 99% data quality

Processing 6,341,000+ hardcopy claims/year

Implementation of Six Sigma quality efforts

Optimized existing processes

Introduction of technology improving accuracy

Examples of Outcome Based Application Management Services Engagements & Business Value Core Systems Modernization Projected savings over 5 years up to $61M. Flexible, responsive infrastructure to increase business effectiveness improve customer satisfaction. Faster response to market changes and customers. Major savings payback in health management costs. Ability to release and support new products in less time. Application Management Services New contract saves $20M/year, provides usage based pricing 5X improvement in product launches in 5 years Increase in application availability to 99.8% Reduction in reported problems by 80% Access to broad skill base within IBM Leverage synergies of AMS staff & IBM Experts to deploy new technologies Core Systems Modernization: Legacy Systems Maintenance Cost of IT support and maintenance reduced by 30-40%. 4 improvement projects implemented each month; 30% for users, 45% for IT labor reduction, 25% for system efficiency. IT labor reduction projects: permanent reduction of 300 labor hours/month achieved in each of 2 years. Top 10 BCBS Payer Top BCBS Payer Top 10 BCBS Payer Top 5 Payer Applications Development and Maintenance: Implemented CMMI V 1.2 Six Sigma Reduction of Post Production Defects to 3.6 Saving of 2K hours every year by Reduced Turnaround Time Ticket Backlog Reduced in 60% Year 1 Leveraged Tools Reduced Reengineering Effort by 75% Implemented Single Project Management Tool

Core Systems Modernization

Projected savings over 5 years up to $61M.

Flexible, responsive infrastructure to increase business effectiveness improve customer satisfaction.

Faster response to market changes and customers.

Major savings payback in health management costs.

Ability to release and support new products in less time.

Application Management Services

New contract saves $20M/year, provides usage based pricing

5X improvement in product launches in 5 years

Increase in application availability to 99.8%

Reduction in reported problems by 80%

Access to broad skill base within IBM

Leverage synergies of AMS staff & IBM Experts to deploy new technologies

Core Systems Modernization: Legacy Systems Maintenance

Cost of IT support and maintenance reduced by 30-40%.

4 improvement projects implemented each month; 30% for users, 45% for IT labor reduction, 25% for system efficiency.

IT labor reduction projects: permanent reduction of 300 labor hours/month achieved in each of 2 years.

Applications Development and Maintenance:

Implemented CMMI V 1.2

Six Sigma Reduction of Post Production Defects to 3.6

Saving of 2K hours every year by Reduced Turnaround Time

Ticket Backlog Reduced in 60% Year 1

Leveraged Tools Reduced Reengineering Effort by 75%

Implemented Single Project Management Tool

Smarter sourcing- combining process-based effectiveness with the ability to leverage wage arbitrage selectively to yield better results at lower costs. May 2009

Client needs and global labor supply, coupled with technology and macro- economic trends are driving the evolution of a Globally Integrated Enterprise Model Technology: Internet and wireless comms. Open standards - shared IP … enables global componentization Macro Economic Trends: The rise of Emerging markets…GDP growth of 6.5% 2X of developed mkts Emergence of a “developing country” middle class Global trade and mobility Client Needs: Grow markets, cross border M&A Reduce cost Diversify sourcing strategy - multi-country Reduce number of vendors Global Labor Supply Emerging economies provide low-cost high-quality talent War for Talent Increase Talent expertise “ The new business models are based on integration, cooperation and an exchange of resources – and above all the new business model is focused on the requirements of the global client.” Oswald Grubel, CEO, Credit Suisse Group Clients Needs Global Labor Supply & Expertise Globally Integrated Enterprise + Technology Macro-Economic Trends = Globally Integrated Enterprise Global talent pool and specialization Diversified supply base Global centers of excellence Flexible sourcing capabilities Global resource optimization Streamlined infrastructure Internal & external collaboration Seamless integration

Technology:

Internet and wireless comms.

Open standards - shared IP

… enables global componentization

Macro Economic Trends:

The rise of Emerging markets…GDP growth of 6.5% 2X of developed mkts

Emergence of a “developing country” middle class

Global trade and mobility

Client Needs:

Grow markets, cross border M&A

Reduce cost

Diversify sourcing strategy - multi-country

Reduce number of vendors

Global Labor Supply

Emerging economies provide low-cost high-quality talent

War for Talent

Increase Talent expertise

Globally Integrated Enterprise

Global talent pool and specialization

Diversified supply base

Global centers of excellence

Flexible sourcing capabilities

Global resource optimization

Streamlined infrastructure

Internal & external collaboration

Seamless integration

Why Smarter Sourcing Now? Outsourcing for less expensive labor alone does not provide enough value in today’s demanding economy IT cost ratio for India vs. the U.S., used to be 5-to-1; it is now just 2-to-1 or 3-to-1, and it continues to decline 1 Companies must go beyond traditional outsourcing and wage arbitrage Companies need to establish a more strategic or smarter sourcing approach Strategic partnership with vendor Target process improvements Yields improvements in quality and cycle time 1 Organizational Effectiveness , Mark A. Thompson, Dean, Quinnipiac University School of Business, Fall 2007

