The CIO as the Chief Transformation Officer The Role of ... · The CIO as the Chief Transformation Officer The Role of Technology in IBM’s Transformation Journey [email protected]

The CIO as the Chief Transformation Officer

The Role of Technology in IBM’s Transformation Journey

[email protected]

647.831.8850

2

“This will never happen again” (Jerry York, IBM CFO, 1992)

Globally integratedMultinationalInternational

20thCentury

21stCentury

Smarter

Export Replicate Connect Instrument

intelligent

instrumented

interconnected

Globally integratedMultinationalInternational

20thCentury20th

Century21st

Century21st

Century

Smarter

Export Replicate Connect Instrument

intelligent

instrumented

interconnected

3 3

$3.34

$13.70

-$8

-$6

-$4

-$2

$0

$2

$4

$6

$8

$10

$12

$14

1Q12 1Q11 1Q10 1Q09 1Q08 1Q07 1Q06 1Q05 1Q04 1Q03 1Q02 1Q01 1Q00 1Q99 1Q98 1Q97 1Q96 1Q95 1Q94 1Q93 1Q92 1Q91 1Q90

IBM EPS Diluted TTM

IBM EPS Diluted Quarterly

IBM Historical Earnings per Share Diluted Quarterly & TTM

• Beyond improving EPS performance, IBM’s GIE transformation has been instrumental

in stabilizing and growing earnings since the beginning of the 20th century

• This time period coincides with the firm’s focus on enterprise transformation through

process consolidation and standardization

Inflection point

in 1Q02

IBM is in the 20th year of an ongoing Transformation Journey….

4

Source: 2015 EPS Roadmap as used on May March 8th Investor Day 2011

….where anticipated transformation results are embedded into IBM’s

Financial Roadmap….

11% CAGR

~$50B returned through share

repurchase

Revenue Growth

~$2.80

2010 OperatingEPS*

Revenue Mix

EnterpriseProductivity

Margin Mix

Shares

2015 OperatingEPS*

$11.67

At Least

$20

Operating Leverage

~$2.50

~$3.05

Acquisitions

Enterprise Productivity yields margin

expansion

Shift to a higher value portfolio continues to

provide leverage

Shift to faster growing business mix provides ~1% revenue growth

Base revenue growth ~2%

excluding divestitures

~$20B of acquisition spend provides ~2%

revenue growth

Base RevenueGrowth

* Non-GAAP: Excludes acquisition-related charges and non-operating retirement-related expense

Assumes current tax policy and Non-GAAP tax rate of 25%

5

….where results have been persistently delivered through four phases

of transformation….

© 2012 IBM Corporation

IBM’s management system

integrates leaders across

geographies and products to help

them focus on “One-IBM” goals

As IBM standardized, the firm

began significant investment in

self-service tools to simplify the

delivery model and reduce cost

IBM’s delivery of its financial

roadmap is leveraging its

integrated enterprise to create

and capture value for clients

With a global presence, IBM can

quickly port work to existing local

operations to scale in new markets,

mitigate risk or reduce cost

IBM’s Integrated Enterprise Transformation & Key Differentiators

Integrating functions has

provided a single view of support

costs so IBM can understand

where to invest and reduce

Consolidating ownership and

standardizing tasks has helped IBM

identify best practices while

automating and eliminating work

Optimizing labor and delivery

models has helped IBM reduce

costs while focusing resources on

high value support areas

Current initiatives enable the

transformation that drives

continuous improvement

Integrate Standardize Optimize Elevate

IBM has consolidated

resources by function under a

global leader and budget

Looking across support, IBM

has standardized how work is

executed

IBM has focused on moving

work to where it is best

performed

IBM is investing in initiatives to

enhance client, employee, and

business partner experience

Consolidated $16B of Shared

Service spend across ~150

countries

Reduced support cost by ~25%

over 5 years while entering new

markets

Scaled to support the ~22% of

IBM’s 2011 revenue coming

from emerging markets

Targeting enablement of $8B in

productivity and $20B in

revenue growth by 2015

Hard

ware

Soft

ware

Serv

ices

Fin

HR

..

Fin

HR

..

Fin

HR

..

