IBM

IBM – A Business Model Review

Business Model Innovation

Business Model Innovation – 01.10.2015 1

1

2

3

4

Introduction

History and old Business Model

Future Strategy

5 Conclusion

Agenda

Business Model Analysis


“Big Blue” - facts

• International Business Machines Corporation

• Founded in 1911 in New York out of a consolidation of 3 companies

• 380,000 employees in 2014

• Revenue 2014: 92.79 billion US$

• Net income 2014: 12.02 billion US$

Introduction History Business

Model Future

Strategy Conclusion Introduction

Business Model Innovation – 01.10.2015

IBM‟s crash and reaction

3

• Domination of the PC market in the early

1980‘s

• High investments in R&D + conservative

management decisions

• Structural problems

• Too many employees and redundant

processes and functions

• IBM‘s technologies started to erode

Pre-Crash

• Change of Management, giving more attention to clients‗ needs

• Finding: firms struggle integrating separate computing technologies

• IBM‗s strength was ability to provide integrated solutions for customers

• Penetration of new business areas apart of hardware

IBM‟s Reaction

Crash: 8.1 bil. $ loss in 1992


Model Future

Strategy Conclusion Old Business Model of IBM


Business Model Canvas of IBM

Key Partners

Key Activities

Value

Propositions

Customer

Relationships

Customer

Segments

Key Resources

Channels

Cost Structure

Revenue Streams


Model Future

Strategy Conclusion Business Model Analysis – Overview


IBM‟s Value Proposition

5

Quote from IBM‟s Chairman

―IBM lives at the intersection of technology and business. This enables us to change

the way the world works, and in so doing, to be essential to our clients and to society.‖

- CEO Virginia M. Rometty

• IBM never moves quickly, but it always listens

to it‘s customers.

• Providing integrated solutions to businesses

for client organizations

• Values: dedication to every client‘s success,

innovation that matters for the company and

the world, and personal responsibility in all

relationships.

IBM‟s Value Proposition


Model Future

Strategy Conclusion Business Model Analysis – Value Proposition


Key Partners

Key Activities

Value

Propositions

Customer

Relationships

Customer

Segments

Key Resources

Channels

Cost Structure

Revenue Streams

6



Model Future



IBM‟s serves business customers from every sector

7

IBM serves the business market segment

IBM‟s customers are large companies in every sector


Model Future

Strategy Conclusion Business Model Analysis – Customer Segments



Key Partners

Key Activities

Value

Propositions

Customer

Relationships

Customer

Segments

Key Resources

Channels

Cost Structure

Revenue Streams


Model Future



IBM‟s innovative way to approach its customers

9

• Before: Direct Sales force:

• Mainly hardware and mainframes

• Now: Value Added resellers

• Handles software and services

• How: Indirect channels through their partners

• Direct sales teams only get paid if

cooperate with partners

One Channel Team for all Divisions

Customer Touchpoints

Social Media TV Advertisement Website Communities


Model Future

Strategy Conclusion Business Model Analysis – Channels



Key Partners

Key Activities

Value

Propositions

Customer

Relationships

Customer

Segments

Key Resources

Channels

Cost Structure

Revenue Streams


Model Future



IBM provides clients communities and involvment

Customer Relationships

Personal Service Communities Co-Creation

• Personal sales force

• 24/7 support via

telephone

• Visiting service team

• Consultants

• Hosting of online forums

for expert users

• Learning opportunities

for inexperienced users

• Public discussions and

support

• Development together

with lead users and

customers

• Creating solutions that

perfectly fit with needs of

clients


Model Future

Strategy Conclusion Business Model Analysis – Customer Relationships



Key Partners

Key Activities

Value

Propositions

Customer

Relationships

Customer

Segments

Key Resources

Channels

Cost Structure

Revenue Streams

12


Model Future



IBM‟s core business consists of three main business activities

Core Business Supply Chain Management Research & Development

13

Services Software Hardware


Model Future

Strategy Conclusion Business Model Analysis – Key Activities


Most important business division for IBM, representing the future of the company

14


• Rapid growth in cloud business

• Over 30 companies acquired and 1000

patents registered in the past years

• Cloud revenue grew 60 percent, to $7 billion,

in 2014

• Market leader

• Cloud is catalyst for innovation

Global Technology Services

• Includes management consulting, system

integration, and application management

• Revenues have been decreasing, but are

still significant

• Yields small margins

• IBM uses division to promote more profitable

divisions e.g. software

Global Business Services


Model Future



IBM wants its enormous software portfolio become the foundation for its clients

15


• IBM offers integrated software and solutions for all business and organizational challenges.

• Huge margins (88%)

• The market will keep growing

• Lot of competitors

• IBM is losing market share and profits

• Powers the expanding array of cloud-based solutions to clients.


Model Future



IBM„s hardware business is becoming less important

16


• Hardware division of IBM, Systems and Technology

Group (STG)

• uses hardware products (serves, storage systems)

alongside software and services to develop smarter

computing solutions for clients.

• from consumer electronics to supercomputers, IBM

Technology is in nearly every type of electronic device

• IBM is failing to succeed in this division

• Revenues and margins are decreasing

• No positive outlook for the future


Model Future



Going back to the other key activities

17



Model Future



Extensive integrated supply chain, procuring materials and services globally

18


• IBM spends $36.5 billion a year with global suppliers,

inclusive of $3.2 billion a year with diverse suppliers.

• High standards in all business dealings.

• Global Process Services organization.

• The supply, manufacturing and logistics operations are

integrated in one operating unit that has optimized

inventories over time.

• Providing a strategic advantage to create value for

clients

• Outsourcing service to optimize and help operating

clients‘ end-to-end supply chain processes, from

procurement to logistics.


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R&D is key factor for IBM‟s innovations

19


• Allows partners to innovate and build on the Power technology.

• Began with five members and now stands at more than 100 around the world.

• The U.S. Department of Energy recently awarded IBM a long-term, $325 million contract to create

future supercomputers based on OpenPOWER technology.

OpenPower Ecosystem

• Last year IBM spent about 6 percent of our revenue on research and development

• Since 22 years, IBM earns the most U.S. patents of any organization, averaging 20 a day.

High R&D Spending and Constant Business Reinvention

5,84 6,11 6,15 6,34 5,82 6,03 6,26 6,3

5,74 5,44

0

2

4

6

8

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Yearly spending of IBM on R&D from 2005 until 2014 (Billion $)

7 534

4 952

4 055

3 224

2 829

0 1000 2000 3000 4000 5000 6000 7000 8000

IBM

Samsung

Canon

Sony

Microsoft

Number of US-Patents of leading companies in 2014


Model Future




Key Partners

Key Activities

Value

Propositions

Customer

Relationships

Customer

Segments

Key Resources

Channels

Cost Structure

Revenue Streams

20


Model Future



IBM supports its employees personal and technical development

Employees Hybrid Cloud Brand

21

• Employee‘s well-being is fully incorporated

• Impersonation of ideals of the company

• IBM creates an innovative, integrated whole environment

• ―Inclusion.―

• IBM‘s corporate culture and values remain central to

mutual success.

• IBM differences shape the individual IBM employee

• Work environment is defined by diversity—including

diversity of thought

• yields a commitment to creating client innovation

Spending Power


Model Future

Strategy Conclusion Business Model Analysis – Key Ressources


• Hybrid Cloud allows to combine new technology with previous installed systems

• IBM has unparalleled strength in both the existing and new markets of IT

• Data, Cloud and Engagement

• Unique and important capability in the market

• IBM supports its clients‘ critical processes

• Remains ―go-to‖ platform for clients

IBM‟s Advantages

Hybrid Cloud allows to bring new technology together with previous systems

22

• Clients need to combine their existing

systems with new technology

• Separated ―islands‖

• Danger of not using full potential

Pain of Clients

Employees Hybrid Cloud Brand Spending Power

Solution: Hybrid Cloud


Model Future



IBM„s brand relies on a century of history

23


• The company is leader in enterprise computing

• provides the foundation for strategic partnerships

• IBM works with 90 percent of the world‘s top banks, 9 of the top 10 oil and gas companies, 40 of

the top 50 retailers and 92 of the top 100 healthcare organizations.

