lecture by mario derba at ge seminar on ibm services transformation

© 2004 IBM Corporation

Mario DerbaPartner, IBM Business Consulting ServicesIndustrial Sector Leader, South Region IBM Europe, Middle East, Africa

IBM’s road to becomeA Leading Service Company

General Electric’s European Service Leadership ProgramFlorence - October 5th, 2004

October 5, 2004 © 2004 IBM Corporation2

My Background

1983 Electronic Engineering degree – University of Bologna1984 joined IBM Sales & Services1993 Italian Automotive Field Business Unit Executive1996 on international assignment in the office of Ned Lautenbach, Senior VP & Group Exec, Global Sales and Services, IBM Corporation1998 GM of Industrial Sector Sales for Latin America~$400M revenue with ~70 sales professionals2000 leader of e-business solutions for South Europehardware/software/services integration2001 joined IBM Global Serviceshead of Operations for ~$3B service business (acquisitions, marketing, resources management, solutions design, contracts & negotiations)2003 Partner, Business Consulting Services for Industrial Sector, South Europe~500+ services professionals: consulting, systems integration and application development


LVG’s N° 7: We grew a business from the ground up

Nothing that grows starts large; it always starts small


We Were on the Verge of Breakup


IBM and the boiled frog similitude

‘60-’70 - the warming up phaseIBM traced the roadmap and outpaced competition. Undisputed leadership in business model and IT competences.

‘80-’90 – the boiling crisisTechnologies and customers needs were changed.


IBM Share in the Mainframe Era


IBM Share and Client Server Architecture


IBM, L.Gerstner and the e-business strategy

•Sell Mainframes

•Microsoft•Client/Server


-50

0

50

100

150

200IBM turning point

OrganizationProcessesManagement SystemMeasurements and incentive plansLeadership

Change strategy

1985 1993 1998

M arket ValueM arket Value

RevenueRevenue

ProfitProfit


IBM’s On Demand Transformation:Reinventing the Enterprise


IBM undertook a major financial, competitive and cultural transformation

Enabling e-business required end-to-end integration across

the value net

Driving common processes across lines of business was

critical first step

•Market Planning•Product Development

•Procurement•CRM

•Fulfillment

•Customers•Partners•Suppliers

•Employees

1993 - 1998 1998 - 2002


Processes were automated and reengineered

886767Financial data centersFinancial data centers

5555145145Key applicationsKey applications

771818Days for accounting closeDays for accounting close

$1.3B$1.3B$2.1B$2.1BExpenseExpense

1.5%1.5%3.2%3.2%Expense / revenue %Expense / revenue %

1992 2001


Infrastructure and governance were simplified

BEFORE AFTER

11128128CIOsCIOs

1111155155Host Data CentersHost Data Centers

778080Web Hosting CentersWeb Hosting Centers

113131NetworkNetwork

5,2005,20016,00016,000ApplicationsApplications


Relationships were transformed: Customers and supplierse-Commerce e-Commerce

$26.4B in 2002, up 4% YTY$26.4B in 2002, up 4% YTY

$11.6B from ibm.com, up 3%$11.6B from ibm.com, up 3%

Customer Relationship ManagementCustomer Relationship ManagementCost avoidance from e-Support in 2002: ~$600M, up 17% YTYCost avoidance from e-Support in 2002: ~$600M, up 17% YTY

60% of “Call-Me’s” result in sales60% of “Call-Me’s” result in sales

FulfillmentFulfillmentApplications reduced by 42%Applications reduced by 42%

70% of PC orders “touchless”70% of PC orders “touchless”

Procurement Procurement 90% orders “hands-free”90% orders “hands-free”

Cost avoidance from e-procurement in 2002: ~$450M, up 8% YTYCost avoidance from e-procurement in 2002: ~$450M, up 8% YTY


What’s next? The Next Era of Computing


Phases of e-business adoption


IBM’s e-business adoption survey

Companies on the Cusp of On Demand


What do we mean by “on-demand”

An enterprise whose processes --integrated end-to-end across the organisation and with key partners, suppliers and customers -- can respond with speed to any stakeholder demand, market opportunity or external threat.

We used to call this the “advanced” phase of e-business

It has four key components


Variable:Able to adapt cost structures and processes flexibly, reduce risk and drive business performance.

Responsive:Capable of sensing changes in

the environment and responding dynamically

Resilient:Prepared for changes and threats --be they computer viruses, earthquakes, or sudden spikes in demand.

Focused:Committed to concentrating on core competencies and differentiating tasks and assets.


