emerging business opportunities discussion with rpi
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© 2006 IBM Corporation
Emerging Business OpportunitiesDiscussion with RPI
Mike GierschVice President, Strategic PlanningIBM Corporate Strategy
© 2006 IBM Corporation2
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
© 2006 IBM Corporation3
Call to Action9/12/99
Self Assessment4Q99
Start-up1Q2000
Management System2001
First Graduation Summer 2003
Next Phase2006
Benchmarks
CiscoIntel
Microsoft
Consultant / VC Input
Academic Literature
Case Studies
AkamaiISP Market
Life SciencesPvC
Caselets
Business IntelligenceRFID
RS/6000 SPSSD Microdrive
Recommendations for
CEC, Staff, Line
EBO Work Sessions
P&G
Sun
1-on-1 CEC
Interviews
Major Root Causes
HORIZON 1Core businessExtend, defend, increase productivity and profit contribution
HORIZON 2Growth businessScale proven business models, increase market share, & grow to opportunity
HORIZON 3Emerging OpportunitiesTest business models, prove viability, capabilities and valueSeed growth opportunities
Time and Level of Uncertainty
Profit ROIC Costs Productivity or
efficiency
High revenue growth Market share gains New customer acquisitions Profit
Project-based milestones
Creating the Business Design
In market pilots
Measures
EBO Idea Sources Enterprise-Wide
EBO Selection Criteria
Strategic alignment Cross IBM leverage New source of customer value
NewMarkets
New BusinessModels
New/DisruptiveTechnologies
EBO Categories
Research External Sources
(Customer, VC)
Business Units Sales & Distribution
$1B+ revenue potential Market leadership Sustained profit
potential
Selection
SELECTIONCRITERIA
GRADUATION CRITERIA
US $1 Billion
Cultivation Graduation
• Strategic alignment
• Cross IBM leverage
• New source of customer value
• $1B+ revenue potential
• Market leadership
• Sustained profit
• Strong leadership team in place
• Clearly articulated strategy for profit contribution
• Early market success
• Proven customer value proposition
Phase 3Iterative/Starburst
Clusters of opportunitiesWorking on a portfolio $3-5B
Market Potential
Phase 1Identification
“Looking for Churn” Within an Industry
or AcrossIndustries
Phase 2Nurture an Opportunity$1B Market Potential
Extrapolate Commonality for use in other Industries / Domains- Common Business needs
- Emerging or Disruptive Business models- Technology Disruption
Phase 4Scale and transition all or part of the nurtured businesses
The Portfolio
20062000
Autonomic Computing
Business Trans. Outsourcing
Engineering & Tech. Services
Learning Solutions
Grid Computing
WebFountain
Retail on Demand
Sensors & Actuators
Info-based Medicine
Blade ServersBus Process
IntegrationDynamic
WorkplaceFlexible Hosting
ServicesStorage SoftwareSTI Cell
ProcessorProduct Lifecycle
Mgmt
Life SciencesLinuxPervasive
ComputingDigital MediaNetwork
Processore-Markets
© 2006 IBM Corporation4
A Few Words of Context …
EMEA Asia/Pacific
Americas
Hardware
Software
Services
IBM Today– Revenue $103B, Profit $12B, R&D $6B– 4 Product/Service Groups plus Sales/Distribution Unit
IBM in 1999
© 2006 IBM Corporation5
A Snapshot of the Past
1985 1993 1999 2000 2001-$20 B
$20 B
$60 B
$100 B
$140 B
$180 B
$220 B
0
100
200
300
400
K Employees
Profit
Revenue
Employees
Market Value
© 2006 IBM Corporation6
1984 1992
A Few Fortune Views of IBM
© 2006 IBM Corporation7
And another ….
© 2006 IBM Corporation8
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
© 2006 IBM Corporation9
EBO Start-up ApproachThe 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 Caselets
Recommendations for CEC, Staff, Line
EBO Work Sessions 1-on-1 CEC Interviews
Major Root Causes
• Akamai• ISP Market• Life Sciences• PvC
• Business Intelligence• RFID• RS/6000 SP• SSD Microdrive
© 2006 IBM Corporation10
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
© 2006 IBM Corporation11
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 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 Corporation12
Emerging Business Opportunity
HORIZON 1Core businessExtend, defend, increase productivity and profit contribution
HORIZON 2Growth businessScale proven business models, increase market share, & grow to opportunity
HORIZON 3Emerging OpportunitiesTest business models, prove viability, capabilities and valueSeed growth opportunities
Time and Level of Uncertainty
ProfitROICCostsProductivity or efficiency
High revenue growthMarket share gainsNew customer acquisitionsProfit
Project-based milestonesCreating the Business Design In market pilots
Measures
Source: Alchemy of Growth
Adopted from The Alchemy of Growth, Baghai, Coley, White
© 2006 IBM Corporation13
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
© 2006 IBM Corporation14
Global Services
EBO
Research Sales & Distribution
SoftwareSystems & Technology
Business Unit Ownership
Oversight, Collaboration and Issue Resolution
Unique, Hybrid Organizational Model
© 2006 IBM Corporation15
EBO Results
“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 ...”
