Transcript Slide 1

From IBM to Lenovo: Architecting a Global
Supply Chain Divestiture in 143 Days
David Eagle
Business Development Executive
A robust supply chain is essential for an on demand
business
On Demand Business–A Definition
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.
KEY ATTRIBUTES
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RESPONSIVE
VARIABLE
FOCUSED
RESILIENT
In 2002, IBM integrated our supply chain operations into a single
organization
BREADTH
OPERATIONS
TEAM
GLOBAL
LOGISTICS
MANUFACTURING
DEPTH
CUSTOMER
FULFILLMENT
STRATEGY
TEAM
TECHNOLOGY
COMMON DATA & GOVERNANCE
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TALENT
TEAM
PROCUREMENT
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
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 45,000 business partners
worldwide
 33,000 suppliers connected
through the Web
 More than 2 billion pounds of
machines and parts moved
annually
 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
 Handling over 78,000 products,
with over 3 million configurations
 Employees speak over 80
languages
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
SOFTWARE
SYSTEMS
&
TECHNOLOGY
Procurement
Manufacturing
Customer Fulfillment
Global Logistics
Supply Chain Operations
Demand/Supply & Inventory
Engineering
RESEARCH
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SERVICES
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 Transaction
and
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 Products
and Brands
World Class Service
& Support
Global Reach
New Growth
Opportunities
Scale
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The New Lenovo: Overview
 $13B sales (last 12 months)
 19,000 employees
 WW Headquarters: New
York, USA
 Principal operations: Raleigh,
Beijing
 Public company with
ownership positions by
Lenovo and IBM
 Notebooks and Desktops
 Enterprise, Mid-Market,
Consumer & Small Business
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The New Lenovo: Leveraging strengths to pursue
opportunities
Product Mix
IBM % of Revenue
Segment
Lenovo % of Revenue
Notebook
18%
Desktop
40%
Notebook
60%
Desktop
82%
Geography
IBM % of Revenue
AP
32%
EMEA
26%
Americas
42%
Lenovo % of Revenue
AP
100%
IBM % of Revenue
Lenovo % of Revenue
LE / MM
SB /
Consumer
43%
LE / MM,
57%
17%
SB /
Consumer
83%
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
Data Source: IDC PC Tracker / Internal sources
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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 & tools
 Business Model and Legal Structure
 Financial Landscape
Unique ledger system created for Lenovo
True-ups, balance sheets, feeders, TSA /
MSA management
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 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 SarbanesOxley compliance
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
Executive Steering
Committee
IBM
(weekly)
Global
Functional Teams
IBM
Operating
Team
Lenovo
Global
Functional Teams
Contract Exec
Development
Development
Marketing
Marketing
Transition
Executive
Sales & Distribution
Sales & Distribution
ISC
ISC
Service & Support
Service & Support
IBM
Project
Office
IT
Finance/Accounting
IT
Finance/Accounting
Tax/Treasury
Tax & Treasury
HR
BCS
HR
Real Estate
Providing Program
Real Estate
Mgmt & cross functional
IGF
IGF
coordination
IP / Legal
AG
AP
IP / Legal
Corporate Functions
EMEA
Trademark mgmt
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Environmental
Corp Dev
AG
Communications
13 Critical End to End Processes
AP
EMEA
Key Success Factors to Execute
 Project Office with the authority to manage project and risks endto-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
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 Ensure deal execution and stabilization of operations with no
adverse impact to customers, shareholders nor financials.
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.
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