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Internet Valley, Inc.
San Francisco #1
San Francisco #2
director Scott Gannon gave Internet Valley readers the rare opportunity
to have an inside look at IBM's iBusiness efforts
Scott Gannon as told to Internet Valley
by phone: January 28, 1999 (10:40 to 11:35 am PST)
|We have spent a tremendous amount of
time over the last four or five years really crafting our external e-business initiatives.
Lou Gerstner (IBM's CEO) four years ago: " network computing is really the
direction we are going as a company."
And so we spent a
whole lot of time branding our products, changing our products, web-enabling our
products, building of course those highly effective Web commercials that youve seen. So weve spent a lot of time -- our
primary focus is that hey, weve got to get our products and our services
more oriented to help our customers utilize the Web.
We spent a lot of time on that, and so, as we were doing it, we clearly
could see the value that they were beginning to get.
You just start to get the testimonials; you are heavily engaged with
these customers, you started to really see the business transformation kind of effects
that would take hold. So we obviously began to turn to ourselves internally, and say
hey, how can IBM also begin to use the Web to try and drive business
transformation within the company?
So about a year and a half ago we began to form this organization that I
am part of, called Enterprise Web Management
What we did was -- what was so visible, and well talk about it,
was E-commerce, thats the area I focus on. Before we really drill
down there, to kind of summarize the note you have, and I don't mean certainly to drag you
through all of it.
What we quickly realized is that for IBM, e-business wasnt
just e-commerce, and that there were many segments in IBM that we could deploy
the Web to drive value. And so the first thing we did, was we stood back as a team,
surveyed IBM and really looked at 5-7 areas within IBM that we thought we
could Web-enable processes and drive value.
So, the first message is that for us, e-business is more than
e-commerce. Its how do you use the Web to transform a lot of the key processes
within your company?
I think your research is
really proven right on. I think youre focused on the right thing, which is,
and well get to the e-commerce piece, because it is a very exciting story of how we
can use it to lower costs and hopefully increase revenue for IBM and for our customers.
But when you think just on the e-commerce point, and to your point
really, the actual completion of the transaction over the Web -- the thing we are really
counting the revenue game on is a very small fraction of the overall order management care
that you can really provide customers and business partners, that they really want that
really drives the cost down. So we can talk a little bit about that.
The revenue is a big thing and it shows a shifting in the processes, but
theres so much more around it. We did $1.1 billion over the Web in the month
of December, and probably our total would be a little over $3.2b for 1998.
But we think it is going to ramp pretty aggressively to between 10-15
billion in 1999 and again primarily this is focused on shifting the traditional
order-management processes of our business partners and our large customers over to the
It is primarily a business-to-business focus.
If we can get into it a little later -- thats one of the other key differences about
what were doing as a big Fortune 500 company. The e-commerce play for lowering
costs and increasing revenue is business to business.
Although we do have, and are very focused on, the consumer, kind of
general public, segment of our business as well. And were doing a lot of work to
re-design that commerce buying capability.
And the second value proposition is potentially using e-commerce
to enter new markets or increasing shares in existing customers to grow revenue, and we
can talk more about that. I can get a little more specifically on how we are viewing our
transaction costs being reduced as a result of e-commerce, so we can get into that a
Again, thats the area that I concentrate on.
The second area, again just to overview, where weve found enormous
value, is in the e-procurement area, or I should say, the procurement area. IBM
procures about $40b worth of stuff a year and we have done a great job of
reengineering the internals of IBM so that were very efficient in doing that.
The Web strategy is to try and use the Web to help reduce the
costs of the suppliers so that they then, reduce the prices to you.
You cant really do that with traditional means.
Again, after youve done all the reengineering you can internally right at IBM to
lower your processing costs. Then you reach out and theres one specific application
-- cause theres like 3 or 4 -- is one where we have a certain number of obviously
some key suppliers that provide us a component, and that component is made up of multiple
Well it turns out that for some of these components, we can actually buy
the individual pieces cheaper than our suppliers can, because of our size. So what we did
was put up this Web site, where key suppliers will download their billing material. We try
to do an auto-match to that, based on our buying power, and if we can actually get the
sub-components at a lower cost, well buy them, transfer them over to our suppliers,
and they lower their prices to us. Its a big expense savings play for us. There are
some of those types of applications that are pretty provocative for us.
The e-care, just to kind of move on, the e-care for customers,
obviously providing support over the Web, versus the traditional means; over the
phone, or having people show up, is really key. You know, just to kind of give you an
example, and you can kind of read a couple of the points there, whats interesting is
weve done a whole bunch of reengineering of our technical support sites. We had 40
different technical support sites scattered throughout our Web presence out there.