Hard

ware

Soft

ware

Serv

ices

IE

Shared

Services

Optimize

Labor & Cost

Differentiate

Services

Optimize

Data

Focus on

Higher

ValueP

rocesses &

Ow

ners

From Silos…to Shared Services Transformation Agenda

Customer, Employee, Business Partner and Supplier ExperienceGeos Geos Geos

Enabling Processes

Operating Processes

Supporting Processes

HW SW SVC

Global Bid Support Center

North America

GMUJapan

B

LA

NA

Canada

Nordic

UKI

Japan

ANZ

GCG

BeNeLuxGermany

ASEAN

KoreaFrance

Bangalore

Bratislava

India/SA

MEASPGI Italy

Budapest

Manila

OkinawaEurope

Alps

Global Enablement Center

CEE

Global Bid Support Center

North America

GMUJapan

B

LA

NA

Canada

Nordic

UKI

Japan

ANZ

GCG

BeNeLuxGermany

ASEAN

KoreaFrance

Bangalore

Bratislava

India/SA

MEASPGI Italy

Budapest

Manila

OkinawaEurope

Alps

Global Enablement Center

CEE

Smarter Infrastructure

HR Self-

Serve

Benefits

Hiring

Payroll

TrainingNewsHR

FAQs

Operations

Strategy

Technology

Performance

Integration & Values

Daily Execution

Long Term Vision

Market Shifts

Business Performance

Enterprise CapabilitiesLead

ers

hip

Team

s

Focus

Discrete, Iterative Phases of IBM’s Transformation

Enabling Capabilities

Change Management Risk Management Collaboration Tools Process Excellence

Program Management Performance Management Culture Transformation Business Analytics

• Web based remote services and Integrated invoicing

• Move people to focus on higher value work

• Social engagement

• Integration across BU’s enabling bundled offerings

• Ensuring clients have a superior experience

Client Experience Client Satisfaction

Draft Version/ 31-Aug-12 v21.0

6

Systems &

Technology Group

(STG)

Global Business

Services (GBS)

Software Group

(SWG)

Global Technology

Services (GTS)

Sales & Distribution

(S&D)

Business Units

Globally Integrated Shared Services

Geographies

North America

Europe

Japan

Sectors

IBM Organization At a Glance IBM Leadership Governance

Distribution

Industrial

Financial Services

Communications

Public

General Business Growth Markets IBM Research

HR Real Estate IT Finance Legal Marketing/

Comm

Sales

Mgmt

Support

Integrated

Supply

Chain

Sales

Transaction

Hub

….and which has been driven by a Governance model and

commitment to execution….

Strategy Team

IBM’s strategic direction and emerging

business opportunities

Technology Team

Near- and long-term emerging technologies,

technical developments and issues

Integration and Values Team (I&VT)

Integrate IBM’s enterprise-wide capabilities, and

align and communicate strategies and values

Performance Team

Accountable for business performance & results.

Develop cross-unit strategies.

Operating Team

Day-to-day marketplace execution

Focused on ensuring IBMers deliver exceptional

client service

Client Experience Team

7

Transformation Framework

Business Process

Excellence

Organizational Change

Management

Information Technology Enablement

Enabling Growth Enabling Productivity Enabling Change

• Growth markets leadership

• Mergers & acquisitions

• State-of-the-art sales

enablement

• Value Services

• Business process

excellence

• IT enablement

• Transformational leadership

• Values-based culture

• Organizational Change

Management

Transformation Focus Areas

IBM Strategy

IBM Values

….of a constant Transformation Framework that drives the interplay of

Business Process Excellence, IT Enablement and Organizational Change

8

Enabling Growth

• Growth Markets Leadership

• Mergers & Acquisitions

• State-of-the-art Sales

Enablement

Enabling Growth

9

What we’ve done Why?

• Emerging markets growing at more

than twice the rate of major economies

• Growth markets source of global

innovation, high-value, and

competitively-priced skills

• Executed growth strategies by market and

industry

• Leveraged established business relationships

for competitive advantage

• Enabling clients with fast scaling and flexible

environments

• Created/based Growth Markets unit in Shanghai

• Leveraged efficiencies from global support

functions to free up investments

• Focused management system on future and

current period

Growth Markets Leadership

Impact

• IBM’s business in growth markets grew 10 points faster than major markets in 2011

• Growth countries contributed 22% of IBM’s 2011 geographic revenue

• Revenue in Brazil, Russia, India and China up 16% in 2011

• 40 countries grew double digits at constant currency

Greater China

Group

India

S Asia Latin

America Middle East

& Africa

Central & Eastern

Europe

Australia

New Zealand

ASEAN

S Korea

Enabling Growth

10

What we’ve done Why?

• IBM growth strategy includes acquiring

high-value solutions, entering new

markets and exiting non-core businesses

• IBM’s revenue growth must come from

both organic and non-organic sources to

meet investor expectations

• Over the past 5 years, invested $18B in

acquiring nearly 60 companies

• Continued to divest non-core businesses

• Acquired technologies AND business models

to create new revenue and deliver additional value

• End-to-end M&A process with Integration

Executives appointed

• Best in class deal management tool to manage

global cross-functional teams

• Post-acquisition performance metrics aligned

with our management system

Mergers & Acquisitions

Impact

• IBM’s acquisitions played a key role in revenue growth and profitability over the past 5 years

• Efficient divestitures program around non-core assets continues to help profitability

• M&A continues to enhance IBM’s position as a global IT leader in strategic areas, e.g. business

analytics

Enabling Growth

11

What we’ve done Why?

