Thank you for your time today. Believe I have a lot of good information to share with you today – it’s been just a little over a year since we introduced the notion of e-business on demand – know that there’s been a lot written about it … lots of competitors have begun to describe notions that sound very similar. Today I want to spend the majority of our time together moving the discussion from the what and why of becoming an on demand business to the how – to some very concrete essentials, methodologies and offerings that we’ve spent the last year developing. But before I get into specifics on the how to – I do want to spend a few minutes up front – setting a little context.
Let’s face it: it’s been a tough few years. A look back at 2002 and 2003 puts the pain in perspective: we’ve seen two years of record declines and recession. According to most industry analysts, we’ve hit bottom; the worst is behind us and in 2004, carefully managed spending will replace aggressive cost-cutting. However, even with consumers and businesses feeling slightly more optimistic, business leaders have emerged from the last few years acutely aware of the challenges that lie ahead. During late 2003, IBM completed a study with chief executive officers from around the world. What they told us is very interesting: Growth is back on the CEO agenda (Eight in ten view growth as a key focus area) Clients are concerned that their companies are not agile enough (Eight in 10 rate “rapid response” as a high or very high priority) Clients view product and service innovation as a top priority (Nearly two-thirds view products/service improvement as one of the greatest opportunities for revenue growth) Clients seek company-wide transformation with a short time horizon (More than 9 in 10 believe they need to achieve their transformation goals in less than 5 years; nearly half think they need to do so in less than two years) A recent (September 2003) article in the Harvard Business Review called the “Quest for Resilience” introduces the compelling notion that in light of today’s reality … it’s going to be hard to get better – without fundamentally doing things differently. That in the past, executives had the luxury of assuming that business models were more or less immortal. That of course they’d have to work to get better … to improve … but they seldom had to “get different” … to fundamentally look at doing things in a different way … and that the differences would affect them all the way to their core.
Ever since we introduced the notion of e-business on demand … we’ve heard pundits struggle trying to describe “what’s new.” And clearly, in a high level discussion “on demand business” sounds a lot like discussions from other eras in which the focus was the transformation of core business processes. Obviously, there are parallels with the mid-90s and e-business. Looking farther back, you see parallels with the era of Six Sigma Quality, Zero Defects, Business Process Reengineering. We believe that what makes the on demand era different from those that preceded it is the that there’s not only the opportunity to get better but also an opportunity to create a major step function improvement — to breakthrough. Getting better is about applying technology to do what you’ve historically done more efficiently. Breakthrough comes when new business designs are coupled with the technology that makes them happen. Let’s spend a minute on other differences between the business process reengineering and on demand eras: The first difference has to do with objectives. Whereas the objective once was to eliminate inefficiencies within the processes an organization owned, today, most companies recognize that they’ve squeezed out almost all of the cost and time they’re going to find in process silos. Now the name of the game is eliminating the latency that lies among processes, functions and business units. . The second difference has to do with scope. Instead of focusing almost exclusively on increasing efficiency within an organization, companies are now focused on increasing productivity throughout their value nets. They’re focused on enabling a true, end-to-end ecosystem that encompasses customers and suppliers. The outcomes companies strive to achieve also differ. Where historically they’ve had the luxury of building sustainable competitive advantage, today’s savvy executives recognize that strategic advantage is more dynamic (and perhaps fleeting) than it has ever been. The ultimate difference between the on demand era and those that have come before — the fundamental difference between better and breakthrough — is the difference between continuous improvement and continuous innovation. Continuous improvement is leveraging technology and expertise to do the same thing more efficiently. Continuous innovation is the fusion of new business designs and next-generation technologies to actually do things differently, not once, but over and over again.
At its core an on demand business has the power to do more than just get better. An on demand business can make the transition from continuous improvement to continuous innovation. You may recognize this definition … it’s the definition of on demand that we’ve been talking about for more than a year. And its this definition that makes an on demand business different at the DNA level. Because when an enterprise has business processes that have been integrated end-to-end – across the company and with key partners, suppliers and customers – it really does have the ability to respond to any customer demand, market opportunity or external threat.
