Putting e-business to Work

Putting e-business to Work Inside IBM

For more than two years, IBM has been encouraging its customers and the world at large to adopt "e-business." In short, e-business is about connecting valuable information to the people who need it. The best way to do this, we think, is to combine the reach of the Internet with the vast resources of information on traditional systems. e-business also includes connecting people using Intranets and finding new ways to streamline key business processes.

While we've been talking to the world about e-business, we've been in the process of becoming an e-business ourselves. e-business offers a new set of opportunities, needs, rules, and challenges. We are forging new roads on our journey. There were no maps to point out the potholes and no examples of successes or mistakes from which to learn. IBM became the pioneer of the strategy and technology so that others could use our experience, mistakes, and successes as a guide.

We approached our task in three stages: unifying the computer systems, transforming key business processes, and Web-enabling core business processes. Let me share with you the perspective we have on the continual journey to becoming an e-business leader.

The Beginning

IBM's journey toward becoming an e-business began about 1993. That's the year, you may recall, that our profitability took a dip which caused a major reaction on Wall Street. That drop in market share and stock price caused IBM to reevaluate every facet of the organization.

Then, IBM was a maze of complexity. We had 400,000 employees with offices in more than 160 countries. We had more than 25,000 combined hardware and software products. We went to market as twenty different businesses with completely different fulfillment, accounting, human resources (HR), and payroll systems. Redundancy was everywhere.

The IBM mission was to fix this and return the company to profitability. The challenge, however, was to build a culture that would allow the IBM organization to continually transform itself. By becoming a smarter, faster organization and learning from our mistakes, we could bring the company back in the black and in a position to prevent the slide from happening again. Graphically, our vision is to set four waves into motion:

The strategy was to transform the core business processes, leverage knowledge and information, build new applications, and run a scalable, available, safe infrastructure. To start, we had to focus on one goal. For us, that was very clear. IBM had to go to market as one integrated, global organization rather than 20 different companies.

Transforming IBM

We began the transformation by targeting the accounting systems. In 1993, we had roughly 282 different financial systems. We had different ways in which we compensated people—even different lingo and methods of counting. 

We very rapidly streamlined accounting by creating common general ledger and payroll systems. Culturally, we began basing compensation on total IBM performance instead of business unit performance. Other cultural changes were made in both accounting and HR to ensure all of IBM was counting and talking in the same way. The resulting system cut financial expenses-to-revenue from 2.3% in 1993 to 1.2% today

The second wave began in 1995 with "value-added processes." These were the key processes across the organization that needed to be managed globally.

  • Procurement 
  • Production 
  • Fulfillment 
  • Customer relationship management 
  • Integrated supply chain 
  • Integrated product development
Once again, we started by eliminating redundant systems, such as the 25 fulfillment systems and the different infrastructures in every production plant. For example, by consolidating the fulfillment and procurement systems to an SAP R3 application, IBM was able to speed up the order-entry system. Information that customers used to wait hours or days for, such as a shipping date, is now provided instantly. Invoice accuracy is 98%. 

In the procurement system, we can process purchase orders in 24 hours instead of 30 days. Internal satisfaction has risen to 85% and, in 1999, we expect to procure $12 billion in goods and services over the Web, saving $240 million through the implementation of 3-procurement applications. 

To build an integrated supply chain, we needed to substitute information for inventory throughout all the production plants. In 1995, everything IBM purchased was based on a forecast. Because the supplier couldn't see what parts were being used, there was no way to replenish them until the next forecast arrived. As a result, IBM had long order-to-delivery cycle times, very high inventory, and substantial write-offs. 

Now, we've got more than 80% of the inventory moving through production on a regular basis. By allowing our partners and suppliers to see component usage they can replenish based actual usage. Cycle time is down and we saved about $800 million (US) just in inventory write-offs. 

We also needed to create a common and accessible way to understand our customers' needs and to develop products. In this second phase of transformation, we consolidated terminology, methodologies, and systems across the organization. In a nutshell, we broke down the barriers to communication and made sure people could talk to each other. 