• Half of the Fortune 100 companies outsource IT operations to IBM

• #4 ―Most Valuable Brands‖ according to Statista / Millward Brown

• IBM mainframes process 75 percent of the world‘s business data.

246,99

173,65

115,5

93,99

0 50 100 150 200 250 300

Apple

Google

Microsoft

IBM

Brand Value 2015 in Billion $

IBM‟s Brand Strength


Model Future



The company‟s spending power is enormous

24


IBM company's sizable spending power is a unique resource that the company

must manage responsibly.

1 Bn. $ on IBM Watson

1Bn. $ on IBM Bluemix

1,2 Bn. $ on SoftLayer

IBM spends loads of money on innovation and maintaining business position


Model Future




Key Partners

Key Activities

Value

Propositions

Customer

Relationships

Customer

Segments

Key Resources

Channels

Cost Structure

Revenue Streams

25


Model Future



IBM places emphasis on strong partnerships

26

Department with the sole purpose of managing IBM‟s partners

The purpose is to provide complementary skills and expertise that can result

in greater client value.

Maintain existing partnerships

Find additional, valueable partners

The IBM Human Ability and Accessibility Center


Model Future

Strategy Conclusion Business Model Analysis – Key Partners


IBM places emphasis on strong partnerships

27

Examples of Existing IBM Partnerships

• This alliance will let enterprises incorporate Twitter data into decision making

• Twitter represents an enormous public archive of human thought

• IBM‘s expertise is in integrating complex systems and data to make better

decisions

• Redefining the mobile industry by combining the exponential power of corporate

data with the world‘s best mobile technology

• IBM MobileFirst for iOS connects users to big data and analytics right on their

iOS devices

• Partnership for new cloud software business for corporate customers

• Many technology firms are jockeying for a slice of China's enterprise software

market, which promises to grow sharply in coming years


Model Future

Strategy Conclusion Business Model Analysis – Key Partners



Key Partners

Key Activities

Value

Propositions

Customer

Relationships

Customer

Segments

Key Resources

Channels

Cost Structure

Revenue Streams

28


Model Future



60% of IBM„s revenues come from Services

29

• Services (Global Business and Global Technology)

• In form of long-term contracts or charged in terms of output or time

• Software

• Perpetual licenses, recurring licenses, or post contract support

• Hardware

• Refers mainly to servers, which can be acquired permanently, on leases, or rents

• Financing

• IBM facilitates the client‘s acquisition of information technology

96,29 91,1 91,42

98,79 103,63

95,76 99,87

106,92 104,51 98,37

92,79

0

20

40

60

80

100

120

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Revenue of IBM during 2004-2014 (Bn. $)

38,2 40,88 40,24 38,55 37,13

18,22 19,28 18,57 18,4 17,83

22,49 24,94 25,45 25,93 25,43

17,97 18,99 17,67

12,99 10

0

20

40

60

80

100

120

2010 2011 2012 2013 2014

Revenue of IBM„s divisions from 2010-2014 (Bn.$)

Systems and Technology

Software

Global Financing

Global Business Services

Global Technology Services


Model Future

Strategy Conclusion Business Model Analysis – Revenue Streams


IBM is the leader of global IT-Services

30

The shift from hardware to software and services has made IBM the world‟s

market leader in IT Services.