Earlier, I alluded to the one dynamic that makes the era of on demand business so fundamentally different than anything that has preceded it … and that is the fusion of new developments and new approaches … the marriage of next generation enabling technologies and the new business designs they enable. In the on demand world everything starts with an enterprise’s business model and business design. We believe that future innovation will be driven by horizontal organization. For years we’ve all been focused on vertical processes – ERP (Enterprise Resource Planning), CRM (Customer Relationship Management), back-office processes … you know the list. Everyone focused on digitizing them and optimizing their efficiency. The next generation of business design will horizontally connect all the processes that make up an enterprise and extend those connections out to the partners that make up the ecosystem. Now we all know, without tremendous strides in the next generation of enabling technologies … it would be impossible to implement these new designs. Take the notion of open standards … and their broad adoption. Clearly, Linux has captured the world’s imagination. Linux is the fastest-growing operating system in the world – growing at about 35% annually. In fact, more than half of all midsized to large companies in the world are using Linux in some capacity. Yet, Linux is just one example of the growing adoption of open standards. I think it’s safe to say that the world has embraced the lesson we learned from the Internet and the open standards that enabled it: technologies become exponentially more powerful when they work together – when they enable organizations to connect without expensive infrastructure and applications. Another key enabler is processor speed … where you see not just enormous progress in the raw computing power of the chip … but in what can happen when you combine that power with an open-standards-based way of applying it. And it’s at that intersection where grid computing lies. When IBM started talking about grid computing a year ago, people said we were making a futuristic statement – they said that maybe we’d get there in ten years. They were wrong. Today, there are at least 100 IBM clients using grids – financial services companies, insurance companies, distribution companies – they’re using grids to help them with the analytics they need to better understand their customers and the nuances of their businesses. Whether its processor speed or storage or bandwidth or networked devices – the fact is, power is going up and costs are coming down. While the technologies are interesting in and of themselves … probably the most interesting facet of all these advancements … is what they’ve done to interaction costs. It doesn’t matter whether you’re talking about the cost of a consumer making a purchase or checking the status of their order … or the cost of an interaction between a business and its suppliers … technology advancements are driving interaction costs DOWN. And it’s these reduced interaction costs that enable information and tasks to flow seamlessly and cost-effectively across horizontally integrated processes even when those processes are actually comprised of work being done in multiple organizations.
Let’s take a look at the notion of breakthrough in supply chain management. Clearly, this is an area where technology has had and will continue to have tremendous impact. In the last couple of decades we’ve seen the industry evolve from using enterprise applications and barcode technology to improve inventory management practices within the enterprise – to applying open standards and Internet connectivity to improve collaboration among the partners in the supply chain – thus reducing the overall amount of inventory that needs to be held. And in the very near future, we can expect to see the powerful combination of radio frequency identification (RFID) chips and wireless communication technologies enable organizations to speed merchandise from the supplier to the shelves – moving them markedly closer to the promise of just-in-time merchandising. This focus on increased productivity and better information flow throughout the supply chain can have an enormous impact; the fact is that more than eight percent of the items consumers go to the store to buy are out of stock —and that rate regularly exceeds ten percent for faster selling or promoted products.4 Yet, the step-function improvement — the breakthrough — may still lie ahead as the price of RFID chips continues to drop, ultimately enabling them to be embedded in low cost individual items. This powerful enabling technology, coupled with the integration of two critical business processes — SCM and customer relationship management (CRM) — will enable the entire ecosystem to know more about what’s being sold and more about the customer. Possible areas of breakthrough include a more personalized shopping experience, more successful product launches and the ability to optimize pricing in real time based on demand.