IBM’s on demand goals

Enable organizational productivity and collaboration throughout the enterprise

Enhance customer experience by improving responsiveness and delivering more innovation

Become the premier on demand business

Improve financial performance


A transformation framework to enable on demand capabilities

CultureCultureBusiness Business TransformationTransformation

IT EnablementIT Enablement

Collaboration& Teaming

Assembly of Productsand Services

Sense and Respondwith Velocity

Core CompetencyFocus


On demand measurement systemCapabilities Enterprise Measures On Demand Value

Solutions Revenue GrowthAssembly of Products and

ServicesMarket shareWin % by Solution Area

Custom

er Satisfaction

Brand attach rates

Revenue Growth IBM Revenue / PY ($K)

Collaboration and Teaming

Productivity

Sales Productivity

Workplace Effectiveness

Profit GrowthSG&A E/R

Unit Specific Productivity

Reuse (HW)

Sense and Respond with

Velocity

Fulfillment Quality

Return on Invested Capital

Cost Takeout

Transform IT/Total IT

Core Competency

Focus

Variable Labor/Total LaborVariability

% Cost/Exp Procured


IBM’s on demand governance model

Operating Team

Investment Review Board

On Demand Innovation Team

CIO Transformation Management System

on d

eman

d Ex

ecut

ive

Team

&

Cha

mpi

ons

Cus

tom

er, S

uppl

ier &

Em

ploy

ee A

dvis

ory

Boa

rds


Reinventing key processes

On Demand Supply Chain

On DemandWorkplace

IT EnablementIdentify valueIdentify value

RealizeRealizevaluevalue

Invest in Invest in valuevalue

Total Buyer Experience

Portfolio

Development Environment

Operating Environment

Total Buyer Experience


Total Buyer ExperienceCoverage ModelProject Simplify

Routes-to-market

CustomerRelationshipManagement

Communications

HR

Finance

Fulfillment

Integrated Product Development

Procurement

On Demand Workplace

On Demand Supply Chain

IT EnablementIT Consolidation IT Integration

Direct ModelIntegrated Supply Chain

On-line Order Mgmt

w3 Portal

HR Self-service

IBM’s evolution to on demand

On DemandAccess Integration

Internally Focused Hierarchy Market Driven Matrix Horizontally Integrated Teaming


Focus: simplification, common standards

IT Consolidation IT Integration

Established BT/CIO organization and 1 CIO

Focus: Federated model -- value chain

optimization

Global Web Infrastructure

Evolution to on demand: IBM IT environment


31 IBM Networks to 1 Outsourced Global Network

Common hosting environment: 155 to 12 host data centers

Hundreds of configurations to 4 standard platforms

16,000 applications to 5,300 applications

Drive to efficiency:Improved HC productivity

Transferred IT service to IBM Global Services -

$500M in savings

Focus: full integration across extended

enterprise, leverage new technologies

WebSphere integration

IT Enablement

Internal grid

NextGen Utility Offering



Evolution to On Demand: Financial Drivers

Velocity (doing more, faster)Revenue growth

Variability of cost/expense Return on invested capital

Cost/expenseResource allocation

Cash generation

Market share growthProductivity


Cash generation


Cash generation

Market share growthProductivity



Evolution to On Demand: CultureHorizontally

integrated team

Internally focused hierarchy

Market-driven matrix


Integrated supply chain

Improved supply chain management in 2002:$2.5B in hardware costs$1.5B in customer solutions procurement in support of IGS$1.1B in general procurement

Improved supply chain management in 2002:$2.5B in hardware costs$1.5B in customer solutions procurement in support of IGS$1.1B in general procurement

Center for On DemandSupply Chain ResearchCenter for On DemandSupply Chain Research

Sense and respond to customer demandEnd-to-end integration of processes and systems33,000 connected suppliers$39B of IBM’s cost and expenseClient satisfaction doubled

Sense and respond to customer demandEnd-to-end integration of processes and systems33,000 connected suppliers$39B of IBM’s cost and expenseClient satisfaction doubled


300mm Semiconductor Facility

World’s most advanced chip-making facilityDevelopment and manufacturing combinedFirst chip-making plant to run on LinuxSense and respond touchlessCustomers can track manufacturing processSuppliers can access remotely to diagnose

problems and make repairs

World’s most advanced chip-making facilityDevelopment and manufacturing combinedFirst chip-making plant to run on LinuxSense and respond touchlessCustomers can track manufacturing processSuppliers can access remotely to diagnose

problems and make repairs

On demand manufacturing:Cycle time improved by 35%Process yields up to 2 points higherDirect labor spending 50% lower than previous 200mm facility

On demand manufacturing:Cycle time improved by 35%Process yields up to 2 points higherDirect labor spending 50% lower than previous 200mm facility


On demand workplace

w3.ibm.comKnowledge ManagementContent Collaboratione-LearningEmployee self-service

w3.ibm.comKnowledge ManagementContent Collaboratione-LearningEmployee self-service

Employees #1 source of information68% view w3 as critical to doing jobOver 7,000 Web conferences with over 42,000 participants each month48% of employee trainingCost avoidance from e-learning: $750M over past two years

Employees #1 source of information68% view w3 as critical to doing jobOver 7,000 Web conferences with over 42,000 participants each month48% of employee trainingCost avoidance from e-learning: $750M over past two years