2004 Annual Report
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
2006 Analyst Briefing
New MarketsRetail on DemandSensors & Actuators Info Based Medicine
FY05~$1B
>100% YTY
Business Performance TransformationBusiness TransformationStrategy & ChangeEngineering & TechnologyBus Performance Mgmt Software
FY05$4B
+28% YTY
Emerging CountriesChina IndiaRussiaBrazil
FY05$4B
+14% YTY
© 2006 IBM Corporation16
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
Need a burning bridge … top level support Thorough internal assessment of root causes Broad senior level buy-in Start small
Call to Action, Start-up
Operating, Sustaining
EBO Lessons
© 2006 IBM Corporation17
Call to Action9/12/99
Self Assessment4Q99
Start-up1Q2000
Management System2001
First Graduation Summer 2003
Next Phase2006
Benchmarks
CiscoIntel
Microsoft
Consultant / VC Input
Academic Literature
Case Studies
AkamaiISP Market
Life SciencesPvC
Caselets
Business IntelligenceRFID
RS/6000 SPSSD Microdrive
Recommendations for
CEC, Staff, Line
EBO Work Sessions
P&G
Sun
1-on-1 CEC
Interviews
Major Root Causes
HORIZON 1Core businessExtend, defend, increase productivity and profit contribution
HORIZON 2Growth businessScale proven business models, increase market share, & grow to opportunity
HORIZON 3Emerging OpportunitiesTest business models, prove viability, capabilities and valueSeed growth opportunities
Time and Level of Uncertainty
Profit ROIC Costs Productivity or
efficiency
High revenue growth Market share gains New customer acquisitions Profit
Project-based milestones
Creating the Business Design
In market pilots
Measures
EBO Idea Sources Enterprise-Wide
EBO Selection Criteria
Strategic alignment Cross IBM leverage New source of customer value
NewMarkets
New BusinessModels
New/DisruptiveTechnologies
EBO Categories
Research External Sources
(Customer, VC)
Business Units Sales & Distribution
$1B+ revenue potential Market leadership Sustained profit
potential
Selection
SELECTIONCRITERIA
GRADUATION CRITERIA
US $1 Billion
Cultivation Graduation
• Strategic alignment
• Cross IBM leverage
• New source of customer value
• $1B+ revenue potential
• Market leadership
• Sustained profit
• Strong leadership team in place
• Clearly articulated strategy for profit contribution
• Early market success
• Proven customer value proposition
Phase 3Iterative/Starburst
Clusters of opportunitiesWorking on a portfolio $3-5B
Market Potential
Phase 1Identification
“Looking for Churn” Within an Industry
or AcrossIndustries
Phase 2Nurture an Opportunity$1B Market Potential
Extrapolate Commonality for use in other Industries / Domains- Common Business needs
- Emerging or Disruptive Business models- Technology Disruption
Phase 4Scale and transition all or part of the nurtured businesses
The Portfolio
20062000
Autonomic Computing
Business Trans. Outsourcing
Engineering & Tech. Services
Learning Solutions
Grid Computing
WebFountain
Retail on Demand
Sensors & Actuators
Info-based Medicine
Blade ServersBus Process
IntegrationDynamic
WorkplaceFlexible Hosting
ServicesStorage SoftwareSTI Cell
ProcessorProduct Lifecycle
Mgmt
Life SciencesLinuxPervasive
ComputingDigital MediaNetwork
Processore-Markets
© 2006 IBM Corporation18
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.
© 2006 IBM Corporation19
Mike GierschVice President, Strategic PlanningIBM Corporate Strategygiersch@us.ibm.com
Thank You
© 2006 IBM Corporation20
EBO Idea Sources Enterprise-Wide
EBO Selection Criteria Strategic alignment Cross IBM leverage New source of customer value
NewMarkets
New BusinessModels
New/DisruptiveTechnologies
EBO Categories
Research External Sources(Customer, VC)
Business Units Sales & Distribution
$1B+ revenue potential Market leadership Sustained profit potential
Criteria and Selection of EBO’s
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