2006 IBM Corporation Emerging Business Opportunities Discussion
with RPI Mike Giersch Vice President, Strategic Planning IBM
Corporate Strategy
Slide 2
2006 IBM Corporation 2 IBM Experience - Three Attempts Circa
92. A Process Centered Approach Organization was going through some
major process re-engineering. New business opportunity process
added. Groups were to implement process, corporate sponsors,
facilitates best practice sharing, etc, Corporate white space focus
rejected by senior leadership Process aborted company faced very
serious financial challenges, CEO change. Circa 95. A Funding
Centered Approach Post major expense cutbacks, concern that some
new things were cut, needed a life-line. Created new business fund
groups nominate projects, corporate team evaluate and recommends
funding. Funding provided, no on-going oversight or support Funded
mostly things that we would want groups to decide to fund gaming
the system to get extra funding bowling for dollars serving up
hearts and lungs. Reinforced WRONG behavior. Projects turned over
to groups to manage. Funding process ended. Ongoing, low profile,
staff focus in corporate strategy on new business opportunities.
Circa 99. A Change Management Approach The EBO System
Slide 3
2006 IBM Corporation 3 Call to Action 9/12/99 Self Assessment
4Q99 Start-up 1Q2000 Management System 2001 First Graduation Summer
2003 Next Phase 2006 Benchmarks Cisco Intel Microsoft Consultant /
VC Input Academic Literature Case Studies Akamai ISP Market Life
Sciences PvC Caselets Business Intelligence RFID RS/6000 SP SSD
Microdrive Recommendations for CEC, Staff, Line EBO Work Sessions
P&G Sun 1-on-1 CEC Interviews Major Root Causes HORIZON 1 Core
business Extend, defend, increase productivity and profit
contribution HORIZON 2 Growth business Scale proven business
models, increase market share, & grow to opportunity HORIZON 3
Emerging Opportunities Test business models, prove viability,
capabilities and value Seed growth opportunities Time and Level of
Uncertainty Profit ROIC Costs Productivity or efficiency High
revenue growth Market share gains New customer acquisitions Profit
Project-based milestones Creating the Business Design In market
pilots Measures EBO Idea Sources Enterprise-Wide EBO Selection
Criteria Strategic alignment Cross IBM leverage New source of
customer value New Markets New Business Models New/Disruptive
Technologies EBO Categories Research External S o u r c e s
(Customer, VC) Business Units Sales & Distribution $1B+ revenue
potential Market leadership Sustained profit potential Selection
SELECTION CRITERIA GRADUATION CRITERIA US $1 Billion
CultivationGraduation Strategic alignment Cross IBM leverage New
source of customer value $1B+ revenue potential Market leadership
Sustained profit Strong leadership team in place Clearly
articulated strategy for profit contribution Early market success
Proven customer value proposition Phase 3 Iterative/Starburst
Clusters of opportunities Working on a portfolio $3- 5B Market
Potential Phase 1 Identification Looking for Churn Within an
Industry or Across Industries Phase 2 Nurture an Opportunity $1B
Market Potential Extrapolate Commonality for use in other
Industries / Domains -Common Business needs - Emerging or
Disruptive Business models -Technology Disruption Phase 4 Scale and
transition all or part of the nurtured businesses The Portfolio
2006 2000 Autonomic Computing Business Trans. Outsourcing
Engineering & Tech. Services Learning Solutions Grid Computing
WebFountain Retail on Demand Sensors & Actuators Info-based
Medicine Blade Servers Bus Process Integration Dynamic Workplace
Flexible Hosting Services Storage Software STI Cell Processor
Product Lifecycle Mgmt Life Sciences Linux Pervasive Computing
Digital Media Network Processor e-Markets
Slide 4
2006 IBM Corporation 4 A Few Words of Context EMEA Asia/
Pacific Americas Hardware Software Services IBM Today Revenue
$103B, Profit $12B, R&D $6B 4 Product/Service Groups plus
Sales/Distribution Unit IBM in 1999
Slide 5
2006 IBM Corporation 5 A Snapshot of the Past
19851993199920002001 -$20 B $20 B $60 B $100 B $140 B $180 B $220 B
0 100 200 300 400 K Employees Profit Revenue Employees Market