And that’s just one example. On demand breakthroughs are occurring in companies of all sizes, in virtually every vertical, around the world. Just a few examples… HRsmart A growing ASP for HR/recruiting services Secured on demand capacity through virtual Linux servers Enables them to deliver services faster and cheaper than the competition can After a little over a year they’ve already reduced costs 30% Kookmin Bank Biggest bank in Korea, with ambitious growth plans To weather increasing global competition and fund growth, they need to reduce costs Slashed overhead and streamlined operations by eliminating business-process duplication across 14 business units Know that total transformation will take time, but they believe the results will be well worth it – improved customer service and reduced operating costs Saks Incorporated Huge retail conglomerate – on the tail end of a series of acquisitions Needed to control spending and improve financial performance Enterprise applications let them centralize spend management, negotiate pricing with suppliers “Reverse auctions” get them best possible price on commodity goods – with savings in the millions Notice that in each instance, technology made the breakthrough possible…and market forces made it inevitable. Notice also that while Kookmin is the leading bank in Korea and Saks is a Fortune 500 company, HRsmart is a relatively small company – and a young one. On demand businesses run the gamut – large and small, young and old – dot.com service providers, industrial manufacturers and everyone in between… ---------------------------------------------- Source of timeframe info: HRsmart – Case study on their Web site, case study on ibm.com, and CRDB reference Kookmin Bank – BCS brochure in PDF form found via ibm.com search on “Kookmin” Saks – Case study on ibm.com
As we’ve worked with these clients and thousands like them around the world – we’ve gathered three key insights that are helping us and our customers to move from the theory of becoming and on demand business … to the reality of actually operating as an on demand business. I’m going to spend the rest of the presentation going into more detail on each of these insights – but let me start by teeing them up … The first major insight – the need for flexibility and innovation is forcing organizations to become more componentized. To break down the overall business into the pieces (or components) that make it up. This allows an organization to stop looking at itself through lenses such as organization, geography and product or customer segment – and start looking at itself through the lens of what is actually being done. Second, applications are evolving on a similar path – they’re becoming increasingly modular. So instead of focusing on big monolithic applications that are made up of millions of lines of code, organizations are beginning to think about discrete modular elements of application functionality – that can more easily be modified and changed to meet the needs of the business. And our third insight has to do with the infrastructure that’s required. Today’s infrastructure is complex. It’s rigid. Too often the limitations of the way it’s been implemented force the business to compromise its approach to solving problems. That has to change. The business pressures that are forcing increased componentization of the business and its processes as well as the applications that support them are going to force you to rethink your infrastructure and simplify it …
Those insights are the fundamental underpinnings upon which we’ve built our approach to helping clients enable their on demand breakthrough. Now most of what you see on this chart should be familiar. We’ve been talking about Business transformation, the on demand operating environment and Flexible Financial and Delivery options for more than a year. However, as we get into the essentials in each of these areas – I think you’ll see that we’ve made an enormous amount of progress – from the WHAT of on demand to the HOW of on demand. The other thing that I think you’ll see reinforced throughout the presentation – is that we recognize that this isn’t a one size fits all solution, methodology or approach. We recognize that organizations have different priorities, different personalities, different approaches. And our offerings reflect that. With lots of different entry points, where you start depends on your organization’s priorities.
Let’s start by looking at the first essential of an on demand breakthrough – Business Transformation. This is essential about creating strategic advantage through differentiation and productivity. It’s about finding ways to integrate partners into your value net in a way that increases the effectiveness and flexibility of your business. When you begin to talk about business transformation or new business designs – it can’t stay high-level or generic for long. You need to deal in specifics…
And the specifics tend to differ by industry. In the electronics industry, for instance, the specifics have to do with managing the volatility of demand and designing a more responsive supply chain, while a telecommunications company might need to deal with the challenge of launching profitable data services and increase average revenue per customer. To help us stay at the leading edge of these industry issues, we created the IBM Institute for Business Value. This worldwide institute staffed by experienced strategy and operations consultants, provides research and analysis, dialog with industry experts, and client events focused on critical industry and cross-industry issues. The work of above is just a sampling of some of industry specific executive briefs published by this team. In addition, throughout the year, teams from the Institute collaborate with business executives from leading companies and with IBM professionals on studies designed to help an business and its leaders: Anticipate industry changes Identify and assess strategic alternatives Quantify the expected return on key initiatives Formulate roadmaps for moving forward Determine the best metrics for measuring success. Of course, deep industry expertise is just the beginning.