Outsourcing for less expensive labor alone does not provide enough value in today’s demanding economy

IT cost ratio for India vs. the U.S., used to be 5-to-1; it is now just 2-to-1 or 3-to-1, and it continues to decline 1

Companies must go beyond traditional outsourcing and wage arbitrage

Companies need to establish a more strategic or smarter sourcing approach

Strategic partnership with vendor

Target process improvements

Yields improvements in quality and cycle time

Smarter Sourcing Benefits Offers measurable benefits in three key areas Cost, quality, and cycle time Provides insight into progress, status, and risks of in-flight projects Bridges inherent global communication, cultural and process gaps Leverages vendor’s leading-edge development practices within client organization Ensures more effective knowledge transfer from sourcing partner to the organization

Offers measurable benefits in three key areas

Cost, quality, and cycle time

Provides insight into progress, status, and risks of in-flight projects

Bridges inherent global communication, cultural and process gaps

Leverages vendor’s leading-edge development practices within client organization

Ensures more effective knowledge transfer from sourcing partner to the organization

Smarter Sourcing Approach Smarter sourcing combines process-based effectiveness with the ability to leverage wage arbitrage selectively to yield better results at lower costs. Staffing “Pyramid” Optimization Process Improvements Global Development Plan Helping our clients “do something better, more efficiently, more productively.”

GBS has implemented and is expanding its Globally Integrated Capability Model Third Generation Globally Integrated Delivery Network 2008-2009 Fourth Generation Globally Integrated Capability Model 2009-2011 Integration across our GBS network Cost competitiveness + Low Cost Labor Integration across GDC network Emergence of regional delivery centers Common Process, Methods and Tools for seamless integration Specialized domain and industry skills; global centers of excellence Higher IP content Planned geo work shift Globally Recognized: Recognized by clients and competitors for insights and capabilities in the industry Attract best candidates externally and internally World Class Capabilities: Provide clients with access to expertise, assets and delivery capabilities in critical industry solutions Deployed in roles in sales, solutioning, service delivery and asset harvesting/development for the industry Globally Deployable: Resources are globally deployable with aligned performance metrics Plays a critical role in the rapid expansion in the Growth Markets The Best of IBM: Integrates GBS Service Line insights and capabilities into the industry solutions Collaborates across IBM (e.g., S&D, SWG, IBM Research, GTS) in the development and enhancement of differentiated propositions and solutions Hub for Capability Network:: “ Nerve center” for industry and domain capability networks across GBS based in GD Links community of practitioners along industry, solution, service line and ISV dimensions Bulk of resources co-located with delivery teams for several major client engagements Closely integrated with GBS industry teams in the IOTs as well as with GD Expertise and Quality: “Best of IBM” across the service lifecycle Value: Business outcomes aligned to strategic objectives at a competitive price Speed of Response: Seamless and timely access to resources and assets Ease of Doing Business: Consistent & seamless relationship with IBM Client Benefits 1

Cost competitiveness + Low Cost Labor

Integration across GDC network

Emergence of regional delivery centers

Common Process, Methods and Tools for seamless integration

Specialized domain and industry skills; global centers of excellence

Higher IP content

Planned geo work shift

Globally Recognized:

Recognized by clients and competitors for insights and capabilities in the industry

Attract best candidates externally and internally

World Class Capabilities:

Provide clients with access to expertise, assets and delivery capabilities in critical industry solutions

Deployed in roles in sales, solutioning, service delivery and asset harvesting/development for the industry

Globally Deployable:

Resources are globally deployable with aligned performance metrics

Plays a critical role in the rapid expansion in the Growth Markets

The Best of IBM:

Integrates GBS Service Line insights and capabilities into the industry solutions

Collaborates across IBM (e.g., S&D, SWG, IBM Research, GTS) in the development and enhancement of differentiated propositions and solutions

Hub for Capability Network::

“ Nerve center” for industry and domain capability networks across GBS based in GD

Links community of practitioners along industry, solution, service line and ISV dimensions

Bulk of resources co-located with delivery teams for several major client engagements

Closely integrated with GBS industry teams in the IOTs as well as with GD

Expertise and Quality: “Best of IBM” across the service lifecycle

Value: Business outcomes aligned to strategic objectives at a competitive price

Speed of Response: Seamless and timely access to resources and assets

Ease of Doing Business: Consistent & seamless relationship with IBM

… and we Close the Loop on Globalization…leveraging the best of offshore back to our shores Faster. Local. More flexible. Because we can. Because we must. Because we want to. Bringing the best of breed of global experience, tools, methods and processes locally completes the ‘loop’ of globalization