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Mario Derba Lecture at General Electric Seminar, Florence, October 2004
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© 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
October 5, 2004 © 2004 IBM Corporation3
LVG’s N° 7: We grew a business from the ground up
Nothing that grows starts large; it always starts small
October 5, 2004 © 2004 IBM Corporation4
We Were on the Verge of Breakup
October 5, 2004 © 2004 IBM Corporation5
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.
October 5, 2004 © 2004 IBM Corporation6
IBM Share in the Mainframe Era
October 5, 2004 © 2004 IBM Corporation7
IBM Share and Client Server Architecture
October 5, 2004 © 2004 IBM Corporation8
IBM, L.Gerstner and the e-business strategy
•Sell Mainframes
•Microsoft•Client/Server
October 5, 2004 © 2004 IBM Corporation9
-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
© 2004 IBM Corporation
IBM’s On Demand Transformation:Reinventing the Enterprise
October 5, 2004 © 2004 IBM Corporation11
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
October 5, 2004 © 2004 IBM Corporation12
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
October 5, 2004 © 2004 IBM Corporation13
Infrastructure and governance were simplified
BEFORE AFTER
11128128CIOsCIOs
1111155155Host Data CentersHost Data Centers
778080Web Hosting CentersWeb Hosting Centers
113131NetworkNetwork
5,2005,20016,00016,000ApplicationsApplications
October 5, 2004 © 2004 IBM Corporation14
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: ~$450M, up 8% YTY
October 5, 2004 © 2004 IBM Corporation15
What’s next? The Next Era of Computing
October 5, 2004 © 2004 IBM Corporation16
Phases of e-business adoption
October 5, 2004 © 2004 IBM Corporation17
IBM’s e-business adoption survey
Companies on the Cusp of On Demand
October 5, 2004 © 2004 IBM Corporation18
What do we mean by “on-demand”
An enterprise whose processes --integrated end-to-end across the organisation and with key partners, suppliers and customers -- can respond with speed to any stakeholder demand, market opportunity or external threat.
We used to call this the “advanced” phase of e-business
It has four key components
October 5, 2004 © 2004 IBM Corporation19
Variable:Able to adapt cost structures and processes flexibly, reduce risk and drive business performance.
Responsive:Capable of sensing changes in
the environment and responding dynamically
Resilient:Prepared for changes and threats --be they computer viruses, earthquakes, or sudden spikes in demand.
Focused:Committed to concentrating on core competencies and differentiating tasks and assets.
October 5, 2004 © 2004 IBM Corporation20
IBM’s on demand goals
Enable organizational productivity and collaboration throughout the enterprise
Enhance customer experience by improving responsiveness and delivering more innovation
Become the premier on demand business
Improve financial performance
October 5, 2004 © 2004 IBM Corporation21
A transformation framework to enable on demand capabilities
CultureCultureBusiness Business TransformationTransformation
IT EnablementIT Enablement
Collaboration& Teaming
Assembly of Productsand Services
Sense and Respondwith Velocity
Core CompetencyFocus
October 5, 2004 © 2004 IBM Corporation22
On demand measurement systemCapabilities Enterprise Measures On Demand Value
Solutions Revenue GrowthAssembly of Products and
ServicesMarket shareWin % by Solution Area
Custom
er Satisfaction
Brand attach rates
Revenue Growth IBM Revenue / PY ($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
October 5, 2004 © 2004 IBM Corporation23
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
October 5, 2004 © 2004 IBM Corporation24
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
October 5, 2004 © 2004 IBM Corporation25
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
October 5, 2004 © 2004 IBM Corporation26
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
On DemandAccess Integration
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
October 5, 2004 © 2004 IBM Corporation27
On DemandAccess Integration
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
Cost/expenseResource allocation
Cash generation
Cost/expenseResource allocation
Cash generation
Market share growthProductivity
October 5, 2004 © 2004 IBM Corporation28
On DemandAccess Integration
Evolution to On Demand: CultureHorizontally
integrated team
Internally focused hierarchy
Market-driven matrix
October 5, 2004 © 2004 IBM Corporation29
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
October 5, 2004 © 2004 IBM Corporation30
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
October 5, 2004 © 2004 IBM Corporation31
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
October 5, 2004 © 2004 IBM Corporation32
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
October 5, 2004 © 2004 IBM Corporation33
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
© 2004 IBM Corporation
Becoming a services-led company:Lessons Learned
October 5, 2004 © 2004 IBM Corporation35
Agenda
IBM services evolutionStrategic considerationsBusiness modelsGo to marketDeliveryPeopleCross line of business considerations
October 5, 2004 © 2004 IBM Corporation36
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
October 5, 2004 © 2004 IBM Corporation37
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
October 5, 2004 © 2004 IBM Corporation38
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
October 5, 2004 © 2004 IBM Corporation39
IBM Global Services Value Framework
October 5, 2004 © 2004 IBM Corporation40
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
October 5, 2004 © 2004 IBM Corporation41
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
October 5, 2004 © 2004 IBM Corporation42
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
October 5, 2004 © 2004 IBM Corporation43
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
© 2004 IBM Corporation
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