Emerging Business Opportunities
Discussion with RPI
Mike Giersch
Vice President, Strategic Planning
IBM Corporate Strategy
© 2006 IBM Corporation
IBM Experience - Three Attempts
 Circa 92. A Process Centered Approach
– Organization was going through some major process re-engineering.
– New business opportunity process added.
– Groups were to implement process, corporate sponsors, facilitates best practice sharing, etc,
– Corporate white space focus rejected by senior leadership
– Process aborted – company faced very serious financial challenges, CEO change.
 Circa 95. A Funding Centered Approach
– Post major expense cutbacks, concern that some new things were cut, needed a life-line.
– Created new business fund – groups nominate projects, corporate team evaluate and
recommends funding. Funding provided, no on-going oversight or support
– Funded mostly things that we would want groups to decide to fund … gaming the system to
get extra funding … ‘bowling for dollars’… serving up ‘hearts and lungs’. Reinforced
WRONG behavior.
– Projects turned over to groups to manage. Funding process ended.
– Ongoing, low profile, staff focus in corporate strategy on new business opportunities.
 Circa 99. A Change Management Approach – The EBO System
2
© 2006 IBM Corporation
US $1 Billion
SELECTION
CRITERIA
• Strategic
alignment
• Strong leadership
team in place
• Cross IBM
leverage
• Clearly articulated
strategy for profit
contribution
S
o
u
r
c
e
s
Strategic alignment
Cross IBM leverage
New source of customer value
New
Markets
HORIZON 1
Core business
Extend, defend,
increase
productivity and
profit contribution
HORIZON 3
Emerging
Opportunities
Test business
models,
prove viability,
capabilities and value
Seed growth
opportunities
New Business
Models
Selection
Cultivation
Graduation
(Customer, VC)



$1B+ revenue potential
Market leadership
Sustained profit
potential
EBO Categories
HORIZON 2
Growth business
Scale proven
business models,
increase market
share, & grow to
opportunity
New/Disruptive
Technologies
First Graduation
Summer 2003
Management System
2001
Time and Level of Uncertainty
Measures
High revenue growth

Project-based milestones

ROIC

Market share gains


Costs

New customer acquisitions
Creating the Business
Design

Productivity or
efficiency

Profit

In market pilots

Benchmarks
Case Studies
P&G
Akamai
Business Intelligence
Intel
Sun
ISP Market
RFID
Life Sciences
RS/6000 SP
PvC
SSD Microdrive
Consultant / VC Input
Academic Literature
EBO Work Sessions
1-on-1 CEC
Interviews
Major Root Causes
Recommendations for
CEC, Staff, Line
Call to Action
9/12/99
3

Caselets
Cisco
Microsoft
Profit
Self Assessment
4Q99
Next Phase
2006
• Sustained profit
External
Sales & Distribution
EBO Selection Criteria



Extrapolate Commonality for use in other Industries / Domains
-Common Business needs
- Emerging or Disruptive Business models
-Technology Disruption
• Proven customer
value proposition
• Market
leadership
Business Units
Start-up
1Q2000
Phase 3
Iterative/Starburst
Clusters of opportunities
Working on a portfolio $35B Market Potential
• Early market
success
• $1B+ revenue
potential
EBO Idea Sources Enterprise-Wide
Phase 2
Nurture an Opportunity
$1B Market Potential
Phase 4
Scale and transition all or part of the nurtured businesses
GRADUATION
CRITERIA
• New source of
customer value
Research
Phase 1
Identification
“Looking for Churn”
Within an Industry
or Across
Industries
The Portfolio
 Retail on
Demand
 Autonomic
 Sensors &
Computing
Actuators
 Blade Servers
 Business
 Info-based
 Bus Process
Trans.
Medicine
Integration
Outsourcing
 Dynamic
 Engineering &
 Life Sciences Workplace
Tech. Services
 Linux
 Flexible Hosting  Learning
 Pervasive
Services
Solutions
Computing
 Storage Software  Grid
 Digital Media  STI Cell
Computing
 Network
Processor
 WebFountain
Processor
 Product Lifecycle
 e-Markets
Mgmt
2000
2006
© 2006 IBM Corporation
A Few Words of Context …

IBM Today
– Revenue $103B, Profit $12B, R&D $6B
– 4 Product/Service Groups plus Sales/Distribution Unit
EMEA
Hardware
Asia/
Pacific
Americas

