IBM Global Business Services       Strategy and ChangeExecutive ReportIBM Institute for Business ValueIBM – Deliveringperf...
IBM Institute for Business ValueIBM Global Business Services, through the IBM Institute for Business Value, developsfact-b...
Delivering performance through continuous transformationBy Jim Bramante, Ron Frank and Jim Dolan“I would argue that the fi...
2    Delivering performance through continuous transformationIn the midst of yet another seismic change in the global     ...
IBM Global Business Services   3IBM continues to execute against these strategic objectives                          recog...
4   Delivering performance through continuous transformation                                                              ...
IBM Global Business Services   5At the same time, more traditional research teams have been       Companies that target in...
6     Delivering performance through continuous transformationInvesting in new solutions                                  ...
IBM Global Business Services   7Integrating across the globe                                        IBM ultimately transfo...
8   Delivering performance through continuous transformationThe finance team drives much of the visibility into which     ...
IBM Global Business Services   9•	   Performance	team: Focuses on period performance and the           Moreover, these int...
10   Delivering performance through continuous transformationDeveloping shared values                                     ...
IBM Global Business Services   11Conclusion: Transforming while                                         From an operating ...
12   Delivering performance through continuous transformationThe right partner for a changing world                       ...
IBM Global Business Services   13References                                                            12 “World Economy: ...
© Copyright IBM Corporation 2009IBM Global ServicesRoute 100Somers, NY 10589U.S.A.Produced in the United States of America...
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IBM - Delivering Performance Through Continuous Transformation

  1. 1. IBM Global Business Services Strategy and ChangeExecutive ReportIBM Institute for Business ValueIBM – Deliveringperformance throughcontinuous transformation
  2. 2. IBM Institute for Business ValueIBM Global Business Services, through the IBM Institute for Business Value, developsfact-based strategic insights for senior executives around critical public and privatesector issues. This executive report is based on an in-depth study by the Institute’sresearch team. It is part of an ongoing commitment by IBM Global Business Services toprovide analysis and viewpoints that help companies realize business value. You maycontact the authors or send an e-mail to for more information.
  3. 3. Delivering performance through continuous transformationBy Jim Bramante, Ron Frank and Jim Dolan“I would argue that the first decade of the 21st century has been aseries of wake-up calls, with a single subject: the reality of global integration. Inbusiness, global integration has changed the corporate model and the nature of workitself…Over the next couple of years, there will be winners, and there will be losers.And though it may not be easy to see now, I believe we will see new leaders emerge whowin not by surviving the storm, but by changing the game.”– Sam Palmisano, IBM chairman, president and chief executive officer1Introduction of 30 percent of their market values evaporate since January 2008, it has continued to perform and resisted the broaderIn 2008, much of the industrialized world entered a deep market trends, actually increasing its share value by roughly 15recession sparked by the global financial crisis. By March 2009, percent over the same time period.3 This recent marketshare values in American firms were 57 percent off their performance is the result of a transformation journey on whichOctober 2007 peak.2 In this environment, many chief executive IBM embarked nearly a decade ago.and chief financial officers have focused on weathering theslump as capital continues to disappear and credit markets Entering the decade and influenced by the dot-com collapseremain tight. Though the crisis has been hugely disruptive, and attendant declines in margins and earnings, IBM began afirms will ultimately emerge leaner and stronger – those that holistic assessment of its strategic environment and concludedsurvive, that is. that fundamental shifts – in technology, client requirements and global business – would soon reshape the economic andThe issues facing many mature companies are not new: stiffer technological landscape. Essentially, it concluded that thecost competition, commoditization of products and slower world was about to change fundamentally and the companygrowth in their traditional markets. The current economic and needed to adapt to excel in the new environment. This insightbusiness environment makes addressing these issues increas­ set in motion a number of strategic shifts – from investingingly urgent. Agile companies, however, will persevere and – in billions of U.S. dollars in strategic acquisitions and newthe end – use this economic cycle to their advantage. markets, such as India, China and Brazil, to aggressively driving costs out of selling, general and administrative expenseHow can large companies effectively respond to and take (SG&A) – to create a stronger portfolio of offerings and aadvantage of the current business environment? IBM offers a more efficient operating model.compelling story. While some of its peers have seen in excess