While the issues and opportunities may differ by industry, our methodology for analyzing potential new business designs doesn’t. We believe it&apos;s essential to combine in-depth industry expertise with sound methodology. Over the past year, IBM Business Consulting Services and IBM Research and Development teams have come together to do a lot of work around component-based business models. While the concept has been around for a long-time, we&apos;ve focused on taking the component notion from generic to industry specific and from conceptual to highly practical and operational. This includes creating methodology around linking a business component (and all of its parts – people, strategy, operations, etc.) through to the technology (applications and infrastructure) that will enable it. We started by creating component business models for six industries (six more will be completed in first quarter and the remaining six will be done in early second quarter). These models are designed to simplify the way a business looks at itself by identifying the unique set of business building blocks (components) it&apos;s made up of, allowing a more effective coupling between changes in business operations and the underlying technology infrastructure. This strengthens your ability to connect change and investments with the business outcomes and returns that you anticipate.
Once you’ve broken down the business into its components – you can begin to look at which of these processes can really help you differentiate your business from the competition and which are simply the things you have to do in order to keep the doors open and the lights on.
The next step is to analyze costs. Which components require high capital outlays – which are high cost – and which are actually both high capital and high cost. . Obviously, components that aren’t differentiating can be examined through the lens of cost.
As a result of viewing your business in multiple dimensions, you can begin to prioritize your transformation initiatives. You&apos;ll also have a clear picture of some possible tradeoffs — where you need to invest more resources — and where you might free up resources by opting for a different way to access the capabilities you need — through an outsourced partnership perhaps. On this point about outsourcing, 20 years ago, we talked about core and non-core processes. That&apos;s not what we&apos;re talking about today. Today we’re talking about fundamental differentiation – how to provide a better level of service to customers; how to get vertical scale on a global level even if you&apos;re not a global company; how to identify components in a business that need to be transformed to maintain competitive edge. Last year, when we began to increase our focus on outsourcing, the pundits assumed that we meant the outsourcing of IT operations. And yes, that’s part of what you might choose to outsource. But let’s take a broader view: stop and think about the things your organization has to do to keep the doors open — things that are neither differentiating nor core competencies. Like what? Human resources, procurement, customer care and finance administration are just a few examples. They’re fundamentally important. And yet, for most companies, they’re not core competencies. By outsourcing such processes, companies have found they can achieve fundamental differentiation — better levels of customer service and global reach — while freeing up resources to invest in other initiatives.
Okay – now we hit the hard part. The Reality Check – thinking about what you want versus what you actually have. Here’s what we know from experience: 1. The highest impact transformation priorities are typically horizontal processes. These processes not only cross divisional boundaries – they probably cross company boundaries as well. Today, the core components of the new processes that you want to build are enmeshed inside business unit silos – and the monolithic applications and infrastructure that have been built to support them. That infrastructure probably has some IBM software and hardware in it – but I guarantee you – it probably has a whole bunch of stuff from others in the industry as well. Most organizations aren’t interested in starting from scratch (i.e., rip and replace), and they probably don’t have an unallocated budget either. And so traditional delivery and financing models aren’t feasible.
So now what? I think you can readily see that the Business Transformation process can help you to: Gain fresh perspective on your business Focus on what can really differentiate you from your competition And finally it can help you set your transformation priorities … But one thing we’ve learned over the last year is that there’s a big gap between understanding what you need to do – and getting it done. A part of that gap has to do with Business Processes – and creating horizontally integrated processes that are built – not just to withstand change but to actually enable and support change.
You know this. We’ve spent two decades focused on business process improvement. On optimizing and automating functional silos. Think about your sales process. You’ve put sales methodology in place. You’ve invested in Sales Force Automation and Customer Relationship Management software – and that’s true whether you built your own or you chose packaged software from one of the industry leaders. But the automation process didn’t stop there. You’ve opted to enable your sales force to work round the clock – to access their applications anytime, from anywhere – from a growing number of devices. And the infrastructure you’ve built to enable it all is astounding. Servers, storage, communications infrastructure, security – then once you had it for your direct sales force, you had to replicate most of it for your partners. And there’s no question – you’ve seen some benefits. Revenue growth. Improved productivity and efficiency on your sales team. Reduced costs.
