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 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.