  4. 4. 2 Delivering performance through continuous transformationIn the midst of yet another seismic change in the global Pre-tax income Earningseconomy and business ecosystem, the success of this transfor­ margin percentage per sharemation raises a number of salient questions for today’s business 25% $11leaders to consider: $10 20% $9• How can senior leaders embrace globalization and the need $8 for flexible enterprise design? 15% $7• How can senior leaders and managers of large multinationals $6 benefit from understanding and applying the portfolio of 10% $5 initiatives that compose the transformation example? How can other companies utilize, adapt and establish key $4• 5% elements of the operating model, management system and $3 cultural elements that have enabled IBM to simultaneously 0% $2 00 01 02 03 04 05 06 07 08 transform and perform over the past years? Divested revenue (PC, HDD, Pre-tax income printers, displays, EDI, margin percentageMark Loughridge, IBM senior vice president and chief interconnectivity products) Earnings per share Revenuefinancial officer, has explained how the company’s transforma­tion has driven consistently strong profit and cash flow. He Figure 1: IBM transformation.noted that “…we have been executing our strategy: shifting tohigher value segments; globally integrating the company; [and]driving efficiency and productivity….”4 The leverage IBM achieved this success by executing toward four strategicgenerated by the IBM operating model has delivered consider­ goals:able shareholder value (see Figure 1).5 • Capture higher value: Migrate to more attractive customer segments as well as higher-value products and service offerings. Invest for growth: Take advantage of the global footprint to “…over the last decade, IBM has transformed • benefit from global growth, as well as invest in new market its portfolio and boosted gross margins by an offerings. impressive 790 [basis points], which represents • Shift the operating model to drive productivity: Improve operating performance by globally integrating, while pushing the largest gross margin improvement of any decisions further down into the organization. company in our universe. Moreover, this has • Apply shared values and performance management: Drive helped to drive an increase in [pre-tax income] change throughout the organization based on a common set margins of nearly 500 [basis points] over the of values and an aligned performance management system. same time frame.” Bernstein Research6
  5. 5. IBM Global Business Services 3IBM continues to execute against these strategic objectives recognizing the potential impact of Web technology after thebecause it has built flexibility into its operating model – flex­ dot-com bubble burst (see Figure 3).ibility to shift resources and deploy investments in unique waysto take advantage of select opportunities (see Figure 2). Since 2000, IBM has divested a number of low-margin units.7 In fact, a Business Week article following the firm’s 2009Capturing higher value second-quarter earnings release noted that “…IBM isShifting the business mix operating very well under miserable business conditions, andMany multinational organizations have recently faced chal­ [Sam Palmisano’s] decision to jettison less-profitable divisionslenges associated with competition from lower-cost geogra­ in the past half-decade…is paying off.”8phies, product commoditization and margin erosion. Theability to exit areas with shrinking margins and, at the same For example, the early part of the twenty-first centurytime, quickly acquire, launch and grow offerings that provide witnessed the commoditization of the personal computer (PC)comparative advantage is critical to the survival of many of due to events such as the entry of low-cost domestic competi­these companies. The shift toward higher-margin products and tors in countries like China. Recognizing the resulting marginservices has been a central component of its strategy since erosion, IBM sold its PC division to Lenovo in 2005 – despiteCapture higher value Invest for growth Shift the operating model • Changing the business mix • Growth Markets Unit • Globally integrated enterprise - Shift business portfolio to higher value - Invest resources into Brazil, Russia, India - Consolidate indirect functions and (from components to infrastructure to and China (BRIC) and other high-growth optimize critical horizontal processes business value, e.g. exiting commodity countries - Implement global resource management businesses – PC, printers, storage) - Organize growth market teams to • Client value - Employ aggressive acquisition strategy recognize opportunities and respond - Segment advisory support from for high-margin businesses (e.g., Rational, • General business transactional activity Daksh, Cognos, Telelogic, Filenet) - Increase focus on whitespace - Create client-facing units oriented by how - Develop post-merger integration opportunities and sales model clients purchase (by industry, product) capability • New solutions • Lower center of gravity - Divest outside of core strategy - Invest to invent growth solutions (e.g., - De-layer by centralizing and creating • Developing higher value Smarter Planet solutions) cross-country management teams - Infuse IBM Research into business - Delegate to client facing leadershipShared values and performance management • IBM values • Cross-enterprise collaboration • Innovation - Infuse values throughout the corporation - Create enterprise leadership program to - Employ “jams” to get feedback and ideas - Design systems to unify employees focus on transformation opportunities from employees at all levels worldwide - Design topic-driven governance (e.g., • Burning platform • Global IBMer strategy/technology/performance) - Execute earnings-per-share roadmap - Foster diverse workforce and leadership (growth, share buyback, increased productivity)Figure 2: IBM strategic goals.