Next Generation Infrastructure

IT service provided on demand to IBM and customersApplication processingStorage

Consumption-based billingAdvanced systems managementProvision, allocate and deallocate resources dynamicallyMaximize sharing and utilization of resourcesAutonomically manage resources as a poolHandle workload surges

IT service provided on demand to IBM and customersApplication processingStorage

Consumption-based billingAdvanced systems managementProvision, allocate and deallocate resources dynamicallyMaximize sharing and utilization of resourcesAutonomically manage resources as a poolHandle workload surges

Potentially significant reduction in cost of operations is expected: target of 10 to 40 percent improved productivity

Potentially significant reduction in cost of operations is expected: target of 10 to 40 percent improved productivity


Lessons Learned10. Create a “sense of urgency” that the company can rally around

9. Create a revisionist history – you’ll be surprised at how far you’ve come

8. While you’re creating – define short term projects with near-term results

7. Review business processes to see if changes are needed before you deploy technology

6. Technology enables and hastens transformation

5. Set your milestones and metrics with an end-to-end life cycle view

4. Sunset legacy systems/applications/tools as new ones are deployed

3. Can NOT overemphasize the importance of culture – this will make you or break you

2. Transform constantly or risk extinction – there is no other option

1. Always, always, always, listen to your customers


Becoming a services-led company:Lessons Learned


Agenda

IBM services evolutionStrategic considerationsBusiness modelsGo to marketDeliveryPeopleCross line of business considerations


Evolution of IBM Global Services – a high level view2003160,000 staff1990s

Competitive maintainers

MaintenanceBusiness

Product Affinity Services

IT Outsourcing

IT Transformation Outsourcing

Consulting services

Consulting, System Integration, Development

Transformation Consulting

Infrastructure Transformation

PwCConsulting

Glo

bal

Ser

vice

sBusiness Transformation Outsourcing

Fee to freeExploit internal IT

Competitive outsourcers

Product profit erosion

Shift to business value & solutions


Global Services revenueGlobal Services as a % of IBM revenue

71%

29% IBM

GlobalServices

1996

2002

55%

45%IBM

GlobalServices

Global Services as a % of IBM Employees

65%

35% IBM

GlobalServices

1996

2002

45%

55%

IBM

GlobalServices

Global Services as a % of IBM Pre-tax Income

70%

30% IBM

GlobalServices

1996

2002

51%49%

IBM

GlobalServices


Building a Services-Led Enterprise

1989 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

$13B$15B

$17B $16.9B$20.1B

$22.3B$25.2B

$28.9B$32.2B $33.2B

ServicesMaintenance

$35.0B$42+B*

Created IGS

Created IGS

Brand Expansion

Brand Expansion

e-business Hosting

e-business Hosting

First outsourcing

deal with Kodak

First outsourcing

deal with Kodak

Became World's Largest IT Services Provider

Became World's Largest IT Services Provider

Backlog Tops $50 Billion

Backlog Tops $50 Billion

IBM embraces e-business

IBM embraces e-businessFormed

ISSCFormed ISSC

1st $1 billion deal w/ McDonnell Douglas1st $1 billion deal w/ McDonnell Douglas

5.6

7.4

Sold Global Network

Sold Global Network

Launched BCS

Launched BCS

CEO calls IBM a services-led Co.CEO calls IBM a services-led Co.Formed IBM

Consulting GroupFormed IBM

Consulting Group


IBM Global Services Value Framework


IGS strategic intent

…materially improve our clients' business effectiveness through expert application of technology...by delivering services that help clients to reduce operating costs, transform the way they run their business, and expand into new markets.

Business Value

Infrastructure Value

BCSSO

EBOs

Utility & Application

Services

ITS


IT Industry Services:the new frontiers

BusinessValue

ComponentValue

InfrastructureValue

Services

Software

HardwareEnh

ance

d V

alue

• Business Performance Transformation Services

• Full Equation

• “Commodity” Technologies out• “Innovative” Technologies R&D

• Rationale SW acquisition


To succeed in the Services business you need to couple with several strategic dilemmas

Portfolio management – “product” cycle timeAccommodating investments

One of a kind or mass customised servicesLooking at your capabilities in a new light (eg research in IBM)

Margin or growth

Enter from bottom (installed product) or top of value chain

Market polarization: business vs commodity value

Cultural readiness

Annuity or project based services


Overall lessonsStrategy

Start with what you know (build on the installed base)

Move into commitment business very, very carefully

Avoid consulting until your culture is ready for it – and it will drive end to end business Client management

Client satisfaction – eg implicit brand commitments

Change management

Profit dynamic changes – profit skew changesCulture and people

From strategy to engagement and delivery

Key leaders, rainmakers, can make enormous impacts

The transition to services for sales, leaders, etc takes time and mistakes are costlyProcess is key

Portfolio, sales, bidding, delivery

Eg Workdirect


Thank you

business on demand

Mario [email protected]


Discussion

lecture by mario derba at ge seminar on ibm services transformation

Business

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