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Emerging Business Opportunities Discussion with RPI

Emerging Business Opportunities Discussion with RPI. Mike Giersch Vice President, Strategic Planning IBM Corporate Strategy. IBM Experience - Three Attempts. Circa 92. A Process Centered Approach Organization was going through some major process re-engineering.

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Emerging Business Opportunities Discussion with RPI

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  1. Emerging Business OpportunitiesDiscussion with RPI Mike Giersch Vice President, Strategic Planning IBM Corporate Strategy

  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

  3. EBO Idea Sources Enterprise-Wide External Sources (Customer, VC) Research Sales & Distribution Business Units EBO Selection Criteria Strategic alignment Cross IBM leverage New source of customer value $1B+ revenue potential Market leadership Sustained profit potential Benchmarks Case Studies Caselets P&G Cisco Akamai Business Intelligence EBO Categories New Markets New Business Models New/Disruptive Technologies Intel ISP Market RFID Sun Life Sciences RS/6000 SP Microsoft PvC SSD Microdrive Consultant / VC Input HORIZON 3 Emerging Opportunities Test business models, prove viability, capabilities and value Seed growth opportunities Academic Literature HORIZON 2 Growth business Scale proven business models, increase market share, & grow to opportunity HORIZON 1 Core business Extend, defend, increase productivity and profit contribution Time and Level of Uncertainty Measures The Portfolio 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 EBO Work Sessions Retail on Demand Sensors & Actuators Info-based Medicine 1-on-1 CEC Autonomic Computing Business Trans. Outsourcing Engineering & Tech. Services Learning Solutions Grid Computing WebFountain Blade Servers Bus Process Integration Dynamic Workplace Flexible Hosting Services Storage Software STI Cell Processor Product Lifecycle Mgmt Interviews Major Root Causes US $1 Billion 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 Life Sciences Linux Pervasive Computing Digital Media Network Processor e-Markets SELECTION CRITERIA GRADUATION CRITERIA • 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 4 Scale and transition all or part of the nurtured businesses Recommendations for Extrapolate Commonality for use in other Industries / Domains • Common Business needs • Emerging or Disruptive Business models • Technology Disruption CEC, Staff, Line Selection Cultivation Graduation 2000 2006 Next Phase 2006 First Graduation Summer 2003 Management System 2001 Start-up 1Q2000 Self Assessment 4Q99 Call to Action 9/12/99

  4. A Few Words of Context … • IBM Today • Revenue $103B, Profit $12B, R&D $6B • 4 Product/Service Groups plus Sales/Distribution Unit • IBM in 1999 Hardware EMEA Asia/Pacific Software Services Americas

  5. A Snapshot of the Past K Employees $220 B 400 Employees $180 B 300 $140 B Market Value Revenue $100 B 200 $60 B 100 Profit $20 B -$20 B 0 1985 1993 1999 2000 2001

  6. A Few Fortune Views of IBM 1984 1992

  7. And another ….

  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

  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 IBM’s EBO efforts. Benchmarks Case Studies Caselets • Leading companies • Academic literature • VC Input • Akamai • ISP Market • Life Sciences • PvC • Business Intelligence • RFID • RS/6000 SP • SSD Microdrive EBO Work Sessions 1-on-1 CEC Interviews Major Root Causes Recommendations for CEC, Staff, Line

  10. The Underlying Root Causes • Our management system rewarded execution directed at short-term results and did not place enough value on strategic business building. • We were preoccupied with our current served markets and existing offerings. • Our business model emphasized sustained profit and EPS improvement rather than actions to drive higher P/E's. • Our approach to gathering and using market insights was inadequate for embryonic markets. • We lacked established disciplines for selecting, experimenting, funding, and terminating new growth businesses. • Once selected, many ventures failed in execution. • Senior management didn’t spend time on new growth opportunities

  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

  12. Emerging Business Opportunity HORIZON 3 Emerging Opportunities Test business models, prove viability, capabilities and value Seed growth opportunities HORIZON 2 Growth business Scale proven business models, increase market share, & grow to opportunity HORIZON 1 Core business Extend, defend, increase productivity and profit contribution Time and Level of Uncertainty Measures 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 Source: Alchemy of Growth Adopted from The Alchemy of Growth, Baghai, Coley, White

  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

  14. Unique, Hybrid Organizational Model Business Unit Ownership Global Services Systems & Technology Sales & Distribution Software Research EBO Oversight, Collaboration and Issue Resolution

  15. EBO Results 2004 Annual Report 2006 Analyst Briefing New Markets “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 ...” • 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 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 • China • India • Russia • Brazil FY05 $4B +14% YTY

  16. EBO Lessons Call to Action, Start-up Need a burning bridge … top level support Thorough internal assessment of root causes Broad senior level buy-in Start small Operating, Sustaining 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

  17. EBO Idea Sources Enterprise-Wide External Sources (Customer, VC) Research Sales & Distribution Business Units EBO Selection Criteria Strategic alignment Cross IBM leverage New source of customer value $1B+ revenue potential Market leadership Sustained profit potential Benchmarks Case Studies Caselets P&G Cisco Akamai Business Intelligence EBO Categories New Markets New Business Models New/Disruptive Technologies Intel ISP Market RFID Sun Life Sciences RS/6000 SP Microsoft PvC SSD Microdrive Consultant / VC Input HORIZON 3 Emerging Opportunities Test business models, prove viability, capabilities and value Seed growth opportunities Academic Literature HORIZON 2 Growth business Scale proven business models, increase market share, & grow to opportunity HORIZON 1 Core business Extend, defend, increase productivity and profit contribution Time and Level of Uncertainty Measures The Portfolio 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 EBO Work Sessions Retail on Demand Sensors & Actuators Info-based Medicine 1-on-1 CEC Autonomic Computing Business Trans. Outsourcing Engineering & Tech. Services Learning Solutions Grid Computing WebFountain Blade Servers Bus Process Integration Dynamic Workplace Flexible Hosting Services Storage Software STI Cell Processor Product Lifecycle Mgmt Interviews Major Root Causes US $1 Billion 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 Life Sciences Linux Pervasive Computing Digital Media Network Processor e-Markets SELECTION CRITERIA GRADUATION CRITERIA • 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 4 Scale and transition all or part of the nurtured businesses Recommendations for Extrapolate Commonality for use in other Industries / Domains • Common Business needs • Emerging or Disruptive Business models • Technology Disruption CEC, Staff, Line Selection Cultivation Graduation 2000 2006 Next Phase 2006 First Graduation Summer 2003 Management System 2001 Start-up 1Q2000 Self Assessment 4Q99 Call to Action 9/12/99

  18. Some external examples …

  19. Thank You Mike Giersch Vice President, Strategic Planning IBM Corporate Strategy giersch@us.ibm.com

  20. Criteria and Selection of EBO’s EBO Idea Sources Enterprise-Wide Sales & Distribution External Sources (Customer, VC) Business Units Research EBO Selection Criteria Strategic alignment Cross IBM leverage New source of customer value $1B+ revenue potential Market leadership Sustained profit potential EBO Categories New Markets New Business Models New/Disruptive Technologies

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