Moving to the Web

In 1997, we began the third wave of transformation by Web-enabling the core processes under the headings of e-procurement, e-care, and e-commerce. IBM finished 1998 with $3.3 billion (US) of goods and services sold though our e-commerce systems, primarily business-to-business, through OEM partners, Business Partners, and ShopIBM. We expect that will increase by a factor of four or five in 1999. Using e-procurement, we'll purchase roughly $12 billion (US) in goods and services in 1999. 

However, these systems are more than just a Web front end. Take the e-procurement system for example. When we procure with a supplier over the Web, we ask that suppler to upload their component prices -- how much the vendor pays the supplier for every component that goes into the finished part. The e-procurement system then automatically compares the component prices to those purchased by a production plant elsewhere in IBM. If it finds that the vendor can get a better price on a component, it notifies the vendor. The vendor can then obtain the better price from its supplier and pass the savings on to IBM. Similarly, we've found instances where a vendor is getting a better price than IBM and that has allowed us to go back and renegotiate with the supplier. 

The e-care portion of the solution performs a similar service for our customers. From one place, www.ibm.com, you can have instant access to all the updates, tips, and product knowledge in the organization. Customers have an instant way of communicating their product questions and ideas back to IBM, too. 

The key is not to Web-enable everything; it's ensuring that everything you Web-enable ties back to the core business processes. That's where the real power is.

Building the e-business System

As you might imagine, when IBM began this project in 1993, we had a lot of homegrown applications that used different techniques, technologies, and platforms. Very early on we recognized the need to leverage these applications and transfer the information among them.  
  • e-commerce
  • e-procurement
  • e-care for customers
  • e-care for Business Partners
  • e-care for Employees
  • e-care for Influencers
  • e-Marketing Communications

We created a framework for the systems we would build and deploy. At the very base of the framework is our infrastructure. We're converging our IT systems with the Web, including linking the data in our back-end systems to Web-enabled front-end applications. This allows us to do all sorts of transactions and information sharing over the Internet.

The part of this that relates specifically to our Internet activity we call our Global Web Architecture (GWA). This has involved a worldwide consolidation of servers and Web hosting, resulting in seven major server farms around the world. GWA is AIX based on SP2s and RS/6000s. The IT and Web infrastructure has been outsourced to IBM Global Services, allowing us to deploy consistent architecture, standards, and systems on a worldwide scale.

Web applications were needed to deliver capabilities such as commerce, registration and profiling, and content management. Before we jumped in and started building the applications, we looked at the future. It's nearly impossible to forecast future demand for an application or a server. If the application is really valuable, its usage explodes. We decided to make sure that any application we put on a server could be quickly moved to another server as usage demanded.

We started focusing on open applications frameworks and industry standards for what we would build. To minimize our cost and risk, we also looked for applications that we could buy. For everything to work together, the software vendors with whom we worked had to subscribe to similar standards

As we began making changes and deploying applications, we discovered that the end users were constantly having to learn new navigational metaphors; how to get around the application and get to the data. To simplify this training, we decided to have only two navigation systems to interface with the core applications: Lotus Notes or a Web browser.

New applications are developed in Java using IBM VisualAge for Java. Applications both bought and built follow the CORBA and Internet standards.

Lotus Notes/Domino serves as the server and interface to many of our core applications. The IBM PROFS system is now Notes Mail. Many of the applications, like the SAP procurement system, are accessed through Notes.

Almost all the transaction systems across IBM run on DB2 with Transaction Series (MQSeries and CICS) as a hub to connect many of our new and legacy transaction-based systems; e-commerce, accounting, procurement, etc.

We've recently started using the somewhat-new WebSphere Application Server for both internal and external Web applications.

To reduce complexity and day-to-day management costs, we brought in Netview and Tivoli Systems, Inc.'s software products to provide end-to-end application, system, and network management.

The Data Center

With the framework and the tools in place, it was time to look at the underlying structure.

The transformation project began in 1993 with 155 data centers, 31 separate networks, and hundreds of client configurations. There were more than 100 "local CIOs" who had each created standards and architectures for their own area. Today, we have 25 data centers and we're consolidating those to just six. We have one integrated worldwide network and we'll soon have only four standard client configurations. There is now just one person with the title of CIO; one person to create standards and architecture for all of IBM.

