IBMs Transformation to a Globally Integrated Enterprise

Jeanette Horan
Vice President, Enterprise Business Transformation

Dusty Rhodes
Partner, Global Business Services

Copyright IBM Corporation 2008

Agenda

IBMs Strategic Priority

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A Globally Integrated Enterprise (GIE) The IBM Journey

Transforming IBM into a GIE

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A Strategic Enabler Leveraging the Best

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IBM Strategy: Summary

Focus on open technologies and high-value solutions

Deliver integration and innovation to clients

Become the premier Globally Integrated Enterprise

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Doing Business In A Flat World Requires Re-thinking The Very Structure Of The Enterprise
A Globally Integrated Enterprise 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 Management Global Production Optimization Global Demand Management

Efficiently locates and secures the best global talent and production resources available in the world, inside or outsourced

Creates global scale and efficiency through modular global service centers integrated via common platforms, values and governance
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Aggressively pursues high growth global markets, e.g., emerging markets, global niche markets, and global solution requirements
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IBMs Global Evolution

20th
Century

21st
Century

The international era -exporting

The multinational era -replicating

A globally integrated enterprise -- business in a connected world

IBM is formally established in 1924 ($11M in revenue; 3384 employees) with sales operations in Canada, Latin America, Europe & Asia; 3 manufacturing facilities completed in Europe by end of decade

Mini IBM sales companies established in all major countries of operation, each with full-blown back-office functions e.g., HR, Finance, Marketing, Procurement Seeded mfg in select countries to temper risk of nationalization
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Over 200,000 employees Services Delivery (incl. ISC) across 50 delivery centers in 21 countries 12 Global Shared Services Units Nearly 2/3 of revenue outside US

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IBM Has Undertaken A Multi-year Transition From A Multinational To GIE, Impacting Most Aspects Of The Organization

IBM GIE Priorities

Capture the opportunity of a growing global marketplace

Global Marketplace

Leverage IBMs scale and expertise to optimize market growth Serve needs of global clients Take advantage of global sources for high-quality skills

Global Support Functions

Rationalize support functions for greater efficiency Create the flexibility to quickly manage change in the marketplace

Create a culture that reflects IBM global presence and priorities

Global Culture

Instill values that promote global collaboration and the integration of IBM, partners and clients

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And Has Made Substantial Progress In This Transition By Leveraging Deep Business Transformation And IT Integration Capabilities
From Multinational
Multiple local Supply Chain process and systems 300 local procurement centers Product design and manufacturing 128 Local CIOs, 155 Local Data Centers and 16,000 apps Multiple Finance organizations with non-integrated decision support Local HR systems and management local resource skill set definition

to Globally Integrated
Globally integrated Supply Chain processes and IT 3 Global procurement centers Global Solution Centers develop and deploy solutions for use worldwide 1 Global CIO, 6 Global Data Centers and 4,700 applications Powerful decision-support and business controls Outsourced non-core processes reduced costs 25-35% Global HR planning standardized global resource skill set definition

Global Marketplace

Global Support Functions

Global Culture

US based corporate leadership; Many regional organizations

Some corporate leaders outside US; Consolidated regional organizations

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The Opportunities In Growth Markets Are Well Addressed Through IBMs Globally Integrated Enterprise
China: early investment has resulted in significant growth in this emerging market
Hub of Global Innovation IBM China
10,000+ employees 26 offices 9,000 business partners Market leader servers & storage, middleware, services
Urimuqi

India: another successful example of injecting global skills and expertise as part of our GIE strategy
Hub of Global Innovation
India Research Laboratory (1998)

China Research Lab (1995) China Software and System Lab (1999) China System Center (2004) Global Services Oriented Architecture Solution Center (2006)

Business Scale
3,000 employees in 2002, 73,000+ in 2008 35 centers 9 opened in 2006 2,500 business partner firms

India Software Laboratory (2001) Engineering & Technology Svcs (2003) Global Business Solutions Center (2006) Services Oriented Architecture Solution Center (2006)