• Needed to capture new accounts and grow

organic revenue

• Needed to improve sales productivity by

better aligning resources & opportunities

• Needed to support sellers in integrating IBM

on cross-brand deals

• Worked with IBM Research to apply

advanced analytics to sales issues

• Created Sales Transaction Hub – one-stop

shop for pre-sales support

• Worked with business unit leaders to ensure

relevance, buy-in and ownership

• Analytic tools now used by business units

as part of planning process

• Capture our best client proposals and

collateral for reuse

State-of-the-Art Sales Enablement

• Optimization of sales assignments based on analytics resulted in $1B in revenue opportunity over 4 years

• Territory Optimization Program deployed -well-deployed reps outperforming others by 10% on average

• Sellers report reusable proposal collateral saves hours of preparation time

• Sales Transaction Hub increased win rates and reduced the cycle time to close deals

Impact

Enabling Growth

12

Enabling Productivity

• Value Services

• Business Process Excellence

• IT Enablement

Enabling Productivity

13

IBM GIE Shared Services

“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 – and integrating those operations

horizontally and globally. …This is about doing the right tasks, with the right skills, in the right places.”

- Sam Palmisano, IBM Chairman, President and Chief Executive Officer

Legal Information Technology

Real Estate Operations

Marketing and Communications

Sales Management Support

Capitalize on talent and skills around the world

Global support for

the local front office

INTEGRATE

AUTOMATE

ELEVATE

OPTIMIZE

INTEGRATE

AUTOMATE

ELEVATE

OPTIMIZE

Finance

Human Resources / Admin Sales Transaction Hub Integrated Supply Chain

Enabling Productivity Our Shared Services model allows IBM to provide support

to all IBM business units efficiently and effectively

14

Shared Services Spend ($B)

Year-to-Year Enterprise

Productivity Savings ($B)

16.615.0 14.1 13.6

12.4 11.8 11.3

0

5

10

15

20

2005 2006 2007 2008 2009 2010 2011

Shared Services

0.0

0.5

1.0

1.5

2.0

2006 2007 2008 2009 2010 2011

$5.3B spending reduction in Shared

Services from 2005 through 2011

$2.8B productivity improvement from

Enterprise Transformation Initiatives

In 2011 IBM delivered $1.9B against

$8B 2015 productivity objective

1.9

Enterprise Transformation Initiatives

1.5 1.7

0.5

1.0

1.5

Enterprise Transformation contributes improved business

performance and has achieved over $8B through 2011 Enabling Productivity

Value Services Progress To-Date

15

Impact How we did it

• Process improvements contributing to

growth & productivity:

– $1.4B in productivity gain in process

transformation & integrated operations in two

years

• Hardware Product Management: reducing

product portfolio and design complexity

– Reduced feature and options by 35% and

systems portfolio by 40%

• Use of labor analytics to manage technical

delivery resources

– Unassigned resources – “bench” – has

improved from 8 percent to 3 percent

– Utilization improved 18 percent over four years

• First release of Blue Harmony in China in 2011

integrates data from multiple legacy

systems into a single instance, managed

within SAP

Business Process Excellence

• Focused on driving horizontal, end-to-end

process improvements and put senior

leaders in charge of key processes

• Developed hundreds of professionals with

business process skills, including Lean Sigma

black belts

• Simplified and standardized processes

across business units and geographies

• Package-enabled business transformation,

based on SAP software, provides global

template for consistent deployment

• Identified principles for radical simplification

Current Baseline

Horizontal Integration

Simplification

Radical Change

Enabling Productivity

16

The EPF includes 3 categories of Level 1 processes cutting across business units and geographies

11.0 Manage Finances

10.0 Manage Human Resources

12.0 Manage Business Transformation & Information Technology

13.0 Manage Web & Business Support

Su

pp

ort

ing

(F

oundational

Pro

cesses)

8.0 Manage Sales and Channels

7.0 Plan and Manage Client Relationships

6.0 Develop Strategy to Execute

9.0 Procure to Pay

14.0 Manage Financing Services

Hardware Software Services

Americas NE/SW IOT Japan GMU Americas NE/SW IOT Japan GMU Americas NE/SW IOT Japan GMU

Op

era

tin

g

(C

lient

Facin

g)

2.0 Market to Opportunity

4.0 Order to Cash

3.0 Opportunity to Order

1.0 Idea to Market

5.0 Support

15.0 Deliver Services

En

ab

lin

g

(E

nable

s

Clie

nt

Facin

g)

Our Enterprise Process Framework (EPF) provides a common taxonomy and reference for all IBM business processes

EPF Overview

Process taxonomy designed to help categorize information on business processes to support

transformation, operational and

deployment activities

Common processes are logically

grouped and displayed once with a single process owner, but can be used by many business areas

Enable organization to understand inner workings from a horizontal process viewpoint, rather than a vertical functional organization point of view.

