IBM TRANSFORMATION?A SUMMARY OF RESULTS

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IBM TRANSFORMATION—A SUMMARY OF RESULTS

IBM was on the verge of breakup: Bureaucracy, complexity, and silos was slowing IBM down—costing money and keeping the organization too opaque to function decisively. Stock prices were at a 20-year low, and the company had posted an $8.1 billion loss.

IBM drove common processes across lines of business: IBM began by breaking down barriers between lines of business, implementing enterprise-wide standards for five core processes:

• Market planning

• Product development

• Procurement

• CRM

• Fulfillment

Table 2.1. IBM Simplified Infrastructure and Governance

	Then	Now
Number of CIOs	128	1
Host data centers	55	12
Web hosting centers	80	11
Networks	31	1
Applications	16,000	5,200

Results: IT spending was reduced by 31 percent over the past decade—even as the IT infrastructure grew to support new applications and processes, higher volume, and enhanced functionality.

• Total savings: More than $9B

• Time to market: 75 percent faster

• Customer satisfaction: Up 5.5 percent

Simplification was not enough: Standardized processes stopped the tide of red ink. But IBM was still not fully leveraging the size, scope, and power to reach their customers and differentiate them in the marketplace.

Integrated across the value net: They reorganized to deliver unified processes across the value net—from suppliers to partners to employees to customers. This further increased efficiency, especially for cross-business initiatives like SCM and CRM.

Results:

• E-commerce:

  • $26.4 billion in 2002, up 4 percent YTY

  • $11.6 billion from IBM.com, up 3 percent

• CRM:

  • Cost avoidance from e-support in 2002: ~$600 million, up 17 percent YTY

  • 60 percent of phone contacts result in sales

• Fulfillment:

  • Applications reduced by 42 percent

  • 70 percent of PC orders "touchless"

• Procurement:

  • 90 percent of orders "hands-free"

  • Cost avoidance from e-procurement in 2002: ~$450 million, up 8 percent YTY

• IBM's e-business transformation efforts to date have realized:

  • $16.5 billion in benefits from $5.6 billion of investment

To stay competitive as the business environment grows faster, less predictable, and increasingly customer-driven, e-business on demand will allow IBM to respond quickly to changes and market opportunities.

Six key initiatives: IBM is still in the early stages of implementing e-business on demand. There are six key areas where they feel they are getting closest:

1. An integrated supply chain

2. New semiconductor manufacturing facility

3. Implementation of the on demand workplace at IBM

4. Grid computing

5. The build the next generation of infrastructure

6. E-business worldwide centers

IBM came back from the brink. To reach this stage, IBM has transformed its business processes, technology, and most importantly, its culture. This has involved a great deal of planning and effort, but the story is proof that it can be done—and that the rewards are enormous.

The organizations that move first will have an enormous competitive advantage over those that are slow to adapt. The difficult part is changing business thinking. On demand business challenges long-held notions about organizations and hierarchy—but "silo" thinking and obsession with control are obstacles on the path to the future.

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