But as we all know – Sales doesn’t operate in a vacuum. There’s an entire ecosystem that includes marketing – and a whole array of Web-based marketing and sales initiatives. The individual disciplines within that ecosystem have undergone similar optimization and automation initiatives. Web-based programs have been created to help generate leads, to enable customers to access information and educate themselves. We’ve all invested in loyalty programs designed to simplify transacting business with our key customers. There’s a whole burgeoning set of applications and corresponding infrastructure around commerce, lead tracking, digital asset management and the holy grail of personalization … And again, many benefits have been achieved …
But if you were to turn to your heads of sales and marketing and ask them a simple question – “How many of the leads from our first quarter 2003 campaign closed by the end of the year – and which materials were used in each stage of the sales cycle?” – who would get anything but a blank stare? The fact of the matter is organizations have spent hundreds of millions – optimizing the discrete functions of sales and marketing – and there’s very little gain left in wringing more efficiency from either process. The real gains to be made are in the gaps between the disciplines — that is, in the interactions between the organizations. Creating joint processes backed by information-rich records on every prospect and customer can make the marketing and sales operation a lot better. The opportunity for breakthrough comes when it’s possible for customers to self-identify — to tell you what they need and how soon they need it. It comes when your marketing infrastructure can support processes that proactively nurture each customer and that provide him or her with the right information at the right time, all while recording every tactic for future analysis and optimization. And the fact is – to create that kind of integrated horizontal process, you’re going to need discrete bits of process and application functionality that exist within the confines of marketing, of sales and the Web.
Realistically, the desire to achieve that kind of breakthrough in your marketing and sales processes (or any other horizontal processes for that matter) is going to force you to think about your IT agenda in new ways. To support horizontal processes – you have to increase your focus on overall flexibility. On the ability to take elements of processes that weren’t built to work together – and make them work together – seamlessly and just as importantly, quickly. If there was ever an argument for using open standards – that’s it. Being able to quickly and seamlessly integrate processes that weren’t built to work together – from companies that may or may not have worked together six months ago. With standards, you don&apos;t have to redo applications every time some piece of hardware or software changes – nor do you have to rewrite the application to support changes in the surrounding processes. But you’ll need more than flexibility – you’ll also need a simpler, more manageable IT environment. A year ago, we said that IT systems need to be more self-managing and take advantage of the capacity that&apos;s out there. With Project Symphony, businesses can provision internal capacity in a heterogeneous environment. And that’s just the start. We all recognize that today’s environment – which relies on thousands of specialized servers – is complicated and difficult to manage. You have three- and four-tier architectures. To make the IT environment more efficient, we&apos;ve come up with technologies that put blade servers in the front end of the multi-tiered architecture, so that you can consolidate thousands of servers into a blade and then pass the transactional work to a large SMP-type processor.
Those requirements lead us to the next essential – and that is an On Demand Operating Environment. By working side by side with leading customers, we’ve learned a lot about what it takes to create the kind of infrastructure that truly enables – rather than inhibits – an on demand business. Obviously, an on demand operating environment has to leverage existing assets. No one has the luxury of starting from scratch. Instead you need a disciplined approach to evolving what you have – into what you need. This infrastructure has to simplify the process of integration. Finally, the design of an on demand operating environment must match the design of the business itself. In order for more and more flexibility and componentization to be achieved in the business design, the infrastructure must evolve from silos of complex, over-provisioned, proprietary hardware and software – to a standards-based infrastructure where capacity needs can be optimized across the entire organization.
We’re focused on optimizing the operating environment along two very key fronts. The first is increasing business flexibility through software capabilities designed to simplify integration. The ability to connect people, processes and information in a way that allows companies to become more flexible to the dynamics of the markets, customers and competitors around them. Obviously, this is important within the bounds of any enterprise and will become increasingly important as companies extend their value net – and more tightly integrate partners, suppliers and customers into their processes. Our second priority is IT simplification – creating an infrastructure that’s easier to provision and manage through automation and – now this is key – the creation of a single, consolidated, logical view of and access to all the available resources in a network. Now in some IT organizations, this may be heresy. Somehow, many organization have become complacent about the practice of over-provisioning, buying excess capacity (a lot of it) in order to handle the occasional spikes that almost every system is forced to handle. Research has shown (source: independent research by Alinenan and cumulative result of interviews/surveys with more than 20,000 customers) that weaning an organization off the practice of over-provisioning – by moving to an infrastructure that accommodates dynamic resource provisioning – can reduce capital investments by between 15 and 35%. Now there’s a chunk of resource that could easily be applied to more strategic efforts around differentiation! One last point to make here before we move on – you can’t build an on demand operating environment without moving to open standards – a standards based approach to delivering application functionality and the underlying infrastructure.