Enabling Productivity

17

Impact How we did it

• $1.75B in IT savings since 2005

• Project Green to deliver 80% energy cost

savings & 85% floor space reduction

• Develop/Test Cloud server supports 5000

images, 500 projects and 1000 developers

• Social Computing fuels collaboration

– 155K employees in Technology Adoption

Program (up 48% from 2010);

– 600K+ users in Lotus Connections.

• Growth market branch offices increased

significantly to 222 branches through 2011

• Began with a massive consolidation:

– 128 CIOs to one

– 155 data centers to 5

– 16,000 applications to 4500

• Capitalized on open standards & virtualization

– 6500+ servers consolidated since 2008

– Created GenO - global, virtual community uses

collaborative practices to develop software

• Leveraged Cloud to share resources, rapid

scaling & self-service

• Transformed intranet into robust social

networking platform

• Developed “branch office in a box” IT

IT Enablement

TAP: Driving Early Adoption Application Portfolio Mgmt SOA for Enterprise Flexibility BlueInsight Analytics Cloud Security for Global Business Project Big Green

Enabling Productivity

18

35%

16%

FROM 2003 to 2015...

TRANSFORM % +17 pts

Note: E/R is the ratio of IBM total IT spend to IBM total revenue

UPDATE GRAPH

2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 10 2 0 11 2 0 12 2 0 13 2 0 14 2 0 15

R u n T ra n s fo rm IB M E /R

24%27%

30%

32%

32%33%

37%39% 39%

39% 40% 41% 41%

IT Spend Trend and 2015 Roadmap

IT

E/R

To

tal

IT S

pen

d

Support IBM’s 2015 Financial Roadmap Enabling Productivity

19

Enabling Change

• Transformational Leadership

• Values-based Culture

• Organizational Change

Management

Enabling Change

20

What we’ve done Why?

Transformational Leadership

• Created a collective leadership force of senior

leaders accountable to integrate IBM and lead by

Values (Integration & Values Team or I&VT)

• Deployed Business Leadership Model which

links strategy to execution

• Identified critical roles and built multi-year talent

pipelines

• Refreshed a core set of leadership

competencies for all IBMers

• Defined a new Leadership Framework focused

on business results and employees’ experience

• Need to develop global leaders for the

21st Century who:

have a global orientation

foster employee engagement

inspire IBMers to think and work together

enable IBMers to execute IBM’s strategy

in the face of uncertainty

Impact

• I&VT leaders model integration and enable key transformation efforts

• IBMers are focused on a set of competencies that are empirically linked to performance

• IBM continues to deliver performance while transforming

IBM ranked #1 in 2011

Global Top Companies for Leaders

Build mutual trust

Influence through expertise

Continuously transform

Communicate for impact

Help IBMers succeed

Embrace challenge

Partner for clients’ success

Collaborate globally

Act with a systemic

perspective

IBMers at our Best: Our Competencies

Enabling Change

21

What we’ve done

Why?

• Needed to re-establish a set of Values as the core of IBM’s culture and brand

• Expanding the IBM brand experience beyond products to integrated solutions and people

• Evolving the IBM management system to leverage global / cross unit integration

Values-based Culture

• Engaged employees globally in Values Jam to refresh our Values (2003)

• Conducted World Jam with employees to collaborate on solutions for growth, innovation and

bringing the Values to life (2004)

• Resulted in a set of new core values defined by IBM’s workforce

• Created Values that are integral to our performance, recognition and talent management

systems

• Engaged leaders at all levels on enabling our Values-based culture locally and globally

ValuesJam 2003

Enabling Change

22

What we’ve done Why?

• IBM is in a constant state of

transformation, engaged in a stream of

concurrent initiatives

• Some IBM initiatives have experienced

uneven adoption and impact

• Need for a disciplined change

management capability on key

transformational initiatives

Organizational Change Management

• Launched a Center of Excellence to provide

leaders with Organizational Change Mgmt.

advisory services

• Deployed a common method and tools: Better

Change for IBM

• Strengthening change management capability

of our leaders and teams, globally

• Embedding change management discipline

into key transformation projects

• Created a worldwide on-line community of

change management practitioners

• Using social business technologies to engage

IBMers in transformation

Impact

Change management is recognized by leaders as improving adoption and business impact:

“The change mgmt. plan allowed local leaders to deploy aggressive coverage model changes while minimizing

business disruption and driving adoption…instrumental in early success.” - VP, Sales Coverage “Our project required Brands and Geographies to agree on common priorities for the good of the enterprise.

Stakeholder alignment as a part of change management was ongoing and critical for success.”

- VP, BT/IT Enterprise Transformation

Enabling Change