4
Software
Services
IBM in 1999
© 2006 IBM Corporation
A Snapshot of the Past
K Employees
$220 B
400
Employees
$180 B
300
$140 B
$100 B
Market Value
Revenue
200
$60 B
100
Profit
$20 B
-$20 B
5
1985
1993
1999
2000
2001
0
© 2006 IBM Corporation
A Few Fortune Views of IBM
1984
6
1992
© 2006 IBM Corporation
And another ….
7
© 2006 IBM Corporation
A Problem in September 1999
“One issue looms larger and larger in our
company: Why do we consistently miss the
emergence of new industries?”
What should IBM do to improve its ability to successfully identify,
select and pursue emerging business opportunities in a timely fashion?
 Understand root causes
 Recommend actions to address these issues
8
© 2006 IBM Corporation
EBO Start-up Approach
The Project Team did significant outside research, wrote 4 in-depth case studies,
and developed over 25 mini-case studies focused on IBM’s EBO efforts.
Benchmarks
• Leading companies
• Academic literature
• VC Input
Case Studies
• Akamai
• ISP Market
• Life Sciences
• PvC
EBO Work Sessions
Caselets
• Business Intelligence
• RFID
• RS/6000 SP
• SSD Microdrive
1-on-1 CEC
Interviews
Major Root Causes
Recommendations for
CEC, Staff, Line
9
© 2006 IBM Corporation
The Underlying Root Causes
1. Our management system rewarded execution directed at short-term results
and did not place enough value on strategic business building.
2. We were preoccupied with our current served markets and existing offerings.
3. Our business model emphasized sustained profit and EPS improvement
rather than actions to drive higher P/E's.
4. Our approach to gathering and using market insights was inadequate for
embryonic markets.
5. We lacked established disciplines for selecting, experimenting, funding, and
terminating new growth businesses.
6. Once selected, many ventures failed in execution.
7. Senior management didn’t spend time on new growth opportunities
10
© 2006 IBM Corporation
Recommended Actions
 Corporate Level

Adopt 3 Horizon model as overall IBM business construct

Define Horizon 3 cross-business domains

Appoint Senior Executive Leadership

Appoint Silicon Valley ambassador

Build IBM EBO management and measurement system
 Group Level
11

Define group and business unit specific domains

Build appropriate EBO management system for each group

Lead selected Emerging Business Opportunities

Decide appropriate investment balance by Horizon
© 2006 IBM Corporation
Emerging Business Opportunity
HORIZON 1
Core business
Extend, defend,
increase productivity
and profit contribution
HORIZON 2
Growth business
Scale proven business
models, increase
market share, & grow
to opportunity
HORIZON 3
Emerging
Opportunities
Test business models,
prove viability, capabilities
and value
Seed growth opportunities
Time and Level of Uncertainty
Measures
 Profit
 High revenue growth
 Project-based milestones
 ROIC
 Market share gains
 Creating the Business Design
 Costs
 New customer acquisitions
 In market pilots
 Productivity or efficiency  Profit
Source: Alchemy of Growth
12
Adopted from The Alchemy of Growth, Baghai, Coley, White
© 2006 IBM Corporation
The EBO Approach, at a Glance, the Essentials
 Declare/communicate strategic intent to pursue new growth
opportunities
 Identify highly visible short list of emerging business initiatives
 House them in the appropriate group/business unit, but give them
special treatment ... gold badges
– Dedicated A-team leadership for each opportunity
– Active sponsorship for each by a SVP
– Special support structure
– Protected funding
– Disciplined mechanisms for cross company alignment
– Measured differently, strategic milestones
– Regular review and oversight
 Nurture and graduate or kill this short list, and continuously identify
new candidates
13
© 2006 IBM Corporation
Unique, Hybrid Organizational Model
Business Unit
Ownership
Research
Sales &
Distribution
Software
Global
Services
Systems &
Technology
EBO
Oversight,
Collaboration and
Issue Resolution
14
© 2006 IBM Corporation
EBO Results
2004 Annual Report
2006 Analyst Briefing
“In 2000, IBM established its Emerging
Business Opportunities program to identify
and nurture new lines of business. An EBO
focuses on ‘white space’ opportunities that can
become profitable, billion dollar businesses
within five to seven years. EBOs are typically
assigned an experienced IBM executive
‘champion’ to manage the venture during its
startup phase ... Once an EBO has grown to
sufficient size, it becomes part of an existing
business unit ...”
New Markets
 Retail
on Demand
 Sensors & Actuators
 Info Based Medicine
FY05
~$1B
>100% YTY
Business Performance Transformation
 Business
Transformation
 Strategy & Change
 Engineering & Technology
 Bus Performance Mgmt Software
FY05
$4B
+28% YTY
Emerging Countries




15
25 EBO’s launched since 2000
5 EBO’s achieved $1B+ rev in 2003 and 2003
4 additional EBO’s doubled revenue in 2004
2 new emerging businesses launched in 2004
 China
 India
 Russia
 Brazil
FY05
$4B
+14% YTY
© 2006 IBM Corporation
EBO Lessons
Call to Action, Start-up