  6. 6. 4 Delivering performance through continuous transformation To realize the value of its mergers and acquisitions (M&A),Segment pre-tax income(US$ billions)* IBM has developed a world-class M&A integration capability to quickly and routinely assimilate new companies. Using an 7.1 Software Services integration process that focuses on value rather than checklists Financing and includes senior leadership attention, dedicated “integra­ Hardware 2.8 tion executives” and formal tracking of each acquisition’s 7.3 performance, the firm has been able to institutionalize the 4.5 integration process. Across the M&A portfolio, IBM has been 1.2 able to recoup acquisition premiums within 18 to 24 months of 1.6 2.7 initiating integration. 1.6 2000** 2008 Leveraging research and development* Sum of external segment pre-tax income not equal to IBM pre-tax income.** Stock-based compensation expense was not recorded at the segment level. A key aspect of the move to higher value is its research and development (R&D) capabilities. It fundamentally changedFigure 3: Shifting business mix. how R&D is managed at the company. Moving rapidly away from the classic view of R&D as scientists conducting researchthe fact that IBM invented the PC in 1981. Because PCs had in isolation, researchers collaborate hand-in-hand with bothbecome commoditized, with most suppliers purchasing critical external clients and internal business units. Spending roughlyhigh-value components created by Intel and Microsoft, little US$6 billion a year on research and development, IBM hasstrategic value resulted in staying in the declining and barely built a global capability with eight laboratories on threeprofitable business.9 The decisions to exit the hard drive and continents – in addition to partnerships with many topprinter businesses also followed similar declines in the margins universities.11 This type of collaboration has been furtherof those units. bolstered by the firm’s embrace of open source technology, such as the Linux operating system.At the same time, the company has continued to aggressivelypursue higher-margin software and services acquisitions. Since While its 3,000 researchers were traditionally assessed on1995, IBM has acquired more than 100 companies to increase patents and papers, they are now expected to work in tandemits portfolio of higher-value offerings, as well as acquire with IBM brands to create competitive advantages for clients.leading talent around the world. From a services perspective, In 2002, IBM launched its Research Services, which engagesthe acquisition of PricewaterhouseCoopers Consulting allowed scientists as consultants to clients in concert with consultingIBM to compete with Accenture, Deloitte and other firms teams. The Research Services’ mission is twofold: solve clientpositioned to advise a client about strategy and then follow up problems and search for next-generation scientific challenges,with design, build and manage services. Without the acquisi­ especially those that might lead to the services and consultingtion, it would have been relegated to a subcontractor on practices of tomorrow. The intellectual property thesecontracts that required such end-to-end services.10 researchers can bring to bear on immediate client needs differentiates IBM offerings and supports the company’s transi­ tion to higher-value services.
