David EagleBusiness Development Executive

From IBM to Lenovo: Architecting a Global Supply Chain Divestiture in 143 Days

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A robust supply chain is essential for an on demand business

An enterprise whose business processes–integrated end-to-end across the company and with key partners, suppliers and customers–can respond with flexibility and speed to any customer demand, market opportunity or external threat.

On Demand Business–A Definition

RESPONSIVE VARIABLE FOCUSED RESILIENTKEY ATTRIBUTES

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In 2002, IBM integrated our supply chain operations into a single organization

BREADTH

DE

PT

H

CUSTOMER FULFILLMENT

GLOBALLOGISTICS

MANUFACTURING PROCUREMENT

TECHNOLOGY

COMMON DATA & GOVERNANCE

OPERATIONSTEAM

STRATEGYTEAM

TALENTTEAM

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When IBM put it together, it made an impressive footprint

19,000 employees at 100 locations in 61 countries worldwide

Approximately $40 billion, or roughly 50%, of IBM’s total cost and expense

More than 2 billion pounds of machines and parts moved annually

Handling over 78,000 products, with over 3 million configurations

45,000 business partners worldwide

33,000 suppliers connected through the Web

Approximately 350,000 updates are made a day to the 6.5 million customer records from IBM’s 1.7 million orders a year in North America alone

Employees speak over 80 languages

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Forming an organization with a compelling vision was a start. But to drive change and deliver sustainable results IBM had to:

Transform & strengthen the functions while building end-to-end capability

Reduce fixed costs and drive flexibility in infrastructure

Implement common global processes & technology

Apply governance, performance goals and reporting disciplines

Tend to the culture, emphasize talent and improve skills

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Today, it is integrated across IBM’s business

SYSTEMS&

TECHNOLOGYSERVICESSOFTWARE

Supply Chain Operations

RESEARCH

Global Logistics

Customer Fulfillment

Manufacturing

Procurement

Demand/Supply & Inventory

Engineering

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The on demand model is giving IBM:

Greater efficiency– Server volume growth contained with minimal spending increases yielding ~10%

productivity gains

– Procurement "hands free" transactions up from 78% to 90%

– Logistics volumes up 31%, costs down 21% A more variable cost structure

– Fixed spending for high volume systems manufacturing down 33% over 3 years

– Logistic warehousing from 100% owned to 100% vendor managed Improved responsiveness and flexibility

– Ability to respond to shifts of hardware demand inside quarterly lead time by up to 50%

– Customer fulfillment e-Applications reduced annual calls from clients by over 600,000, saving 2.9M

– Reduced number of non-strategic suppliers by 80% Better business process controls

– Reduced escapes (maverick buying) from a high of 35% to less than 0.2%

– Acceptable business controls (audits) from 85% to 95%+

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IBM/Lenovo Transactionand

Project Management

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IBM and Lenovo Transaction

Strategic Alliance for IBM and Lenovo

– New Lenovo Overview

– Leveraging Strengths

– Complementary Organizations

Lenovo Transaction

– Background / Details

– Challenges Faced

– Project Management

Key Success Factors to Execute

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IBM and Lenovo: Enter into Long-term Strategic Alliance

Leading Productsand Brands

World Class Service& Support

Global Reach

New GrowthOpportunities

Scale

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The New Lenovo: Overview

$13B sales (last 12 months)19,000 employeesWW Headquarters: New

York, USAPrincipal operations: Raleigh,

BeijingPublic company with

ownership positions by Lenovo and IBM

Notebooks and DesktopsEnterprise, Mid-Market,

Consumer & Small Business

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The New Lenovo: Leveraging strengths to pursue opportunities

SegmentProduct Mix

Geography

Lenovo % of RevenueIBM % of Revenue

SB / Consumer

43% LE / MM, 57%

Lenovo % of Revenue

AP100%

IBM % of Revenue

AP32% Americas

42%

EMEA26%

Lenovo % of Revenue

Notebook18%

Desktop82%

IBM % of Revenue

Notebook60%

Desktop40%

Data Source: IDC PC Tracker / Internal sources

LE / MM

17%

83%

SB / Consumer

Global Opportunities Top six emerging countries will represent 39% of the 2004–2006 growth opportunity*

IBM is performing well on the premium product segments in these countries with the proper sales and distribution channels to reach these markets