Now there’s a whole bunch of technology that is making the move to component-based infrastructure possible. The good news is that I’m not going to drag you through all the technical gorp. What I will do is describe the concepts – and the value here. At its core, an on demand operating environment is based on a modular approach to infrastructure – to software design, development and execution. In this environment every application and resource is basically treated as a service. These services have interfaces that have been defined in an industry-standards based way. For those of you that are interested – the accepted technical term for this approach is Service Oriented Architecture or more commonly SOA. SOA is essentially a new way of approaching IT infrastructure that provides the flexibility to treat business process, applications and the underlying infrastructure as components that can be mixed and matched at will. Now, over the years, there’s been a lot of discussion about moving to more of a componentized approach to software development especially – so one might wonder what has changed to make this approach viable today? A number of things: First, industry standards for creating services and having them communicate have evolved and been agreed on by major vendors. Not only do all the major players agree – so there is broad industry support – but we’re now tackling business level interoperability vs. simple connectivity. Secondly, the infrastructure to support self-defined, loosely coupled services has emerged. And tools to incorporate existing assets are now available.
So let’s spend a minute pulling all the pieces together here – in a high-level flow that describes what actually takes place. Go back to the beginning – the componentized view of the business. You’ve deconstructed your business, analyzed the opportunities for differentiation and set some priorities. One of the priorities is a new horizontal process that will eliminate much of the duplication and wasted time that currently exists in the siloed, vertical processes that are in place. So the next step is to model the process – to look at how it operates today and how you’d like it to operate going forward. You can do this modeling the old-fashioned way – with spreadsheets and diagrams – although there are new tools that can help you model, run and then make the transition to code more quickly. In most organizations, once you’ve done the modeling, you’ll need to build a business case that shows the investment required – as well as the payoff. Now, it’s time to think about developing the software – right here you’ll see a pretty big transition take place in most organizations because instead of thinking about an enterprise application that can address a particular set of needs – you’re going to have to evolve your thinking about software into more of a business process mentality. Where does the capability that I need today exist? Some of it is within applications and systems I already have – it just needs to be “componentized” or turned into a service that can be leveraged in a new way. Some of it may need to be added – maybe written, maybe purchased, maybe acquired as a hosted service of some kind. Then once the components are defined and created – they can be assembled and customized as appropriate. Then a similar process takes place on the infrastructure side. An assessment of what you have and what you need. How do you simplify the environment overall. How do you move from silos of function – to that more modular approach that includes a single, logical view of assets – with capacity that can be leveraged by different applications in a more dynamic manner. A part of this process may also include discussions about how your organization begins to monitor systems – looking at not just what’s required from the IT standpoint – but also understanding what’s happening from business side – (help – Fredrick or Angel – can you give me a real concrete example of monitoring business status here). Then once you’ve begun to establish policies for the performance you expect your IT systems to deliver – you can operationalize those policies through the activation of autonomic capabilities. There’s one last piece of the discussion about infrastructure – and that’s a look at how you want to acquire the capabilities you need. We’ve done a lot of work in this arena – because we recognize that needs and preferences differ by organization.