  7. 7. IBM Global Business Services 5At the same time, more traditional research teams have been Companies that target investment toward emerging growthinstrumental in developing higher-value technologies and areas stand to prosper the most as they come out of thiscapabilities as well. For example, IBM Research was respon­ downturn. As such, IBM has shifted substantial focus andsible for the development of the company’s POWER micro­ investments to growth markets in recent years and created anprocessors. This innovation, which enabled the firm to gain operating unit dedicated to the world’s growth markets in 2008.considerable market share from competitors, is a prime Focused on those markets around the world that have growthexample of the importance of research capabilities in capturing characteristics – including those in Asia Pacific, Latin America,higher-margin business. Central and Eastern Europe, and the Middle East and Africa – the Growth Markets Unit (GMU) was created to driveIBM has continuously invested in shifting its business mix to differentiated strategies and operational excellence to capturehigher-value solutions and leveraging its research capabilities business opportunities in these fast-growing economies. Theto pursue and offer differentiated products and services with newly established growth markets unit generated more thanhigher margins and growth potential. twice the revenue growth of IBM major markets operations in 2008.14Investing for growth While the GMU’s mission is to accelerate growth across theseAs market conditions and growth opportunities change, IBM markets and increase their contribution to global revenue inhas invested in future growth opportunities, both in new and the coming years, in effect it has enabled senior leadership toexisting markets. put much more focus and priority on the areas where it canGoing global grow fastest. This not only helps capitalize on this growth forBy 2005, emerging economies made up over half of the total the short term, but also helps the company create a strong andworld GDP (measured at purchasing-power parity), suggesting long-lasting competitive position. By segmenting growth andthat mature markets no longer dominated the business mature markets, IBM can more effectively execute, focusinglandscape.12 For much of the last decade, emerging or growth strategic resources on the areas that generate more profitablemarkets have been the primary drivers of global growth. The growth and differentiating the operating approach andEconomist has called their emergence onto the global stage the investment needed for hyper-growth markets.single largest boost to the world economy since the industrialrevolution and the biggest stimulus in history.13 This newenvironment has changed the relative returns on labor andcapital, and companies must respond to such changes to IBM has invested in future growthremain competitive. Furthermore, companies that play in these opportunities in both existing and newcritical markets can capture unique insights about emergingtrends and competitors that might disrupt core markets or markets.create new opportunities.
  8. 8. 6 Delivering performance through continuous transformationInvesting in new solutions During an economic downturn, organizations often respond byIn difficult times, organizations often fall back on their core set cutting investment in future growth. The focus on continuingof products and services, limiting investments in new ventures to invest in new discoveries, growth markets and differentiatedand opportunities until the downturn subsides. However, IBM solutions has been a core element of delivering performancehas seen that continual investments in new market proposi­ despite economic turmoil.tions are central to keeping pace with ever-changing customerneeds and expectations. Shifting the operating model Migrating to higher-value opportunities and focusing on growthA recent example of the commitment to new growth opportu­ are important components of a company’s strategy. Withoutnities can be found in the development of its Smarter Planet them, senior leaders risk leaving higher margins and new growthinitiatives. Smarter Planet centers on the perspective of how to their competitors. Managing costs and improving operatinginformation technology is becoming pervasively deployed – efficiency, however, remain equally important. As global barriersevery process, system and infrastructure can be instrumented, evaporate, more and more low-cost competitors will enterinterconnected and infused with intelligence. This will open mature markets, further squeezing margins. Additionally, as theup entirely new market opportunities for the IT industry and long-term potential growth rate continues to fall for matureIBM. economies, teams in nonclient-facing functions will have to be globally integrated and streamlined to deliver both efficiencyEnabled by the transformation of the world’s infrastructure, and effectiveness – and to continuously generate the funds foralmost anything can now become digitally aware and, as a reinvestment in growth markets and other opportunities. As aresult, optimized. For example, consider how companies and result, IBM continues to shift its operating model to be globallyinstitutions are rethinking their systems and applying tech­ optimized, provide higher visibility to quickly respond to marketnology in ways that literally change how the world works: shifts and apply cross-unit teams to solve difficult organization- wide challenges.• Stockholm’s smart traffic system has resulted in 20 percent less traffic, a 12 percent drop in emissions and a reported 40,000 additional daily users of public transport. Smart traffic systems are strengthening the competitive positions of cities from London to Brisbane to Singapore – with many more Even during an economic downturn, IBM being planned.15 continues to focus on investing in new Intelligent oil field technologies can increase both pump discoveries, growth markets and differentiated• performance and well productivity – in a business where less than half of available reserves are currently extracted.16 solutions.• Smart food systems – such as one used in Norway to trace fish – can use radio-frequency identification (RFID) technology to trace meat and poultry through the supply chain to supermarket shelves.17