Value
Slide 6
2006 IBM Corporation 6 19841992 A Few Fortune Views of IBM
Slide 7
2006 IBM Corporation 7 And another .
Slide 8
2006 IBM Corporation 8 A Problem in September 1999 One issue
looms larger and larger in our company: Why do we consistently miss
the emergence of new industries? What should IBM do to improve its
ability to successfully identify, select and pursue emerging
business opportunities in a timely fashion ? Understand root causes
Recommend actions to address these issues
Slide 9
2006 IBM Corporation 9 EBO Start-up Approach The Project Team
did significant outside research, wrote 4 in-depth case studies,
and developed over 25 mini-case studies focused on IBMs EBO
efforts. Benchmarks Leading companies Academic literature VC Input
Case StudiesCaselets Recommendations for CEC, Staff, Line EBO Work
Sessions 1-on-1 CEC Interviews Major Root Causes Akamai ISP Market
Life Sciences PvC Business Intelligence RFID RS/6000 SP SSD
Microdrive
Slide 10
2006 IBM Corporation 10 The Underlying Root Causes 1.Our
management system rewarded execution directed at short-term results
and did not place enough value on strategic business building. 2.We
were preoccupied with our current served markets and existing
offerings. 3.Our business model emphasized sustained profit and EPS
improvement rather than actions to drive higher P/E's. 4.Our
approach to gathering and using market insights was inadequate for
embryonic markets. 5.We lacked established disciplines for
selecting, experimenting, funding, and terminating new growth
businesses. 6.Once selected, many ventures failed in execution.
7.Senior management didnt spend time on new growth
opportunities
Slide 11
2006 IBM Corporation 11 Recommended Actions Corporate Level
Adopt 3 Horizon model as overall IBM business construct Define
Horizon 3 cross-business domains Appoint Senior Executive
Leadership Appoint Silicon Valley ambassador Build IBM EBO
management and measurement system Group Level Define group and
business unit specific domains Build appropriate EBO management
system for each group Lead selected Emerging Business Opportunities
Decide appropriate investment balance by Horizon
Slide 12
2006 IBM Corporation 12 Emerging Business Opportunity HORIZON 1
Core business Extend, defend, increase productivity and profit
contribution HORIZON 2 Growth business Scale proven business
models, increase market share, & grow to opportunity HORIZON 3
Emerging Opportunities Test business models, prove viability,
capabilities and value Seed growth opportunities Time and Level of
Uncertainty Profit ROIC Costs Productivity or efficiency High
revenue growth Market share gains New customer acquisitions Profit
Project-based milestones Creating the Business Design In market
pilots Measures Source: Alchemy of Growth Adopted from The Alchemy
of Growth, Baghai, Coley, White
Slide 13
2006 IBM Corporation 13 The EBO Approach, at a Glance, the
Essentials Declare/communicate strategic intent to pursue new
growth opportunities Identify highly visible short list of emerging
business initiatives House them in the appropriate group/business
unit, but give them special treatment... gold badges Dedicated
A-team leadership for each opportunity Active sponsorship for each
by a SVP Special support structure Protected funding Disciplined
mechanisms for cross company alignment Measured differently,
strategic milestones Regular review and oversight Nurture and
graduate or kill this short list, and continuously identify new
candidates
Slide 14
2006 IBM Corporation 14 Global Services EBO Research Sales
& Distribution Software Systems & Technology Business Unit
Ownership Oversight, Collaboration and Issue Resolution Unique,
Hybrid Organizational Model
Slide 15
2006 IBM Corporation 15 EBO Results In 2000, IBM established
its Emerging Business Opportunities program to identify and nurture
new lines of business. An EBO focuses on white space opportunities
that can become profitable, billion dollar businesses within five
to seven years. EBOs are typically assigned an experienced IBM
executive champion to manage the venture during its startup
phase... Once an EBO has grown to sufficient size, it becomes part