The new Lenovo will have a broader product portfolio to capture this opportunity

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A Perfect Fit between Complementary Organizations

Premium Global PC Brand Most recognized technology brand

globally

Enterprise / Mid-market Expertise Leader in business productivity &

lowest total cost of ownership

Notebook Leadership Leading-technology enhanced

notebook product offering

#1 IT Brand in China Most recognized technology

brand in China

Consumer / Small Business Expertise Differentiated consumer/small business

and extensive retail network

Efficient Operational Platform Low cost infrastructure and

manufacturing scale

Global Sales, Financing, Fulfillment and Service Network Global sales network with financing,

fulfillment and service support

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Lenovo Transaction Background / Details

Divesture of IBM’s Personal Computing Division (PCD) to Lenovo announce Dec 2004.

Transaction transferred business with revenues in excess of $10B/yr and valued at $1.75B.

Global business with worldwide reach transferring 11,500 IBM employees, more than 100,000 customer, 23 functions, 66 countries and 100+ business partner supported countries worldwide.

IT systems segmented impacting over 2,000 applications including SAP and over 100 legacy systems within 143 days from the signing and public announcement to the closing.

Transition designed to ensure transparency to the customer with no adverse effects impacting the market nor the shareholders for both companies.

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Lenovo Transaction – Challenges Faced

Managing complexity of global landscape across Functions / Countries / Process

Extremely aggressive timeline – 143 days from announcement.

Segmentation of a fully integrated PCD from IBM (e.g. 11,500 employees with integrated roles, common infrastructure, manufacturing sites, indirect support, Sales and IT)

Focus on linking process, data & toolsBusiness Model and Legal StructureFinancial Landscape

Unique ledger system created for Lenovo

True-ups, balance sheets, feeders, TSA / MSA management

HR in scope employees, supporting organization structures, HR work councils

Government approvals – eg CFIUS, security and access requirements

Involvement of 3rd party investors

Hong Kong Stock Exchange

Buyout of minority interest in China mfg facility and formation of new IBM facility

Communication of Project from Executives to extended teams in both companies

Business Controls – ASCA, process change mgmt, security access controls, ledger feeders, and Sarbanes-Oxley compliance

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Management and Segmentation of the Project

Small “Core” Project Office focused on managing & delivering operational readiness

Accomplished through:– Highly structured weekly/daily management system cadence managed by IBM

Business Consulting Services

– Driving ownership and accountability

– Managing critical milestones and dependencies Segmented project into 6 manageable phases/steps

– Deal definition and negotiation

– Initial project plan development

– Detailed project plan development

– Readiness review phase

– Readiness signoff phase

– Post closing project completion Managed across Functions, Geographies, Countries and Processes

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Project Office Structure Complexity

Corporate Functions

IBM Project Office

BCSProviding Program

Mgmt & cross functional

coordination

Executive Steering Committee

(weekly)

Transition Executive

Global Functional Teams

Contract Exec

IBM

Trademark mgmt

Development

Marketing

Sales & Distribution

ISC

Service & Support

IT

Finance/Accounting

Tax/Treasury

HR

Real Estate

IGF

IP / Legal

Environmental Corp Dev Communications

Global Functional Teams

Lenovo

Development

Marketing

Sales & Distribution

ISC

Service & Support

IT

Finance/Accounting

Tax & Treasury

HR

Real Estate

IGF

IP / Legal

IBM Operating

Team

AG AP EMEA AG AP EMEA

13 Critical End to End Processes

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Key Success Factors to Execute Project Office with the authority to manage project and risks end-to-end

Ensure Executive and team support identified with ownership & accountability

Defined key critical checkpoints and project milestones

Lock down project scope, business model changes and IT

Communicate critical decisions and information frequently and globally

Drive strict weekly/daily and critical checkpoint cadence

Obtain Executive sign offs and manage to completion

Ensure deal execution and stabilization of operations with no adverse impact to customers, shareholders nor financials.

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Key Takeaways

The on demand strategy drives greater efficiencies, a more variable cost structure, improved responsiveness and flexibility, and better business process controls for your company, your shareholders, and your clients.

Transformation is about integrating processes, people, data and tools to create a stable environment.

Experience is key. The skills that were gained are now being made available to other areas within IBM as well as to our clients.

IBM’s on demand strategy provided the flexibility required for success with the Lenovo divestiture.