  9. 9. IBM Global Business Services 7Integrating across the globe IBM ultimately transformed all of its support functions (e.g.,The transition to what IBM refers to as a globally integrated human resources, information technology, finance, marketingenterprise has enabled the company to reduce duplication in and communications, legal, real estate, sales operations andvarious countries, source products and skills where it makes government relations) into GISFs and used its experience withsense and manage the business with a consistent set of the supply chain integration to establish a disciplinedprocesses and data. IBM leadership has rallied around the idea migration approach:of a globally integrated enterprise with coordinated andunified strategies, operations and management worldwide. • Integrate: Place all resources under one global leader. • Automate: Eliminate nonvalue-add steps and use tools and In numerous external messages regarding the globally inte­ technology to streamline the workflow. grated enterprise, CEO Sam Palmisano emphasizes that IBM • Optimize: Decide where each process is best performed – will source talent and create jobs “based on the right cost, the locally, regionally or globally. right skills and the right business environment.”18 When • Elevate: Move resources to higher value-add work to drive operations are globally integrated, work “flows to the places further efficiency and effectiveness. where it will be done best.”19 The idea is larger than just cost savings; it’s about remaking the enterprise and figuring out This transition has also allowed the company to segregate“what will cause work to move to me? On what basis will I transactional and consultative processes, supporting a focus on differentiate and compete?”20 value-added work. Additionally, the transition has created clear career paths and development opportunities in what wereIBM has taken a series of steps that have driven cost out of the traditionally stagnant roles, increasing the caliber of talent thecompany’s SG&A by turning its support functions – once company can attract and retain.integrated in every unit of the business – into global sharedservices. In 2002, it began this shift toward developing Increasing market visibility and strategic optionsGlobally Integrated Support Functions (GISFs) by starting The ability to sense and respond to change – both in thewith its supply chain. Realizing that support functions sepa­ internal organization and the external marketplace – is critical.rately integrated into each business and geographic unit were Due to the dynamic nature of technology and customer wantsinefficient and incompatible with global integration, the firm and needs, IBM has created a system to enable nimblesought a way to provide rigorous management of back-office responses to an ever-changing business ecosystem – and hassupport and shift more resources more quickly to front-line organized this system as a set of strategic options to provideroles that deliver direct client value and growth. exceptional operating leverage. These options can be organized into four key areas – which mirror the four strategic goals that guided the company’s transformation (as seen in Figure 2).
  10. 10. 8 Delivering performance through continuous transformationThe finance team drives much of the visibility into which Using integrated teams to lower the center of gravityoptions should be exercised and in what combination. In a global organization with diverse businesses, it is notFinance – centralized within a shared service environment uncommon for individual lines of business to become myopicthat reports directly to the CFO – integrates fragmented data and focus only on their own best interests to the detriment ofthrough a centralized management system that makes the enterprise. To counteract this dynamic, IBM deploys ainformation accessible through common systems, enabling management system that includes three interrelated collabora­faster, better extraction and analysis to support business tive management teams and a performance integrator, which isdecisions. Each option has been deployed effectively in the finance team (see Figure 4).different time periods based on opportunities or issuesidentified through its markets, operating model or offeringportfolio or through competitor actions. Integrated management teams IBM finance function Strategy Performance integrator:Much of the sales management information is focused on the Informs investmentcompany’s global pipeline, where a globally integrated, Technology options and portfolio focus areas while drivingcommon process is employed for worldwide reporting. This performanceapproach provides leadership with a weekly view of thecompany’s opportunity pipeline and visibility into which unitsare facing challenges to achieve their targets so that a mitiga­ Performancetion plan to close the gap can be developed and executedrapidly. Figure 4: Integrated management system.With these systems in place, the CEO knows exactly what ishappening across the lines of business and geographies and can • Technology team: Concentrates on advanced technologythen work with the integrated teams to determine strategic solutions and intellectual property (IP) to infuse into productsoptions that can provide the appropriate solution. The CFO’s and services to further differentiate and improve value foroffice can then identify for senior leadership how those options clients. The team takes a longer-term view to capabilities,will affect expense and investment. talent and IP. • Strategy team: Provides longer-term assessment and planning to drive understanding of industry trends, customer dynamics and market opportunities. The strategy team communicates with the technology and performance leaders to help them shape actions in the short term that position IBM in differentiated and defensible segments with a continuously evolving and dynamic offering suite.