And so that if you were in one particular tech support site trying to
troubleshoot a hardware problem on your PC or what have you, and it would turn out to be
software, the system wouldnt intuitively take you to the software site. You kind of
had to back out, and go search again. But were consolidating all the tech support
sites under one kind of common look and feel navigation system.Even given a lot of that,
we still handle a tremendous amount of the self-service -- 14 million self-service type
tech support transactions, but we still spend a lot of time on the phone.
What has happened is that engineers spend about 17 minutes on
average, we had a study on this stuff in order to build our business cases, they spend 17
minutes on average, per call. And it costs about $25 for that 17-minute call. And
the whole idea is how do we take that 17 minutes to zero?
And you got that by providing a lot more frequently asked questions, more content, and
were looking at some products to do the online chat scenario. Online
business-to-business chat to handle technical support. Thats really important
because what weve studied here with our engineers is that they are doing online chat
-- they can handle 5 to 6 customers at once, in an interactive mode.
We have this product called Same Time, which we just acquired from
Lotus, and were looking at that. What we want to do is really take that 17-minute
call down to zero. Thats about $175 million type savings for us.
Another one is an actual industry issue, just to make a mention of this,
is e-mail management. You dont really think about stuff like that
when you get caught up in the e-commerce hype. We get a million e-mails a year and it
started to get to be the feeling out there, that companies if they want to be e-business
oriented companies, better answer those e-mails in 24 hours. We dont answer
e-mail in 24 hours. Right now it takes us two to three days, but we are going
to reengineer all that. And we just launched some software that we got from research so
that itll do automatic e-mail answering and routing throughout the company. There
are some other companies out there that are doing it in 24 hours.
So the whole reengineering of our tech-support and how we take care of
customers and get all that done over the Web. Another area, that one of my peers works on,
which is how can our employees get more productive and lower costs. We have 270,000
employees, and weve probably got to figure out ways to use the Web to make them more
productive. If one of the employees here is distance learning and as you can see from the
notes, around 15 percent of our education is right now via distance learning
over the Web. And what we want to do is take that to 30 percent. You can pretty
much see that the savings would pretty much eliminate the cost per classes of you know, 500
bucks or 580 dollars a class or something like that. But whats interesting on
this one is the feedback that we are getting from our employees, is that theres this
benefit that you cant really put in the financial model, and thats a quality
of life benefit.
When you dont have to send a single parent in Boston and send
them to San Jose for a Java class for a week, and they can take it from any IBM location,
or from their home office, you get that intangible benefit as
well, that is driving distance learning. But surely with morale I think.
So were doing a lot of things with these employees being targeted.
Were going to be launching this thing called My IBM,
which is sort of an Excite front-end push technology, for employees where a sales
reps in the field in the health-care industry can request that they want say -...- number
of news items in their industry pumped to them. So it will pump external items to them,
but what is unique about it is that it will also pump internal database sources to them.
They can constantly get pushed to them what products are shipping, whats the invoice
status of customers, things of that nature, so they can have a very good operating
tabletop and we have been getting a lot of good feedback from a lot of the pilots that we
Business partners. I think maybe what well do is
maybe well save the discussion here, as it really falls more into what we are doing
with e-commerce. But just a part that well say is that we have 45,000 business
partners, and theyve come to us two years ago, and said If you make it
easier for me to do business with you, I will buy more from you.
We sell about 60 percent of our hardware products to our business
partners, so thats a very, very important channel for us. Ill come back to
that, because I think theres some very interesting statistics, I think, that have
come out of this application launch.
E-care for influencers. Here we really feel that as
though in order to further relationships with (influencers - ed.) and our security
analysts, we have to respect their time. And one of the ways we are doing that is figure
out ways to use the Web to do that, so weve launched these press sites and security
analysts sites. Weve gotten about 40,000 visits to it a week,
so people are really pulling a lot of information from them.
But we still want to talk to those people. Were afraid if we give
them too much information, we wont have to talk to each other any more. We are doing
a lot of work on the whole influencers side of the equation.
When we do our quarterly earnings reports now, it used to be CEO, Louis
Gerstner and our CFO, Doug Maine, would all run
down to Wall Street, get everybody into a hotel room, and spend a half-day going through
the process of updating everyone on our quarterly earnings.
