IBM undergoes internal on-demand overhaul

When Sam Palmisano mapped out his strategic vision last year, he told clients that IBM Corp. would be its own on-demand guinea pig. Big Blue’s chief executive pledged to assign a top IBM official to internally revamp the company in a bid to save billions and improve IBM’s flexibility and responsiveness. In IBM’s view, ‘on-demand’ means moving beyond mere integration of systems to create a more flexible IT infrastructure agile enough to rapidly adapt to changing business conditions.

IBM soon after named Linda Sanford to the newly-created position of senior vice president of enterprise on-demand transformation. A 27-year veteran of IBM, Sanford has worked in nearly every unit of IBM, serving most recently as head of its storage group. On Jan. 1 she began her new job and started pulling together a team of 300 and a list of priorities.

“As we are reinventing ourselves we will be able to share our experiences — the good, the bad and the ugly — with our customers,” Sanford said. “‘The first task was to take a look at ‘what does it mean to be an on-demand company?’ We knew we had to get that boiled down to something a little more concrete.”

By the end of her first month Sanford had settled on four projects:

— Integrated Supply Chain: This project predated the on-demand initiative it is now linked with. IBM executive Bob Moffat has been working since early 2002 on overhauling IBM’s $40 billion supply chain, from procuring parts from a network of 33,000 suppliers to filling several million customer orders each year from IBM’s catalog of 78,000 products. Hardware was Moffat’s first focus, and his efforts have driven IBM’s inventory to its lowest level in a decade, while the company said its margins are improving. IBM estimates it saved $5.6 billion from its supply-chain restructuring efforts in 2002.

Reforming the supply chain also meant exiting non-core business, such as the PC manufacturing operations IBM began outsourcing last year. “We want greater variability in our own cost structure,” Sanford said. “We don’t want to have to own it all and do it all. We want to focus our investments and look for partners who have the expertise and scale to drive more efficiencies than we could ourselves.”

The next frontier for the supply chain group is software and services.

“We’re beginning to apply traditional hardware concepts, like supply and demand, to services,” said Barbara Martin, IBM’s vice president of customer fulfillment. “We’re working very closely with the services team to apply these principles. It started in the last six months or so — it’s still in the development phase. We recognize the places where there’s opportunity, and we’re developing plans on how we can capitalize on that.”

–Customer Buying Experience: One of Sanford’s first fact-finding projects in her new job was conducting interviews with a number of IBM partners and customers to determine the biggest pain points others encountered in trying to do business with IBM. From those interviews came IBM’s “total buying experience” initiative to make interacting with the company easier.

Increasing self-service options for customers is an early priority in that project. IBM offers online invoices for most of its products, and is working on providing online contracts. IBM’s back-office runs on an SAP AG system, and it offers its major distributors a direct link into that system for order placement and tracking.

As IBM drives toward on-demand pricing for an increasing number of its products and services, it’s working with customers to identify potential stumbling blocks. One that came up recently in a customer panel meeting: Few businesses have workflows and approval processes in place to account for variable billing.

“Our customers said, ‘You can do whatever you want in terms of billing, but if my systems don’t know how to pay you, you’re not going to get paid,'” Martin said. “They need predictability. They can’t have a variable bill that goes up and down without them knowing every month.”

IBM is exploring possible solutions, she said, such as estimated monthly billings for a set fee with quarterly or annual reconciliations to account for the difference between the customer’s estimated and actual use. That way, businesses can evaluate one variable bill instead of many.

–IT Enablement: IBM Chief Information Officer Bob Greenberg is in charge of internally building the component-based IT architecture IBM evangelizes as key to on-demand operations. The company’s goal is an easily integrated, easily managed, easily expandable infrastructure made up of standardized pieces.

“We’re building a virtualized environment, autonomic capabilities, grid computing capabilities — all the same things we’re talking to our customers about, we’re deploying within our own IT shop as well,” Sanford said. “The real clincher here is the open industry standards. I couldn’t do all these other business-process things I’m doing if we didn’t have open standards. … As the environment shifts, you have to be able to shift with it, and if your infrastructure is built on proprietary technology, you’re stuck in the mud with your proprietary architecture.”

–Workplace On-Demand: One of the more unusual projects to emerge as priority for Sanford’s group is an initiative to extend the degree of collaboration possible among IBM’s global workforce of 315,000. Headed by On-Demand Workplace Vice President Frank Squillante, a team is working to revamp IBM’s employee intranet to add transactional and communications interactivity to the content portal.

“148,000 of our employees don’t report to an IBM site,” Squillante said. “Workplace as a tool becomes a very important gateway between you and the company when you’re not physically in that location.”

The most sweeping project his group is tackling is a new employee directory intended to provide staffers with more accurate and relevant information on their colleagues than is now available. With such a large global workforce, IBM figures it has employees with any kind of skill or experience another employee could need — the trick is enabling people to find each other. Previous directory attempts have run aground after hitting technical or cultural problems. When IBM tried to maintain information on its employees’ projects and skills, the information quickly fell out of date; when the company asked employees to handle updates, they resisted, put off by tricky interfaces.

Drawing on technology from IBM’s Lotus and WebSphere portfolios, Squillante’s group built a new profiling system, a keywords-based one it hopes will strike a balance between offering enough detail to be useful without requiring too much time from employees to update and maintain. The new system also includes communications hooks, such as links to IBM’s instant-messaging system and time-zone information, so employees can connect after they’ve located each other.

Squillante’s group plans to test the system by the end of this year and deploy it in early 2004. Other projects in the works include new e-learning offerings integrated with IBM’s intranet, and a single-sign-on interface for managers that will let them tap into a number of back-end administrative systems.

Sanford said she sees the Workplace On-Demand projects as the core of her group’s mission.

“The rate at which we or any of our customers become on-demand will be determined in large part by the collaborative behavior of an organization,” she said. “When I talk with customers, this is where I spend the bulk of my time. They are always looking for the secret potion, the silver bullet. The cultural aspects of a change are always the most difficult, but for this change, they’re critical.”

IBM has a detailed set of metrics by which to calculate the success of Sanford’s group as it approaches the end of its first year of work. Sales, employee satisfaction and headcount in various focus areas are among the factors the company will consider, though Sanford declined to comment on any financial targets.

“The metrics will probably change over time. We may find there’s further tuning to be done, but we wanted to put a stake in the ground early on, to be able to go out and say, ‘Here’s what we want to deliver,'” Sanford said. “That’s one thing about the on-demand approach — we just had to go get started. We didn’t have all the answers. We still don’t have all the answers. The way you learn is by doing.”