  11. 11. IBM Global Business Services 9• Performance team: Focuses on period performance and the Moreover, these integrated teams create cross-enterprise ability to “sense and respond” to market realities that are accountability. Since the incentive system is driven by profit critical in a technology-driven industry with high-velocity sharing, there is considerable pressure on all individuals to innovation and demanding customers. The team focuses on meet their specific goals and targets. In many respects, the short-term decision making (while still keeping in mind performance system provides a layer of self governance, long-term consequences) to drive both period performance enabling leaders to be both reflective and proactive in their and positioning. decision making.• Finance function: Advises the teams on the impact of the decisions and investments made in each of the critical business All these elements work together to uniquely prepare the areas. A critical contribution is to drive urgency and company to sense external marketplace shifts, as well as commitment throughout the business to continuously interpret key internal indicators. Armed with that knowledge, transform. business units can develop and drive the appropriate enter­ prise-wide actions given the broad company and marketAn effective management system places the right senior leaders the right roles and provides them visibility into performanceso that they can act quickly to address business challenges. It Applying shared values and performancealso involves leaders from across geographies and business managementlines in teams that focus on short-, medium- and long-termstrategy and performance. While the teams should be flexible, The ability to execute change and drive actions rapidlyfluid, fast and inclusive, it is the inclusivity that ultimately throughout an organization remains one of the largest chal­enables the other attributes. Integrated teams have been one of lenges most firms face. For example, approximately 400,000the most effective means of balancing the significant strength employees need to be aligned with the larger initiatives,of global product and service units with the agility of cross- strategic priorities and new ways of getting work done.brand and cross-geography collaboration. Execution is based on a common set of core values and a performance management system that fully aligns individualThese teams delegate more responsibility for actual decision targets with the company’s objectives.making to a wide array of senior leaders. IBM refers to this keyfeature of its management system as “lowering the center ofgravity.” Senior leadership provides ownership and account­ability across the upper echelons of the company and helps IBM’s integrated management teams helpensure that the CEO is not only pulling the company’s highest balance the strength of global units with themanagers toward the firm’s strategic goals, but is also being agility of cross-brand and cross-geographypushed by them in the same direction. collaboration.
  12. 12. 10 Delivering performance through continuous transformationDeveloping shared values Enterprises are built to stand on a foundation of core values. InIBM has embedded a set of core values into the fabric of the 2003, through ValuesJam – an unprecedented 72-hour discus­organization to support the need for greater integration. sion that took place on the company’s global intranet – IBMersInternally, these values encapsulate the company’s mission and came together to define the essence of the company. The resultaspirations, and they guide employees’ decisions, behavior was a set of core values, which surfaced “bottom-up” from thepatterns and actions collectively and individually. Externally, employee dialogue, that help guide decisions, actions andthe values differentiate IBM with clients, business partners, behavior patterns:investors, employees and communities by driving a consistentbrand and perception of the company’s human capital, regard­ • Dedication to every client’s successless of the geography, industry, function or offering involved. • Innovation that matters – for our company and for the worldMost important, though, they are indicative of how IBM • Trust and personal responsibility in all relationshipsempowers its employees to take responsibility for thecompany’s success. As Sam Palmisano pointed out in a 2004 Managing performanceHarvard Business Review article, values support “a management For a company’s values to permeate its overall operations, thesystem that empowers people and provides a basis of decision organization’s leaders must take a disciplined approach tomaking consistent with who we are at IBM.”21 ensure that those mechanisms that influence behavior patterns are brought in alignment with the values. Change can be enabled by an incentive system that reflects the newly desired behaviors. Almost all employee incentives are funded within a“If there’s no way to optimize IBM through global “One IBM” pool that rewards individual and business performance that contributes to the company’s revenue growthorganizational structure or by management and pre-tax profit year over year. The model is designed todictate, you have to empower people while support putting the client’s agenda first, then presenting theensuring that they’re making the right calls best solution. Moreover, the incentive system helps create a team environment where employees demonstrate values-basedthe right way.And by ‘right,’ I’m not talking behaviors.about ethics and legal compliance alone; thoseare table stakes. I’m talking about decisionsthat support and give life to IBM’s strategyand brand, decisions that shape a culture.That’s why values, for us, aren’t soft.They’rethe basis of what we do, our mission as acompany.”Sam Palmisano, IBM chairman, president and CEOFrom “Leading Change When Business is Good,” HarvardBusiness Review, December 2004.