Its all done over the Web now, through a
conference call that we launched with them, (with) password-protected charts and everyone
logs on, and our chairman and our CFO literally walk through the charts on the Web.
Were trying to continually drive value through the Web to our
influencers. The idea there was just to give you the whole presentation, and Im
really happy to, at another point and time, which really overviews each of these areas in
more detail that I thought you would be interested in, Ill pause after this. If you
want to get into, more specifically, how we are really using e-commerce to lower costs and
increase revenue for IBM and its stakeholders or if you would like to talk about something
else, thats fine too.
Web Influence is a
very powerful capability to have, just like you overviewed
especially in this current state of where we are as a business. Let me try to
answer it on a two-pronged answer. First of all, like I said before, our primary Web Influence to date right now has been
focused on business to business.
Were producing some phenomenal results using the Web in a business
to business fashion.
I dont think some of the influence that youre looking at, or
maybe the way that youre viewing it, would take that
into consideration, because it is certainly not
Let me give you an example: you wouldnt have in your
equation or assessments, the work that we have done with our business
partners, which is the one I was going to hold back on it
It is 65% of our e-commerce
revenue in 1998 was all generated through our business
partners. We launched a very large global Web application with our business
partners, and really focused on three things.
Were really focused on providing an aggregation of content.
Again, these people said "well buy more from you if you
make it easier", we had content from our divisions splattered all over the
place, and these folks had a heck of a hard time putting proposals together.
It used to take about five days to put a complex
proposal together, on average in total hours for a business partner, for our products,
before they could really get what they wanted out the door. When they had to have 3-4
different products together to build a solution. As a result of providing current, online,
available content, it takes less than a day to produce that kind of proposal.
So its one big piece of this application, and again, the public
doesnt see that.
This is our business to business application.
The other big feature that drives to lower costs and things is ordering
and order management.
Youd be surprised. One of our larger divisions, our PC
division, that 50 percent of the business orders that would come
in over the fax and over the phone. So what we
wanted to do is aggregate those processes, and provide our business partners to do their
own self-service ordering.
Im going to give you an example, and then I am going to pause. A $17,000
order, small order, right? For a business partner, used to take 2-3 days
of both IBM time and business partner time, and what were 30 different
touches, 30 different times it was touched.
Now we have that down
it takes about 5-10 minutes
and its just one touch.
What that does is it starts to drive cost out of the equation, and
increase productivity.Just the third big feature, They can do all of
their financing online now, over the Web. They can submit a quote to our global financing
organization, they get the rates back, and the contract is completely processed and closed
over the Web, a big cycle time decrease.
Theres a couple other examples of what we do with our large
accounts, those are the areas weve been focused on,
we get 1.4
million visits a week to IBM.com.
Its one of the largest traffic sites,
probably outside of a portal. I dont know what Yahoo! gets. I
dont know, may be they get that a second.
But we get 1.4 million visitors a week to IBM.com, so its a huge,
huge Web presence, and I dont know how then that factors
back into your assessment of Web presence ...
Well, we have obviously a huge Internet presence, and out IBM.com has
received multiple awards for being best of breed in the
industry by a lot of magazines and a lot of industry organizations. We think we are well
on our way in clearly carving out leadership as far as presence on the Web, and I think we
are really going to get a lot of notoriety soon, because a lot of this stuff has just come
Your timing is impeccable in talking to us. Where I
think were really going to get a lot of notoriety is how were able to lower
costs and increase revenue, not only for IBM, but also for our business partners and our
customers by doing business to business.
Thats the huge, huge play for IBM. Ill
give you another example, and thats our large customers. One of our major foci,
outside of consumers, which is another piece we can talk about for small businesses.
I mean, if you were sitting in my seat, you would be saying,
wheres some of the jewels at IBM, and what would be a way to use the Web to make
that business model more effective? With our large customers, what we have been doing has
been very similar to the business partner initiative. Were trying to extend the
relationship to our largest accounts through the use of dedicated, password-protected,
So we have, lets say 400-500 big accounts, right there, the
kind of tier ones if you will, what we have created are these co-branded Web sites,
so that we could take the sophistication of doing business with huge multinational
corporations, and IBM is a pretty sophisticated business.
Lots of volume, lots of exchange, and what weve been able to do is
take all the manual ways that was being done, and aggregate it behind a Web site, so we
can aggregate a large accounts technical support needs, very customized to that
Who to contact at IBM?
Some of these customers, we have major roll-out plan[t]s of
lets say, point-of-sale equipment, and they want to have a way to put the project
management status, maybe on a password-protected portion of this co-branded site.