CHINA

Harbin Shenyang Beijing Tianjing

Largest multinational software exporter Market leader in servers, storage and services 2007 revenue up 38%

Delhi

China Revenue Growth excluding PCs

Zhengzhou Hefei Suzhou Chengdu Nanjing Shanghai Chongqing Hangzhou Nanchang Ningbo Changsha Fuzhou Kunming Guangzhou Shenzhen Nanning Wuhan

Taiyuan Shijiazhuang Xian

Dalian

Kolkata

Jinan

IBM Established: 1938

Mumbai Pune Hyderabad

Hub of Global Delivery

Chennai
Application Management Services (1997) Global Services Delivery Centers (2004) IBM Daksh Business Process Outsourcing (2004)

Hub of Global Delivery

Server Manufacturing (2002) Global Delivery Centers (2005) Global Procurement (2006)

Bangalore

2003

2004

2005

2006

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As A Result Of Our Transformation, IBM Is A Higher Performing Enterprise

Record Profit Our business model is more aligned with our clients needs and generates improving margins, profits and cash
Margins 50% GROSS PROFIT MARGIN

36.5% 36.9%
25%

40.1% 41.9% 42.2%

PRETAX INCOME MARGIN

13.4% 14.6% 14.7% 10.6% 11.1%

0% 2003 2004 2005 2006 2007

Record Cash Performance

20 15 10 5 0 2003 2004 2005 2006 2007

Record Earnings Per Share

Earnings Per Share
8 6
(From continuing operations)

Net Cash from Operations, Excluding Global Financing Receivables

(Dollars in billions)

15.3 12.6 12.9 13.1

17.4

7.18 6.06 4.39 4.91

3.76
2 0 2003
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2004

2005

2006

2007

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Agenda
IBMs Strategic Priority
-

A Globally Integrated Enterprise (GIE) The IBM Journey

Transforming IBM into a GIE

-

A Strategic Enabler Leveraging the Best

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We Leveraged Our 6-step Method To Ensure Complete Alignment Of Process Capabilities With Strategy
Identify Enterprise Strategy & Capabilities
Define Enterprise Strategy Define Business Unit Strategies Define Operational Capabilities required to realize business strategy

Define Business Process Framework

Based on Core Capabilities, Define Enterprise Process Framework Define e2e Business Views/ Scenarios Define Global Usage and Differentiators Define Roles

Define Target Architecture & Enabling Applications

Based on Strategies & Processes, Define Target Architecture & Strategic Applications Identify Key Integration Points Identify Enterprise Component and Services

Identify Core Data & Trusted Sources

Identify Key Data required to enable Business Proceses Identify Trusted Data Sources Identify Key Standards

Define Infrastructure Directions & Support

Define Technology/ Infrastructure Strategy Identify Target Infrastructure Services ID Common Guidelines & Standards

Develop Roadmaps & Transition Plans

Develop Roadmap to realize end Target/ end state Identify key success factors/ enablers to achieve end state Identify next steps

Enterprise Governance Current and Planned Portfolio

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Beginning With Enterprise / BU Strategic Analysis And Culminating In Identification Of Operational Capabilities Needed To Support Business Goals
Strategic Goals
Revenue growth Revenue growth from emerging from emerging business business opportunities opportunities

Operational Capabilities
Horizontal integration Horizontal integration across processes, BUs, across processes, BUs, and Geos to provide an and Geos to provide an enterprise view of IBM enterprise view of IBM Consistent processes, Consistent processes, controls, and systems controls, and systems across BUs One way of across BUs One way of doing business doing business Visibility to key processes Visibility to key processes and events. Ability to and events. Ability to manage by exceptions manage by exceptions

Innovation and Global Integration Enterprise Strategy Enterprise Initiatives

Lead the shift to Lead the shift to business value business value Lead the Innovation Lead the Innovation Agenda Agenda

Business Unit Strategies

Be the premier Be the premier Globally Integrated Globally Integrated Enterprise (GIE) Enterprise (GIE)