  13. 13. IBM Global Business Services 11Conclusion: Transforming while From an operating standpoint, they must be able to capitalizeperforming on favorable global economies of delivery. From a cost structure standpoint, companies need to be maniacal in theirToday’s economic environment challenges organizations to focus on differentiating the elements of their operating modelsfocus on their current business while also positioning them­ that add value to customers or teams that face customers andselves for future opportunities. It emphasizes the need to focus eliminating expense in those that do not.on – and invest in – those areas of the business that deliver themost value. Delivering today’s results while exploiting oppor­ More than a decade ago, the IBM business model was facingtunities requires a portfolio approach. The concept centers on challenging times with the continuing decline of its mainframeenterprise-wide differentiation: allocating more resources in business and the commoditization of the firm’s hardwaresome areas of the business and less in others based on market divisions (e.g., personal computers). The steps IBM took topressure and allocating different types of resources to different resurrect itself were not necessarily complex, but theareas of the business depending on the opportunities and needs company’s transformation provides meaningful lessons forof specific segments. While intuitive, the implementation of other multinational corporations looking to pursue highersuch a model can be difficult. It is easier to deliver, for example, margins, globalize their operations, and change and reduceuniform cost reduction targets across operating units, but that their cost structures. IBM broke down internal barriers tooften means cutting both value and nonvalue-added areas of drive integration and help ensure the company and its globalthe business. workforce and culture kept transforming and moving in the right direction.22Enabled by global integration, supported by increased visibilityand driven by an integrated management team, the operating Leaders across industries face a very different businessmodel provides the capability to understand and balance not landscape than they did at the end of the dot-com bust. Thereonly what is needed to perform today, but also to meet the is a massive quantity of data and information now available,needs of the future. It creates a dynamic that gives managers and changes and decisions that used to take decades now takeand senior leaders the ability to both lead and follow the quarters. Armed with this vast array of information andenterprise’s aspirations and each other. All the while, the ever-growing analytics capabilities, companies are proving tomanagement system sets broad guardrails to provide strategic be more adaptive and flexible in their approach to bothguidance around the lead and follow dynamic. The values then strategy and performance management.provide a compelling vision and fabric that resists any organi­zational fragmentation – and are critical to making sure that To succeed and maintain a competitive edge, today’s executiveseveryone is aligned to simultaneously deliver performance must ensure they are not just transforming at the top butwhile transforming the enterprise. throughout the organization. As they work to achieve this dynamic, senior leaders may find insight in the IBM story. ItsFor any executive in today’s environment, the key lesson is one transformation may well provide guidance on where to focusof flexibility and agility. Companies need to create flexibility change and how to accomplish it successfully across theacross the corporation to enable the pursuit of value, growth enterprise while delivering consistent and differentiatedand efficiency. From a product standpoint, firms must remain performance.nimble enough to keep moving toward higher-value offerings.
  14. 14. 12 Delivering performance through continuous transformationThe right partner for a changing world About the AuthorsAt IBM, we collaborate with our clients, bringing together Jim Bramante is the Managing Partner, Global Businessbusiness insight, advanced research and technology to give Services North America, and a member of IBM’s Performancethem a distinct advantage in today’s rapidly changing environ­ Team and Innovation and Values Team. He is responsible forment. Through our integrated approach to business design and the strategic direction and operational management of theexecution, we help turn strategies into action. And with Global Business Services North America business. Prior toexpertise in 17 industries and global capabilities that span over joining IBM, Jim was a partner with PricewaterhouseCoopers170 countries, we can help clients anticipate change and profit where he was part of the organization’s Executive Committee.from new opportunities. He can be contacted at Ron Frank is the Strategy and Change Services Internal Practice Leader at Global Business Services, which focuses on the ongoing transformation of IBM. Prior to IBM, Ron was an executive at several strategy consulting firms including Bain and Company and Mainspring. He began his professional career on the MBA faculty at Harvard Business School. He can be reached at Jim Dolan is Associate Partner, IBM Global Business Services, Strategy and Change Services Internal Practice, where he leads the Operations Strategy team. Prior to IBM, Jim held director roles at an e-sourcing subsidiary of EDS as well as senior consulting roles with A.T. Kearney and Booz Allen Hamilton. He can be contacted at Contributions The authors wish to thank Rob Tawse for his significant contributions to the development of the paper.