Need a burning bridge … top level support
Thorough internal assessment of root causes
Broad senior level buy-in
Start small
Operating, Sustaining








16
Active senior level sponsorship
Dedicated A-team leadership for each opportunity
Disciplined mechanisms for cross company alignment
Actions linked to critical milestones
Resources fenced – and watched – to avoid premature cuts
Quick starts, quick stops
Continued evolution
Communications and connection to the business
© 2006 IBM Corporation
US $1 Billion
SELECTION
CRITERIA
• Strategic
alignment
• Strong leadership
team in place
• Cross IBM
leverage
• Clearly articulated
strategy for profit
contribution
S
o
u
r
c
e
s
Strategic alignment
Cross IBM leverage
New source of customer value
New
Markets
HORIZON 1
Core business
Extend, defend,
increase
productivity and
profit contribution
HORIZON 3
Emerging
Opportunities
Test business
models,
prove viability,
capabilities and value
Seed growth
opportunities
New Business
Models
Selection
Cultivation
Graduation
(Customer, VC)



$1B+ revenue potential
Market leadership
Sustained profit
potential
EBO Categories
HORIZON 2
Growth business
Scale proven
business models,
increase market
share, & grow to
opportunity
New/Disruptive
Technologies
First Graduation
Summer 2003
Management System
2001
Time and Level of Uncertainty
Measures
High revenue growth

Project-based milestones

ROIC

Market share gains


Costs

New customer acquisitions
Creating the Business
Design

Productivity or
efficiency

Profit

In market pilots

Benchmarks
Case Studies
P&G
Akamai
Business Intelligence
Intel
Sun
ISP Market
RFID
Life Sciences
RS/6000 SP
PvC
SSD Microdrive
Consultant / VC Input
Academic Literature
EBO Work Sessions
1-on-1 CEC
Interviews
Major Root Causes
Recommendations for
CEC, Staff, Line
Call to Action
9/12/99
17

Caselets
Cisco
Microsoft
Profit
Self Assessment
4Q99
Next Phase
2006
• Sustained profit
External
Sales & Distribution
EBO Selection Criteria



Extrapolate Commonality for use in other Industries / Domains
-Common Business needs
- Emerging or Disruptive Business models
-Technology Disruption
• Proven customer
value proposition
• Market
leadership
Business Units
Start-up
1Q2000
Phase 3
Iterative/Starburst
Clusters of opportunities
Working on a portfolio $35B Market Potential
• Early market
success
• $1B+ revenue
potential
EBO Idea Sources Enterprise-Wide
Phase 2
Nurture an Opportunity
$1B Market Potential
Phase 4
Scale and transition all or part of the nurtured businesses
GRADUATION
CRITERIA
• New source of
customer value
Research
Phase 1
Identification
“Looking for Churn”
Within an Industry
or Across
Industries
The Portfolio
 Retail on
Demand
 Autonomic
 Sensors &
Computing
Actuators
 Blade Servers
 Business
 Info-based
 Bus Process
Trans.
Medicine
Integration
Outsourcing
 Dynamic
 Engineering &
 Life Sciences Workplace
Tech. Services
 Linux
 Flexible Hosting  Learning
 Pervasive
Services
Solutions
Computing
 Storage Software  Grid
 Digital Media  STI Cell
Computing
 Network
Processor
 WebFountain
Processor
 Product Lifecycle
 e-Markets
Mgmt
2000
2006
© 2006 IBM Corporation
Some external examples …
In this article, we first describe the management issues facing
companies that pursue new business creation, as well as the
usual problematic responses. We then explore a number of the
most critical balancing acts companies must perform, the
choices they entail, and the risks corporations face when they
fail to get the balance right. We conclude with a look at the
hybrid systems that are often needed to support these
balancing acts, focusing in particular on IBM’s Emerging
Business Opportunity management system because of its
success in mastering several of them simultaneously.
18
© 2006 IBM Corporation
Thank You
Mike Giersch
Vice President, Strategic Planning
IBM Corporate Strategy
giersch@us.ibm.com
19
© 2006 IBM Corporation
Criteria and Selection of EBO’s
EBO Idea Sources Enterprise-Wide
Research
Business Units
Sales &
Distribution
External Sources
(Customer, VC)
EBO Selection Criteria
 Strategic alignment
 $1B+ revenue potential
 Cross IBM leverage
 Market leadership
 New source of customer value
 Sustained profit potential
EBO Categories
New
Markets
20
New Business
Models
New/Disruptive
Technologies
© 2006 IBM Corporation