The third essential piece of the puzzle is a more flexible approach to acquiring and financing the capabilities you need. We’ve talked about Business Transformation – what you must do to differentiate your business and create strategic advantage. We’ve talked about the On Demand Operating Environment – what it takes to support that transformation – the target architecture of an on demand business. Now let’s talk about Flexible Financing and Delivery Options – how you can acquire the capabilities you need to deliver the results you want. We’ve created a family of offerings designed to help you deploy, manage and pay for the assets you need to ensure your infrastructure has the capacity necessary to handle the demands of your business. They enable you to capitalize on economies of scale only IBM can deliver and at the same time reduce financial risk in the face of volatile demand. We know your operating environment may be composed of pieces and parts of solutions from multiple vendors, so we take a holistic approach to enabling your long-term success. We will finance non-IBM products including ISV software We will also manage your existing assets as well as deploy new capabilities – e.g., you may want to start with something as simple as server consolidation We will always look for ways to help you free up cash that can be used to fund your on demand initiatives The goal is to help you realize measurable benefits as quickly as possible and progress incrementally as you can and want to. In the process, we can help you mitigate risk by: shifting to IBM responsibility for things like guaranteed service levels enabling a more variable cost structure that lets you pay for only what you use as you use it We’ll talk more about the range of risk-expense options in just minute…
First, a look at the array of options you have in terms of service delivery… In a nutshell, you can do it all, we can do it all or you can opt for something in between. We can help you run your existing heterogeneous operating environment onsite, at your location We can augment your onsite environment with additional capacity available on demand We can assume management of your entire operating environment in a secure, IBM facility with dedicated resources If you opt for onsite management, you may purchase or lease components. If you opt for offsite management at an IBM facility, you have the choice to specify dedicated resources or share capacity with other IBM customers in a virtualized environment that we manage.
Generally speaking, the more control you want, the more you’ll pay – not only financially, but in opportunity cost. That’s because a shared hosting environment provides not only the lowest TCO but the most flexibility – and flexibility equals options. There is no right choice – it’s a matter of what’s best for your organization today and in the future. If you find it easy to predict demand and have sufficient IT skills in-house, traditional management of your OE may be the best course for now. If, on the other hand, you find you must constantly respond to unpredictable spikes in demand – and you don’t have much in the way of available capital or in-house IT expertise – shared hosting may be the most appropriate course.
The bottom line – on demand is about leveraging capabilities and managing risk. As responsibilities shift, so does risk. For example, at the most basic level, our capacity on demand offerings shift responsibility for buying, deploying and managing infrastructure to IBM. This lets you &quot;turn off&quot; demand faster than we can depreciate the asset. Thus, we &quot;own&quot; the risk of the infrastructure assets. We can leverage economies of scale and pools of technical skill that allow us to deliver better service at a better price than your organization could if it did it itself. In a world with increasing volatility, this is an especially good deal.
I suspect it’s pretty apparent, in the year since we announced on demand – a lot has happened. Sure, there’s been a lot of noise generated by others in the industry, using different words to describe the same set of marketplace trends. Yet, when you peel back the rhetoric – when you ask about the specifics around moving from WHAT to HOW – I think it’s apparent that e-business on demand and the way we’ve approached it – is thoughtful, reasoned, actionable and very, very concrete. We start by bringing you deep industry expertise and very innovative methodology called Component Based Modeling. We have to experience and tools to help you translate your business priorities into horizontal business processes that are designed to deliver the ultimate in flexibility We’ve created an on demand operating environment that focuses on Integration and Simplicity – and yet from the ground up – it’s based on open standards And far from going it alone in this endeavor – we’re actively working with an ecosystem of partners that share our vision for on demand and our commitment to helping clients to achieve an on demand breakthrough And finally, we’ve leveraged the breadth and depth of IBM – to offer flexible alternatives for the delivery and financing that you’ll need to support your on demand business.
That said, we’ve want to be clear – e-business is a journey that unfolds differently for different organizations. As you embark on this next leg of your journey, remember – one size does NOT fit all. Where you start, what you focus on, and how fast you change – it’s all up to you. You may start by assessing your business model – breaking key processes into components and alighting on a new business design… You may start by simply consolidating and updating an outmoded infrastructure… Either way, we can help with offerings and expertise that will accelerate your progress.