  15. 15. IBM Global Business Services 13References 12 “World Economy: The New Titans.” The Economist. September 14, 2006. Palmisano, Sam. “Building a Smarter Planet: City by City.” id=7877959&source=login_payBarrier SmarterCities event keynote address. Berlin, Germany. June 23, 2009. 13 Ibid.2 “A Special Report on American Business: Surviving the Slump.” 14 IBM 2008 Annual Report. The Economist. May 28, 2009. annualreport/2008/2008_ibm_annual.pdf displaystory.cfm?story_id=13686504 15 Lohr, Steve. “Bringing Efficiency to the Infrastructure.” The3 IBM Global Finance analysis based on Google Finance New York Times. April 29, 2009. http://www.nytimes. charting tools and comparison between IBM and comparables com/2009/04/30/business/energy-environment/30smart. in terms of both industry and size measured by market html?_r=1&pagewanted=1 capitalization. Timeframe: January 11, 2008, to July 20, 2009. 16 “Smarter oilfields make dollars and sense.” IBM Web site. http://4 “2Q 2009 Earnings Presentation: Prepared Remarks.” IBM Investor Relations. July 16, 2009. shtml investor/2q09/presentation/2q09prepared.pdf 17 “Tracing the fish.” Seafood from Norway. March 24, 2006.5 Ibid. Sacconaghi, Toni, and Eric Garfunkel. “IBM: Time to Revisit 18 Palmisano, Samuel J. “The Globally Integrated Enterprise.” Big Blue - A Structural Margin Improvement Story... Worthy Foreign Affairs. May/June 2006. of a Higher Multiple.” Bernstein Research. August 3, 2009. governmentalprograms/samforeignaffairs.pdf7 “2Q 2009 Earnings Presentation.” IBM Investor Relations, July 19 Ibid. 16, 2009. 20 Ibid. presentation/2q09.pdf 21 Palmisano, Samuel J., Paul Hemp and Thomas A. Stewart.8 “IBM’s Strategic Focus Beats the Tech Slump: While offering “Leading Change When Business Is Good: The HBR little hope for a tech industry rebound, IBM proved better Interview – Samuel J. Palmisano.” Harvard Business Review. suited than rivals such as HP and Dell to cope with the world December 2004. downturn.” Business Week. July 16, 2009. http://www. leading-change-when-business-is-good/ar/1 tc20090716_621697.htm?chan=technology_ 22 “IBM and Globalisation: Hungry Tiger, Dancing Elephant.” The technology+index+page_tech+investing Economist. April 4, 2007. articlesbysubject/displaystory.cfm?subjectid=423172&story_9 “I Spy Spies.” The Economist. Issue: Love Is in the Air, The Return of Corporate Mergers. Feb 5, 2005. id=E1_RJVGGSG10 “Goodbye, Monday.” The Economist. Issue: The Case for War. August 3, 2002.11 IBM Research analysis.
  16. 16. © Copyright IBM Corporation 2009IBM Global ServicesRoute 100Somers, NY 10589U.S.A.Produced in the United States of AmericaSeptember 2009All Rights ReservedIBM, the IBM logo and are trademarks or registered trademarksof International Business Machines Corporation in the United States, othercountries, or both. If these and other IBM trademarked terms are markedon their first occurrence in this information with a trademark symbol (® or™), these symbols indicate U.S. registered or common law trademarksowned by IBM at the time this information was published. Such trademarksmay also be registered or common law trademarks in other countries. Acurrent list of IBM trademarks is available on the Web at “Copyright andtrademark information” at company, product and service names may be trademarks or servicemarks of others.References in this publication to IBM products and services do notimply that IBM intends to make them available in all countries in whichIBM operates. Please Recycle GBE03243-USEN-01