of an existing business unit... 2004 Annual Report 25 EBOs launched
since 2000 5 EBOs achieved $1B+ rev in 2003 and 2003 4 additional
EBOs doubled revenue in 2004 2 new emerging businesses launched in
2004 2006 Analyst Briefing New Markets Retail on Demand Sensors
& Actuators Info Based Medicine FY05 ~$1B >100% YTY Business
Performance Transformation Business Transformation Strategy &
Change Engineering & Technology Bus Performance Mgmt Software
FY05 $4B +28% YTY Emerging Countries China India Russia Brazil FY05
$4B +14% YTY
Slide 16
2006 IBM Corporation 16 Active senior level sponsorship
Dedicated A-team leadership for each opportunity Disciplined
mechanisms for cross company alignment Actions linked to critical
milestones Resources fenced and watched to avoid premature cuts
Quick starts, quick stops Continued evolution Communications and
connection to the business Need a burning bridge top level support
Thorough internal assessment of root causes Broad senior level
buy-in Start small Call to Action, Start-up Operating, Sustaining
EBO Lessons
Slide 17
2006 IBM Corporation 17 Call to Action 9/12/99 Self Assessment
4Q99 Start-up 1Q2000 Management System 2001 First Graduation Summer
2003 Next Phase 2006 Benchmarks Cisco Intel Microsoft Consultant /
VC Input Academic Literature Case Studies Akamai ISP Market Life
Sciences PvC Caselets Business Intelligence RFID RS/6000 SP SSD
Microdrive Recommendations for CEC, Staff, Line EBO Work Sessions
P&G Sun 1-on-1 CEC Interviews Major Root Causes HORIZON 1 Core
business Extend, defend, increase productivity and profit
contribution HORIZON 2 Growth business Scale proven business
models, increase market share, & grow to opportunity HORIZON 3
Emerging Opportunities Test business models, prove viability,
capabilities and value Seed growth opportunities Time and Level of
Uncertainty Profit ROIC Costs Productivity or efficiency High
revenue growth Market share gains New customer acquisitions Profit
Project-based milestones Creating the Business Design In market
pilots Measures EBO Idea Sources Enterprise-Wide EBO Selection
Criteria Strategic alignment Cross IBM leverage New source of
customer value New Markets New Business Models New/Disruptive
Technologies EBO Categories Research External S o u r c e s
(Customer, VC) Business Units Sales & Distribution $1B+ revenue
potential Market leadership Sustained profit potential Selection
SELECTION CRITERIA GRADUATION CRITERIA US $1 Billion
CultivationGraduation Strategic alignment Cross IBM leverage New
source of customer value $1B+ revenue potential Market leadership
Sustained profit Strong leadership team in place Clearly
articulated strategy for profit contribution Early market success
Proven customer value proposition Phase 3 Iterative/Starburst
Clusters of opportunities Working on a portfolio $3- 5B Market
Potential Phase 1 Identification Looking for Churn Within an
Industry or Across Industries Phase 2 Nurture an Opportunity $1B
Market Potential Extrapolate Commonality for use in other
Industries / Domains -Common Business needs - Emerging or
Disruptive Business models -Technology Disruption Phase 4 Scale and
transition all or part of the nurtured businesses The Portfolio
2006 2000 Autonomic Computing Business Trans. Outsourcing
Engineering & Tech. Services Learning Solutions Grid Computing
WebFountain Retail on Demand Sensors & Actuators Info-based
Medicine Blade Servers Bus Process Integration Dynamic Workplace
Flexible Hosting Services Storage Software STI Cell Processor
Product Lifecycle Mgmt Life Sciences Linux Pervasive Computing
Digital Media Network Processor e-Markets
Slide 18
2006 IBM Corporation 18 Some external examples
Slide 19
2006 IBM Corporation 19 Mike Giersch Vice President, Strategic
Planning IBM Corporate Strategy [email protected] Thank You
Slide 20
2006 IBM Corporation 20 EBO Idea Sources Enterprise-Wide EBO
Selection Criteria Strategic alignment Cross IBM leverage New
source of customer value New Markets New Business Models
New/Disruptive Technologies EBO Categories Research External
Sources (Customer, VC) Business Units Sales & Distribution $1B+
revenue potential Market leadership Sustained profit potential
Criteria and Selection of EBOs