IBM's Transformation Journey

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

George Mattathil

4/28/2011

© 2009 IBM Corporation

IBM‟s Ongoing Transformation Journey
Business Model, Operating Model and Workforce Transformation
Remixed 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


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


The Evolution of the Enterprise IBM Strategy

20th 21st
Century 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


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


Enabling Growth Enabling Growth

 Growth Markets Leadership
 Mergers & Acquisitions
 Client Value Focus
 State-of-the-art
Sales Enablement


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


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


Mergers & Acquisitions Enabling Growth


 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


Mergers & Acquisitions (continued) Enabling Growth

 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


Client Value Focus Enabling Growth

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


Client Value Focus (continued) Enabling Growth

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%


State-of-the-Art Sales Enablement Enabling Growth

 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


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


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-Core
Consolidation/Standards  Global COEs
 Common Processes
 Automation


Global Shared Services Enabling Productivity

 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


Global Shared Services (continued) Enabling Productivity

 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


Business Process Excellence Enabling Productivity


 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


Business Process Excellence (continued) Enabling Productivity

 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


IT Enablement Enabling Productivity


 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


IT Enablement (continued) Enabling Productivity

 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 Networks

TAP: Driving Early Adoption Application Portfolio Mgmt SOA for Enterprise Flexibility
for IGA

Global Data Centers Security for Global Business Project Big Green


Enabling Culture Change Enabling Culture Change

 Transformational Leadership
 Values-based Culture
 Collaborative Innovation


Transformational Leadership Enabling Culture Change

 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 Business
Behavior tional Engagement Results
Climate
 Defined a clear methodologyto link strategy
to execution

IBM Values IBM’s Leadership Framework
Corporate Social Responsibility
Environmental Influences


Transformational Leadership (continued) Enabling Culture Change


 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


Values-based Culture Enabling Culture Change

 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


Values-based Culture (continued) Enabling Culture Change

 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 there's no way to optimize IBM through organization or management dictate... you've got to
createa management system that empowers peopleand provides a basis of decision making
consistent with who we are at IBM” – Sam Palmisano, Harvard Business Review, December 2004


Collaborative Innovation Enabling Culture Change

 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


CollaborativeInnovation (continued) Enabling Culture Change

 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


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


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


IBM Transformation Journey: Lessons learned
Key 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


How to get started? GBS Services – Portfolio Snapshot
Key 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?


IBM‟s GBS portfolio GBS Services – Portfolio Snapshot
supports 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


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


Six Major Elements to Successfully GBS Services – Portfolio Snapshot
Manage 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


Six Major Elements to Successfully GBS Services – Portfolio Snapshot
Manage 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


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


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, 1993

1993 1995 1997 1999 2001 2003 2005 2007 2009

Phase One
Gerstner era (’93 thru 2002)


IBM‟s Transformation: An Ongoing IBM’s History of Transformation
Journey (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 Planet

1993 1995 1997 1999 2001 2003 2005 2007 2009

Phase Two
Palmisano era
(‘03 thru present)


IBM Leadership Governance Model IBM’s Leadership Governance

IBM Organization At a Glance IBM Leadership Governance
Geographies 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


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)
Processes

Interlock 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


Enterprise Risk Management ERM

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


Enterprise Risk Management (continued) ERM

 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


Corporate Social Responsibility CSR

 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


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


Integrated Supply Chain ISC

 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


Integrated Supply Chain (continued) ISC

 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


Human Resources Shared Services

 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


Human Resources (continued) Shared Services

 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


Finance Transformation Finance

 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


Finance Transformation (continued) Finance

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


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.


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