56,3

60,03 58,67

35,1 35,7 34,92

21,25

25,39 26,85

23,37 25,51

23,81

16,11 16,21 15,69

0

10

20

30

40

50

60

70

2010 2011 2012

Revenue with IT-Services of leading companies from 2010-2014 (Bil.$)

IBM HP Accenture Fujitsu CSC

12 888

15 388 15 300 14 149

13 240,2 13 343,3

14 153

15 342 16 454

15 749

12 745,9

9 366,2

5 227

7 016 7 814

8 057

8 497,5

8 980

5 951 5 943

7 936,5 10 025,9

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

50000

2009 2010 2011 2012 2013 2014

Revenue with server systems of leading companies from 2009-2014 (Bil.$)

HP IBM Dell Others

6159

4944


Model Future

Strategy Conclusion Business Model Analysis – Revenue Streams



Key Partners

Key Activities

Value

Propositions

Customer

Relationships

Customer

Segments

Key Resources

Channels

Cost Structure

Revenue Streams


Model Future



IBM is investing huge amounts into R&D

• Majority of spending goes into R&D and marketing only company with higher R&D expenditure

than marketing

• Hard to maintain high margins due to emergence of open source and cloud computing

• McKinsey: cost structure and spending does not correlate with growth

IBM‟s Cost Structure


Model Future

Strategy Conclusion Business Model Analysis – Cost Structure


• Restructuring of splitting of business units

• Ensure flexibility and focus

• Acquisitions

• Widening revenue streams for growth

• Cost cutting is not effective outpacing

competitors

• Strong competition through smaller and more

flexible start-ups

• Cloud computing

• Internet of things

• Cyber security

• Data analytics

• Artificial intelligence

• Everything as a service (XaaS)

• Closer relationships and partnerships

Where is the industry going?

33

Future Industry Trends


Model Future

Strategy Conclusion Future Strategy – Future Trends


IBM follows a rapid transformation strategy in order to meet future trends

34

Quote from IBM‟s Chairman

―We will shift an additional $4 billion of spending to data, cloud and engagement this

year, aimed at deepening our differentiation in the marketplace.‖

- CEO Virginia M. Rometty

• Strategic imperatives: cloud, analytics,

social, mobile, and security

• Transformation roadmap:

• Transforming industries and professions

with data

• Remaking enterprise IT for the era of

cloud

• Reimagining work through mobile and

social technologies

• Rethinking the challenge of security

• Creating new infrastructure for a new era

IBM‟s Overall Strategy


Model Future

Strategy Conclusion Future Strategy – IBM‗s Strategy


IBM focuses on new profitable business divisions

35

Transforming industries and professions with data

• New class of advanced analytics – IBM Watson

• Artificial intelligence system with same learning process as humans

• Applied in 17 different industries & enables cognitive computing for apps

Remaking enterprise IT for the era of cloud

• 4bil. Invested into software-as-a-service acquisitions

• Global and local cloud footprint hybrid clouds catered to client‘s needs

• Partnership with SAP deliver enterprise applications as a service in cloud

Reimagining work through mobile and social technologies

• IBM interactive experience is biggest digital agency

• Substantial expertise in mobile and social

• Strategic partnership with Apple for devolving business apps


Model Future



IBM focuses on new profitable business divisions

36

Rethinking the challenge of security

• IBM Threat Protection System includes an end-to-end architecture of

analytics and forensics software worldwide leader

• 10 global Security Operations Centers manage & monitor 15 bil. events daily

Creating new infrastructure for a new era

• Internet of things transformation solutions combines cloud and Watson

• IBM Power Systems strategy focused on open innovation

• Reimagined the mainframe for the tremendous growth of mobile workloads

IBM manages to address all relevant future trends with its transformation

strategy. However IBM does not consider to split its company even further.


Model Future



IBM‟s transformation from hardware to software and services is a great success

• Higher Margins

• Innovation Culture

• Great touch with customer

• Efficency

• New valuable partnerships

• Became ―Big blue again‖

• Explore New Markets

Pros

• Positioning –

―what does IBM really do?‖

• Cost reduction - all about

efficiency no more ―job for life‖

Cons

IBM did one of the greatest

comebacks in American

history


Model Future

Strategy Conclusion Conclusion - Comparison


Thank you for your attention!


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Documents

IBM