Emerging Business Opportunities Discussion with RPI

© 2006 IBM Corporation

Emerging Business OpportunitiesDiscussion with RPI

Mike GierschVice President, Strategic PlanningIBM Corporate Strategy

© 2006 IBM Corporation2

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


Call to Action9/12/99

Self Assessment4Q99

Start-up1Q2000

Management System2001

First Graduation Summer 2003

Next Phase2006

Benchmarks

CiscoIntel

Microsoft

Consultant / VC Input

Academic Literature

Case Studies

AkamaiISP Market

Life SciencesPvC

Caselets

Business IntelligenceRFID

RS/6000 SPSSD Microdrive

Recommendations for

CEC, Staff, Line

EBO Work Sessions

P&G

Sun

1-on-1 CEC

Interviews

Major Root Causes

HORIZON 1Core businessExtend, defend, increase productivity and profit contribution

HORIZON 2Growth businessScale proven business models, increase market share, & grow to opportunity

HORIZON 3Emerging OpportunitiesTest business models, prove viability, capabilities and valueSeed 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

NewMarkets

New BusinessModels

New/DisruptiveTechnologies

EBO Categories

Research External Sources

(Customer, VC)

Business Units Sales & Distribution

$1B+ revenue potential Market leadership Sustained profit

potential

Selection

SELECTIONCRITERIA

GRADUATION CRITERIA

US $1 Billion

Cultivation Graduation

• 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 3Iterative/Starburst

Clusters of opportunitiesWorking on a portfolio $3-5B

Market Potential

Phase 1Identification

“Looking for Churn” Within an Industry

or AcrossIndustries

Phase 2Nurture an Opportunity$1B Market Potential

Extrapolate Commonality for use in other Industries / Domains- Common Business needs

- Emerging or Disruptive Business models- Technology Disruption

Phase 4Scale and transition all or part of the nurtured businesses

The Portfolio

20062000

Autonomic Computing

Business Trans. Outsourcing

Engineering & Tech. Services

Learning Solutions

Grid Computing

WebFountain

Retail on Demand

Sensors & Actuators

Info-based Medicine

Blade ServersBus Process

IntegrationDynamic

WorkplaceFlexible Hosting

ServicesStorage SoftwareSTI Cell

ProcessorProduct Lifecycle

Mgmt

Life SciencesLinuxPervasive

ComputingDigital MediaNetwork

Processore-Markets


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


A Snapshot of the Past

1985 1993 1999 2000 2001-$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


1984 1992

A Few Fortune Views of IBM


And another ….


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


EBO Start-up ApproachThe Project Team did significant outside research, wrote 4 in-depth case studies, and developed over 25 mini-case studies focused on IBM’s EBO efforts.

Benchmarks• Leading companies• Academic literature• VC Input

Case Studies Caselets

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


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 didn’t spend time on new growth opportunities


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


Emerging Business Opportunity





ProfitROICCostsProductivity or efficiency

High revenue growthMarket share gainsNew customer acquisitionsProfit

Project-based milestonesCreating the Business Design In market pilots

Measures

Source: Alchemy of Growth

Adopted from The Alchemy of Growth, Baghai, Coley, White


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


Global Services

EBO

Research Sales & Distribution

SoftwareSystems & Technology

Business Unit Ownership

Oversight, Collaboration and Issue Resolution

Unique, Hybrid Organizational Model


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 EBO’s launched since 2000 5 EBO’s achieved $1B+ rev in 2003 and 2003 4 additional EBO’s doubled revenue in 2004 2 new emerging businesses launched in 2004

2006 Analyst Briefing

New MarketsRetail on DemandSensors & Actuators Info Based Medicine

FY05~$1B

>100% YTY

Business Performance TransformationBusiness TransformationStrategy & ChangeEngineering & TechnologyBus Performance Mgmt Software

FY05$4B

+28% YTY

Emerging CountriesChina IndiaRussiaBrazil

FY05$4B

+14% YTY


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


Call to Action9/12/99

Self Assessment4Q99

Start-up1Q2000

Management System2001

First Graduation Summer 2003

Next Phase2006

Benchmarks

CiscoIntel

Microsoft

Consultant / VC Input

Academic Literature

Case Studies

AkamaiISP Market

Life SciencesPvC

Caselets

Business IntelligenceRFID

RS/6000 SPSSD Microdrive

Recommendations for

CEC, Staff, Line

EBO Work Sessions

P&G

Sun

1-on-1 CEC

Interviews

Major Root Causes





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 Selection Criteria

Strategic alignment Cross IBM leverage New source of customer value

NewMarkets

New BusinessModels


EBO Categories

Research External Sources

(Customer, VC)


$1B+ revenue potential Market leadership Sustained profit

potential

Selection

SELECTIONCRITERIA

GRADUATION CRITERIA

US $1 Billion

Cultivation Graduation

• 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 3Iterative/Starburst

Clusters of opportunitiesWorking on a portfolio $3-5B

Market Potential

Phase 1Identification

“Looking for Churn” Within an Industry

or AcrossIndustries

Phase 2Nurture an Opportunity$1B Market Potential

Extrapolate Commonality for use in other Industries / Domains- Common Business needs

- Emerging or Disruptive Business models- Technology Disruption

Phase 4Scale and transition all or part of the nurtured businesses

The Portfolio

20062000

Autonomic Computing

Business Trans. Outsourcing

Engineering & Tech. Services

Learning Solutions

Grid Computing

WebFountain

Retail on Demand

Sensors & Actuators

Info-based Medicine

Blade ServersBus Process

IntegrationDynamic

WorkplaceFlexible Hosting

ServicesStorage SoftwareSTI Cell

ProcessorProduct Lifecycle

Mgmt

Life SciencesLinuxPervasive

ComputingDigital MediaNetwork

Processore-Markets


Some external examples …

In this article, we first describe the management issues facing companies that pursue new business creation, as well as the usual problematic responses. We then explore a number of the most critical balancing acts companies must perform, the choices they entail, and the risks corporations face when they fail to get the balance right. We conclude with a look at the hybrid systems that are often needed to support these balancing acts, focusing in particular on IBM’s Emerging Business Opportunity management system because of its success in mastering several of them simultaneously.


Mike GierschVice President, Strategic PlanningIBM Corporate [email protected]

Thank You



EBO Selection Criteria Strategic alignment Cross IBM leverage New source of customer value

NewMarkets

New BusinessModels


EBO Categories

Research External Sources(Customer, VC)


$1B+ revenue potential Market leadership Sustained profit potential

Criteria and Selection of EBO’s

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Emerging Business Opportunities Discussion with RPI

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