What Im really interested in is allowing our large customers,
similar to business partners, do their own self-service ordering over the Web, because
right now the traditional vehicle for this is through reps or faxes or voice mails, and
things like that. And what we are able to do is customize catalogs with very specific
pricing to that large account.
As you know, they sign large-volume contracts with us, with specific
pricing. We do put -- the idea is to have pre-configured solutions in
place, but a customer might say, "Im going to buy a volume contract for
5,000 or 6,000", say a worldwide contract.
Normally what happens is that they usually gravitate to 3-4 different
configurations, and usually as a company, they want to standardize on those
configurations, and then publish that "approved buy list" if you will,
throughout their company.
So what we do is we put a catalog behind them which has their prices in
it, their specific configurations in it, also populated with other products that the
customer might be interested in looking at, based on their discounts. And then, what they
can do is they can actually place the orders through these co-branded sites, back into IBM
over the Web, and the value is in a couple areas.
Our customers can organize their procurement processes much better, like
I said, by being able to communicate
"Hey, heres the approved buy
list," I mean, they come with this, theyre really frustrated sometimes by
trying to standardize on "heres whats approved to buy" as a
Or what they can do is communicate off of all these user departments.
They can pass out passwords to users who are authorized to actually buy. For IBM, there is
a huge value involved. One of the biggest is increased reach. Were looking at being
able to get into now departments and areas, just by being able to market to a co-branded
Weve already seen order error rates,
on orders where we are doing it, decrease from thirteen percent in some of our large accounts, down
to three percent. Because of the manual
processes of placing orders were reduced. So again its a very, very important area
for us in driving costs down at IBM as well as for our customers. And thats kind of
what weve been focused on, because those are things we are beginning to see trickle
down into the bottom line of IBM.
Web Influence &
Market capitalization. I cant really get
into the particulars of our market capitalization compared to other
Internet companies, but I will make a couple of comments. Everything that
is speculation on stock, why did it go down, why did it go up, I
dont really have any comment either. But our
company is doing phenomenally well. Its growing, its very healthy. I think
in the public write up on our earnings, I think specifically in the Wall Street Journal,
they really called out the growth of some of the more dependent areas of IBM, like our
it almost goes back to our opening
discussion which is where we spent most of our time as a company: which
is building our products so that they can be Web-capable,
building a services practice that we can do Web
reengineering projects with huge corporations, and host all
of many large corporations.
And when you look at the public information, and start to see the shift
of software and services begin to outpace the hardware, thats whats
driving our success.
I dont think anyone can argue right
now with IBMs success is the Internet, and our leadership
within the Internet, with being able to sell our
products and services to help our customers.
As far as a business, we are doing phenomenally well there.
Ill tell you, as far as why e-commerce
was not mentioned, I think what they really wanted to focus on was the overall financial condition
he following paragraph is
an indirect reply to one of the fragments of Internet Valley's article:
"... IBM totally failed to enter the Browser
War, instead choosing to sit back and passively watch the proceedings." - ed.
Weve spent a lot of time in the Internet
division, and our focus was not the browser. We did not think that was the place that
IBM had its strength. We had our strengths, and what is allowing our business to grow, and again
if you go back and look at those earnings reports, youll see that weve grown
to over an $81 billion company.
Whats allowed us to grow is really the marrying of Web and IT.
Its the marriage of the Web and the IT
infrastructures within companies, transforming the processes for our customers.
Thats how were signing multi-million dollar services engagements, and
thats what drags our products.
Really, when a company wants to do what weve just done internally
at IBM, focused on all those different areas of the business, they of course need
consulting services to do that and hardware, software etc. Thats the area
weve focused on, weve focused on that as a key strength that we can
provide to our customers. I know our sales and marketing folks could probably give you
better insight into what strategies we have picked and why.
I think that the only point that I would want to make sure that you
keyed in on and log in the back of your mind, is
- number one, IBM has really been using the
Web internally to try and transform some of its major, major processes;
- and really, number two, in e-commerce, our focus in 1998 has
been business to business, and its been aimed at lowering costs and
increasing revenue, not only for IBM, but for our business partners.
So thats what we have been working hard at.
Editorial comments: Yes, we fully agree
with Scott Gannon that IBM successfully developed the
best solution to e-commerce problems in its internal production and distribution
processes. Thanks a lot, Scott. But we still have a couple of questions ... and suggestions
regarding IBM's potential marketplace in entire Web.
Because that's the Web Influence is
See also: Questions
| Suggestions | The Report |