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gann_cas_3.gif (10615 bytes) IBM e-commerce director Scott Gannon gave Net Valley readers still rare in January, 1999 opportunity to have an inside look at IBM's earliest iBusiness efforts

By Scott Gannon


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 you’ve seen. So we’ve spent a lot of time -- our primary focus is that ‘hey, we’ve 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 we’ll talk about it, was E-commerce, that’s 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 wasn’t 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. It’s 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 you’re focused on the right thing, which is, and we’ll 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 there’s 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 Web.

It is primarily a business-to-business focus. If we can get into it a little later -- that’s one of the other key differences about what we’re 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 we’re 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 little bit.

Again, that’s the area that I concentrate on.

The second area, again just to overview, where we’ve 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 we’re 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 can’t really do that with traditional means. Again, after you’ve done all the reengineering you can internally right at IBM to lower your processing costs. Then you reach out and there’s one specific application -- cause there’s 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 sub-components.

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, we’ll buy them, transfer them over to our suppliers, and they lower their prices to us. It’s 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, what’s interesting is we’ve 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 wouldn’t intuitively take you to the software site. You kind of had to back out, and go search again. But we’re 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 we’re looking at some products to do the online chat scenario. Online business-to-business chat to handle technical support. That’s really important because what we’ve 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 we’re looking at that. What we want to do is really take that 17-minute call down to zero. That’s 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 don’t 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 don’t 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 it’ll 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 we’ve 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 what’s interesting on this one is the feedback that we are getting from our employees, is that there’s this benefit that you can’t really put in the financial model, and that’s a quality of life benefit.

When you don’t 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 we’re doing a lot of things with these employees being targeted. We’re 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, what’s 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 are running.

Business partners. I think maybe what we’ll do is maybe we’ll save the discussion here, as it really falls more into what we are doing with e-commerce. But just a part that we’ll say is that we have 45,000 business partners, and they’ve 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 that’s a very, very important channel for us. I’ll come back to that, because I think there’s 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 we’ve launched these press sites and security analysts’ sites. We’ve 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. We’re afraid if we give them too much information, we won’t 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.

It’s 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.

We’re trying to continually drive value through the Web to our influencers. The idea there was just to give you the whole presentation, and I’m 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, I’ll 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, that’s 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.

We’re producing some phenomenal results using the Web in a business to business fashion.

I don’t think some of the influence that you’re looking  at, or maybe the way that you’re viewing it, would take that into consideration, because it is certainly not visible.

Let me give you an example: you wouldn’t 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.

We’re really focused on providing an aggregation of content.

Again, these people said "we’ll 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 it’s one big piece of this application, and again, the public doesn’t 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.

You’d 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.

I’m 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 it’s 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.

There’s a couple other examples of what we do with our large accounts, those are the areas we’ve been focused on, … … we get 1.4 million visits a week to

It’s one of the largest traffic sites, probably outside of a portal. I don’t know what Yahoo! gets. I don’t know, may be they get that a second.

But we get 1.4 million visitors a week to, so it’s a huge, huge Web presence, and I don’t know how then that factors back into your assessment of Web presence ...

Well, we have obviously a huge Internet presence, and out 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 together.

Your timing is impeccable in talking to us. Where I think we’re really going to get a lot of notoriety is how we’re 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.

That’s the huge, huge play for IBM. I’ll give you another example, and that’s 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, where’s 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. We’re trying to extend the relationship to our largest accounts through the use of dedicated, password-protected, extranet sites.

So we have, let’s 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 we’ve 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 account’s technical support needs, very customized to that account.

Who to contact at IBM?

Some of these customers, we have major roll-out plan[t]s of let’s 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 I’m 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, "I’m 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, here’s the approved buy list," I mean, they come with this, they’re really frustrated sometimes by trying to standardize on "here’s what’s approved to buy" as a corporation.

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. We’re looking at being able to get into now departments and areas, just by being able to market to a co-branded extranet site.

We’ve 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 it’s a very, very important area for us in driving costs down at IBM as well as for our customers. And that’s kind of what we’ve 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 can’t 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 don’t really have any comment either. But our company is doing phenomenally well. It’s growing, it’s 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 services business…

… 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, that’s what’s driving our success.

I don’t think anyone can argue right now with IBM’s 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. I’ll 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 of IBM

The 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.

We’ve 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, you’ll see that we’ve grown to over an $81 billion company.

What’s allowed us to grow is really the marrying of Web and IT.

It’s the marriage of the Web and the IT infrastructures within companies, transforming the processes for our customers. That’s how we’re signing multi-million dollar services engagements, and that’s what drags our products.

Really, when a company wants to do what we’ve 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. That’s the area we’ve focused on, we’ve 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 that’s what we have been working hard at.

NetValley's 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 about...

See also: Questions | Suggestions | The Report | IBM's Say

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