Provide right data to the Provide right data to the right users at the right time right users at the right time for effective decision for effective decision making enterprise-wide making enterprise-wide Enterprise master data Enterprise master data (single source) to enable (single source) to enable horizontal integration horizontal integration

The assessment showed that the current processes and systems will not be able to support IBMs strategic objectives

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The Assessment Identified Key Challenges In The GIE Vision Current Brick-by-Brick Approach
We can see the vision

Product-centric

Process-centric

Bottom Line
We cant get there from here

Fragmented approach

Brick-by-brick approach Brand-centric

Lacks an integrated vision

Country-centric

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And Highlighted The Need For An Enterprise Wide Approach Spanning People, Process And Technology, And A Strong Governance Model
The New Approach
Governance
One governance model providing clear direction, focus and executive commitment

GIE Vision
Execution of the Enterprise Strategy

Data/Information
Strategic uses of trusted data and data warehouses

Application Architecture
Strategic applications used and others sunset

Infrastructure
A cost effective, reliable and adaptable infrastructure

Business Process
Design globally consistent processes across organizations and brands. A strong change management approach to transform the

culture

Current Approach

Development Methodology:
Adopt the best methods to ensure speed and quality

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We Leveraged An Enterprise Process Framework For A Higher Level Of Standardization, Simplification And Integration Across The Company
Hardware
Americas Europe AP

Software
Americas Europe AP Americas

Services
Europe AP

Support Order to Cash

Vertical

Operating

Fulfill

Integration Across Processes

Plan to Deliver

Plan to Deliver

Plan to Deliver

Opportunity to Order Market to Opportunity Idea to Market

Develop to Manage Lifecycle Develop to Manage Lifecycle Develop to Manage Lifecycle

Enabling

Develop Strategy to Execute Manage Client Relationships Manage Channels Procure to Pay

Horizontal

Supporting

Manage Human Capital Manage Financial Resources Manage Information and Technology Manage Business Support

Integration Across Business Units and Geographies 15

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This Framework Is A Foundational Component In Driving Business Transformation Across IBM

PROCESS EXCELLENCE
Roles and Responsibilities

Governance
Operational Model

Investment Prioritization

Strategic Planning
Enterprise Priorities Roadmaps Initiative Definition

Business Transformation Management System

Business Transformation
LEAN SIGMA
Hardware
Americas Europe Europe AP Americas

Software Software
Europe Support AP Americas Americas

Services
Europe Europe AP

Operating

Methods And Tools

Order to Cash Order to Cash Fulfill Fulfill Plan to Deliver Plan to Deliver Plan to Deliver Opportunity to Order Market to Opportunity Idea to Market Develop to Manage Lifecycle Develop to Manage Lifecycle Develop to Manage Lifecycle Develop to Manage Lifecycle Develop to Manage Lifecycle Plan to Deliver

Roles And Skills

Enabling

Develop Strategy to Execute Manage Client Relationships Manage SalesChannels Manage and Channels Procure to Pay

Supporting

Manage Human Capital Manage Financial Resources Manage Information and Technology Manage Business Support

CHANGE MANAGEMENT
Communications Culture
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Education
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IBM's ERP Strategy Has Evolved To Support Enterprise Integration

Enterprise Integration Global Business Process Integration
Global Integrated Supply-Chain Cross divisional processes with horizontal integration Linkage between business and application framework E-business ONE IBM Customer facing ONE IBM Supplier facing Streamlined Process Value Chain Integration

Project and Technical Integration

Project integration across like businesses and processes Corporate hierarchy and data standards Technical standards and common platform

4 200

ard nw -o

000 8-2 199

Fast Start Projects

Rapid integration of ERP to meet critical business needs Fast return on investment Limited Corporate integration

998 6-1 199

6 199 9419

n asi re Inc

b Glo g

s ine us lB a

io rat g nte sI

* Currently underway
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Why SAP Is Our Premier Partner