By reducing data center expenses, we've reduced the IT budget by 26%. Adding Tivoli software to manage and automate routine tasks has helped free IT to concentrate on more important issues. The results have been outstanding. Network availability is 99.5% and response time is consistently under two seconds. Internet response time averages under six seconds and dial-up availability for our mobile work force is 99%.

Overall, measuring performance, testing, and deployment has improved reliability of the entire IT system by a factor of 40 and improved performance by a factor of five. In an e-business, making sure the systems are running, accurate, and fast is half of the battle.

Lessons Learned

  • You need top-level management commitment. From the board of directors on down, everyone needs to agree upon and commit to changes in business processes and strategies.

  • Expand the role of the CIO. Business process should align with IT. IT investments should align with business strategy.

  • Cultural changes have to come first. Before deploying a brand-new technology, make sure the people who will be using it are comfortable with the idea.

  • Outsource operations and development. To focus on the long term strategy, you have to get away from the day-to-day, build-and-run mode.

  • Keep communication open. The business and IT teams need to meet frequently to know what's going on. When IT drops a new application, business needs to be ready to catch.

  • Deployment needs attention. Development is important, but deployment often causes disruption. End uses should not have to contend with hundreds of changes every day.

  • Always look to the future. While you can't accurately estimate, you can always anticipate. Be ready to move quickly when demand for the application explodes.

Leveraging the Information

The other half of the battle is leveraging the information and knowledge in the organization. The ideal situation is to get the needed information into people's hands all the time; to allow them to work on the programs and projects to help continually transform these core processes. We also want these core processes to be at the desktop in real time.

To make this happen, we need a collaboration and messaging environment that enables individual and organizational learning, and accessing existing and creating new knowledge. We identified seven core business processes that offer the greatest business value—and the best ROI—today. These became our "e-business initiatives." The strategy focused on individual efficiency and competency, and organizational responsiveness and innovation.

  • e-commerce: to grow revenue and reduce costs by selling IBM products and services on the Web
  • e-care for Customers: nurturing and supporting IBM customers via the Web, reducing costs
  • e-procurement: facilitating alliances with IBM trading partners and streamlining the procurement process through Internet technology
  • e-care for Business Partners: promoting loyalty and revenue growth through Web-based programs
  • e-care for Influencers: providing Web access to relevant, timely information and resources for the press, consultants, analysts and shareholders
  • e-care for Employees: increasing the productivity, efficiency and skills of IBM employees through distance learning and knowledge management
  • e-marketing communications: extending IBM's brand image and market position via the Web

As you can see, these effect every business process in our company and the Web puts new demands on them.

Aligning IT Investments with Strategy

For IBM, the real issue is long-term competitive advantage. It's building an organization that every day evaluates its position in the market. It's creating a company that strives to continually improve and transform to meet the changing marketplace. Transforming IBM into an e-business meant that all of us, from the CEO to the IT team, thought about business programs, not IT projects. We had to consider deploying the application, not just building it. We had to think about how the business process would be changed—and how it would be maintained—for its entire life.

We began plotting each program on a grid that helped us measure the strategic value of the program instead of the purpose of the investment. We ask questions about each, for example "is this to improve infrastructure costs or to improve a market-facing set of systems?"

With the grid and the questions, we can see where the budget money is going—and rethink how the money is going to be spent. The projects with the greatest strategic impact are those on which we concentrate.

Since we started this project in 1993, we've made substantial improvements in terms of ROI, in terms of core processes, and in terms of budget. We're now starting to focus on new channels of distribution to serve our customer in an even more consistent manner, to meet customer needs better, and to be more responsive.

When it all comes together, it's about how we can do things smarter, learn from our mistakes the first time, and continue to become faster and more responsive in this very complex and competitive world. We've got the battle scars from doing this ourselves. It puts IBM in the unique position of being able to lead our customers around the potholes we found on the journey to becoming an e-business.

©1999 IBM Corporation.