Let’s take a closer look at the examples I mentioned earlier so you can see what I mean… HRsmart Began as a private talent management company and is now a rapidly growing ASP Based in Plano, TX – with operations in U.S., Mexico and Brazil Founded in 1994 by a team with a background in both Web technologies and the recruitment industry – formerly CareerNet, one of the first career boards on the Internet Today it has more than 1,000 clients – including Dupont, Sylvan Learning Centers, Avis, Deloitte Consulting, Sprint, Aramark and Verio They needed the ability to scale quickly and keep costs in line with demand – so we set them up with on demand access to virtual Linux servers This lets them scale capacity dynamically to accommodate fluctuating customer demand for HR business processes It also allows them to deliver new ASP solutions very quickly – and at a fraction of the cost of competitive offerings (CEO estimates about 50%) HRSmart is one of only a few providers to remain profitable in the recent economic downturn – in fact… Sales are up 50% of its clients have converted from a competing solution
Kookmin Bank After merging with its biggest rival in November 2001, Kookmin Bank is now the largest financial institution in Korea US$160 billion in assets more than 1,200 branches 26,000 employees CEO wants to be leading bank in Pan-Asian region including China and India Need to increase efficiencies to fund growth Also, given imminent increase in competition from global banks – need to ensure continual process improvement Needed a complete view of the customer across the enterprise, but organizational complexity got in the way Took a hard look at the entire organization – 14 business units, with the customer as common touchpoint On the one hand, there was lots of inconsistency – for example, different channels in different business units were all using different marketing tactics On the other hand, many processes were nearly identical from BU to BU – and almost 40% of these had to do with manufacturing and distribution The Bank restructured itself – organizing by business process component rather than business unit Each component works seamlessly with those it affects – for example, the credit-scoring component works not only with loans and credit cards but also with retail and corporate segments Components operate independently, in whatever physical location makes sense – perhaps even outsourced Expect to make shift to component business model over five years Targeting areas of highest payoff first, such as payment processing Plan is expected to save US[?]$250 million over five years
Saks Incorporated Large, diverse national retailing corporation – built through acquisition of department store chains throughout the 1990s By 2001, it had revenues of US$6 billion and 50,000 employees Focusing on e-procurement as a way to substantially reduce cost of operations, control spending, improve financial performance Contracted with IBM to provide Leveraged Procurement Services – based on enterprise application developed by Ariba, an IBM strategic alliance partner Saks hosts Ariba Buyer™ application – centralizes spend management – used by 2,700 Saks employees nationwide IBM Global Services works with Saks to select strategic suppliers for commodity goods All product catalogs are updated with the currently approved items and negotiated pricing Ariba Travel and Expense™ Reporting application – paperless expense reporting and employee reimbursement – used by 1,000 employees Ariba Sourcing™ application – manages competitive bidding process for sourcing private-label clothing sold through different brand-named stores In first year, more than 13 “reverse auctions” for purchases in excess of $10 million Then 20 more “reverse auctions” in last quarter of 2002 – and the number continued to increase in 2003 In addition to cost savings, benefits include Variable cost structure Increased focus on core initiatives – outsourcing with strategic partners for non-core tasks Reduced operational risk Higher productivity and capital efficiency Cost control and financial predictability
As you can see just by looking at these three very different real-world scenarios, there’s more than one way to tackle the challenge of becoming an on demand business. Kookmin Bank started with Business Transformation – the component business model – eliminating costs by streamlining common processes HRsmart started with Technology Infrastructure Optimization – virtual infrastructure based on open standards to provide a variable cost structure And Saks took an approach that used Web-based enterprise applications to enable new processes altogether – saving money and enhancing competitive advantage Whether through innovation or new efficiencies – the goal is to free up capital for reinvestment in the growth of the business. Today, we’ve talked a lot about the how of becoming an on demand business. We’ve talked about: Business Transformation – and new ways to think about your business in order to create more differentiation and strategic advantage We’ve talked about Business Process – in my mind – where business and IT strategies meet, and meld, to actually create the flexibility your business will need We’ve talked about building an On Demand Operating Environment – about the need for IT flexibility and simplification and our approach to delivering it And finally we’ve talked about some choices that we can offer to help you find more flexible ways to help you acquire the capabilities your organization will require. Where you start in all of this depends on your organization’s priorities … [Note to rep: Please close with recommended next steps for this customer.]