Business Reengineering Support
Global solution with multi-country support Broad functional scope for business integration Embedded industry best practices Industry-proven solution Business process & configuration adaptation flexibility Discipline Integration Availability of skills

Consistency with IT Strategy / Standardization

Purchased application solutions Network Computing Architecture Speed of implementation Integration with IBM hardware/software/services solutions R&D capability

Favorable Internal Results

Cross Brand Solutions Manufacturing Procurement and more

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Leveraging The Best of the Best

The GIE Transformation Program will leverage a strong integrated team, tested methodologies and collective expertise to deliver a truly globally integrated enterprise

GBS will bring:

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Proven strategy, delivery and program management capabilities demonstrated across thousands of clients Complete end-to-end SAP software design, implementation and sustainment capabilities A proven, benefits driven, methodology and approach A large, global, experienced SAP consulting organization Largest network of SAP Solution Delivery Centers (12 centers across US, India, China, Brazil, Argentina) Best practices in business process transformation as well as SAP implementation

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Leveraging The Best of the Best

IBM GBS SAP Practice Key Differentiators

Leader in Customer Satisfaction per SAP independent client survey, Feb 2007 Leader in Ability to Execute per 2007 Gartner Magic Quadrant for North American ERP Service Providers Leading ERP Service Provider per 2007 Gartner European Magic Quadrant Leader in SAP Strategy and Vision per 2007 Forrester Global SAP Implementation Providers Survey Leader in dedicated SAP resources with over 17,500 resources in more than 80 countries Leader in SAP Certified Consultants in India per SAP (>6,800 dedicated SAP consultants) Leader in share of SAP consulting services market per SAP

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Leveraging The Best of the Best

SAP will bring:
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The worlds leading business software supporting integration and streamlining end-to-end processes, while enabling corporate, financial, environmental and global trade compliance Deep knowledge of and experience with SAP software Additional process and technology best practices

The Business Transformation / IT organization within IBM will bring demonstrated expertise in business and process transformation The IBM Business (i.e., client) will provide the institutional and operational knowledge within and across Business Units / Geographies

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IBMs Technological Leadership

Business Process Management Interoperability with IDS Scheer ARIS business modeling solutions Extract, Transform, & Load (ETL) Tools Unique data profiling, cleansing, and quality management; Graphical automation & management of batch interfaces from SAP DB2 is the preferred database for SAP
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Specifically optimized for SAP OLTP and BW OLAP environments through a bilateral engineering relationship with price, performance, & reliability advantages; Reduce disk storage requirements by 30% with DB2 deep compression

Tivoli
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Network crawler software to automatically inspect/catalog SAP & IBM software, configuration, and dependencies

Hardware
-

Specific SAP optimizations for pSeries, iSeries, zSeries, and xSeries Significant energy savings by consolidating multiple SAP and DB2 instances on a single box IBM Dynamic Infrastructure to provision a new SAP system in minutes instead of the typical 160+ days

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IBM Is On Target To Continue Its Transformation From Multi-National To Globally Integrated

The concept of GIE enables
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Robust business innovation and flexibility, Efficient utilization / expansion of our solutions portfolio, and Taking advantage of our extensive global delivery capabilities

We have the road map to realize global integration leveraging both our engagements with clients as well as our own experience with IBMs GIE transformation We are uniquely positioned to leverage the full range of capabilities to support a transition to global integration
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Global scale and capabilities Direct experience internally and with global clients Deep understanding of global business needs

Our 30+ year partnership with SAP enhances our ability to implement the GIE vision by leveraging the SAP integrated application to bring structure, organization and best practices to our processes and systems
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Questions & Answers

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Key IBM Contact

For more information on the IBMs GIE transformation, please contact:
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Dusty Rhodes, GBS Partner the Industrial Sector SAP Leader at john.rhodes@us.ibm.com

For more information about the Globally Integrated Enterprise, click on this link on the IBM web site:
http://www.ibm.com/ibm/ideasfromibm/us/integration/010607/index.html

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