Enterprise Productivity Initiatives Linda Sanford Senior Vice President Enterprise Transformation Enterprise Productivity Initiatives Progress to date - $4.7B – $4.2B spending reduction in the Shared Services over past four years – $500M in process transformation in 2009 – Shifted emphasis to value delivered Next generation transformation – – – – $8B in productivity benefits over next 5 years Shared Services End-to-End Process Transformation Integrated Operations New capabilities and technologies drive performance – Business Analytics and Optimization – Cloud Computing Transformation Maturation The “Smarter” phase of our transformation is beginning 2002 Sharing & partnering 2006 Globally integrating Consistent set of processes worldwide 2010 Making things smarter Leverage best practices Standardize and reduce waste Right skills, right place, right cost Governance and performance discipline Rationalize support functions for greater efficiency Radically simplify processes Instrumented, interconnected, intelligent Enable growth and productivity Optimize the whole system Progress to Date Shared Services Spend ($B) 20 16.3 15 14.8 13.8 13.3 Productivity improvements of $4.7B have been achieved over the last 4 years 12.1 10 $4.2B spending reduction in Shared Services from 2005 through 2009 5 0 2005 2.0 2006 2007 2008 2009 YtY Shared Services Savings and Process-Related Productivity ($B) $4.7B 1.5 0.5 $0.5B 1.2 $4.2B $500M productivity improvement in end-to-end process transformation 1.0 1.5 0.5 1.0 0.5 0.0 2006 2007 2008 2009 Shared Services Process Redesign Operating Leverage $78B Applying transformation principles to all of IBM’s spending to drive $8B in productivity benefits over the next 5 years Shared Services $2.4B End-to-End Process Transformation $2.5B $16B $12B Integrated Operations $3.1B 2005 2009 Shared Service Spending 2009 Total Cost and Expense Continuous improvement Radical simplification Integrate operations across units Shared Services Continuous Improvement Continuous improvement driven by optimization and innovation will yield $2.4B in savings through 2015 Focus on high-value advisory activities Efficiency Globally integrating Effectiveness Growth Making things smarter Greatness Locate work to where it can best be performed Leverage business analytics Radically simplify Information Technology Global Sales Operations Integrated Supply Chain Finance Human Resources Marketing & Communications Legal Real Estate Operations Shared Services Continuous Improvement Continuous improvement driven by optimization and innovation will yield $2.4B in savings through 2015 Increase the financial planning work performed in Centers Focus on highof value advisory ExcellenceEfficiency by 25% activities Making processes IncreaseEffectiveness the number of globalized from 53% Locate worktoto80% where it can Globally things best be performed integrating GrowthBuilding capabilities Leverage Smarter to reduce energy usage by 18% smarter from 2011 through 2015 Leverage business analytics Greatness Sunset 900 applications through enterprise-wide SAP simplify deployment Radically Information Technology Global Sales Operations Integrated Supply Chain Finance Human Resources Marketing & Communications Legal Real Estate Operations Globally Integrated Support Processes Continued focus on horizontal process transformation and radical simplification will contribute $2.5B in productivity through 2015 Shared Shared Shared Shared Business Business Business Business Service Service Service Service Unit Unit Unit Unit Integrating Globally Serving Local Client Needs Hardware Product Management Transformation Incentives Achieve $250M in savings through 2015 Enable productivity by reducing product portfolio and design complexity Reduced feature and options by 35% and systems portfolio by 40% Order-to-Cash Opportunity-to-Order Service Labor Management Transformation Service Product Management Transformation Business Partner Enablement Deliver $470M of benefit over the next five years Sales support tasks moved to Sales Transaction Hub Decrease seller time spent on pre-sales support tasks from nearly 20% to 10% Integrated Operations Integrate related operations across all of IBM’s $78B of spending to drive $3.1B in productivity through 2015 $78B Draws on significant synergies in our worldwide process, skills, and assets to drive integration Reduces complexity through smarter technology Places greater emphasis on moving the right services through the right delivery channels Call Centers Deploy best practices across centers for world-class operations R&D Sales BU Operations Shared Services Optimize global capacity across 255 sites and 60k agents Business Operations Standardize to 6 roles across 4 business units Increase leverage by shifting work to MBPS Client Centers Build a network of centers that truly look, sound, think and perform as one, integrated IBM Total Cost and Expense Unify IBM's 124 centers to respond to shifts in client behavior Business Analytics and Optimization (BAO) The application of business analytics to enterprise performance will allow better and faster business decisions Enterprise Transformation 9. 6 13 .5 GF A/R + Others A cqui siti on Buyback FCF (Ops) X </= $4,386 5% 2.5 X </= $4,778 67% 4.4 (0. 1) 0.0 (0. 1) Mean = $4,694M 1.4 (1 .5) 6. 2 2.0 (0. 1) (1.5) Development 13% 2.9 (0 .5) (0.7) Sales Management 21. 7 2 3% 0. 3 (0.6 ) 0. 0 (0.6 ) 12.3 Risk Management 2.8 2.9 17.5 37 % 3.3 3. 5 0.3 Term Debt (New - Maturity) 4.3 2. 7 1 4.9 0.8 (2.8 ) 0.2 (3.0 ) Change in CP Balance GF A/R + Others 6. 8 2.3 13.7 42 % 1.0 12 .9 15 Dividend TermDebt (New - Maturity) (0.7) Acquisition 2. 6 Buyback FCF (Ops) A cquisi tion B uyback GF A/R + Others FCF (Ops) TermDebt (New - Maturity) Change in CPBalance Dividend GF A/R + Others Term Debt (New - Maturity) Di vidend Acquisition Buyback 7.6 12 .3 Di vidend Core Debt Net Income Total Equity Core Debt to Cap 49% CP 0. 5 Available GCF IB M C ash Change in CP Balance 25 20 Change in CP Balance Planning & Forecasting FCF (Ops) HR Resource Manufacturing Management (1 .5) (4.1) 1 .0 (5.1) (0 .7) (2.0) (1.9 ) (0. 2) 1 2.0 0 .0 (1. 9) (0.7) (0 .0) (2.0) 0 .0 2 (0.3 ) 10.0 $B 10. 0 10 5 4Q'08 1Q'0 5 2 Q'0 5 3 Q'0 5 4 Q'0 5 1Q '0 6 2 Q'0 6 3 Q'0 6 4 Q'0 6 1Q'0 7 2 Q'0 7 3 Q'0 7 4 Q'0 7 1Q '0 8 2 Q'0 8 3 Q '0 8 4 Q'0 8 1Q'09 2Q'09 3Q'09 4Q'09 Pension Equi ty Impact 1Q '0 9 ROA May 31 -$3.0B 51% 44% V alu e s in 1 0^ -3 0 1 5% 2 8% D ebt M atur ity P ro fi l e by Qu arter next 5 ye ars 40 60% 3,5 00 T e r m D e bt M a t ur it y P ro fil e a s of M a y '0 9 2,90 0 3,0 00 2,5 00 2,0 00 35 40% 30% 20% 10% 5 0 0% 1Q'05 2Q'05 3Q'05 4Q'05 1Q'06 2Q'06 3Q'06 4Q'06 1Q'07 2Q'07 3Q'07 4Q'07 1Q'08 2Q'08 3Q'08 4Q'08 1Q'09 1 ,24 2 1,0 42 1,00 0 1,0 05 50% Term Debt 1,0 00 5 10 500 5 00 6, 000 3 21 21 0 0 0 1 64 0 0 0 0 1 38 0 3Q 10 4Q 10 1 Q 11 2 Q 11 3Q 1 1 4Q 11 1 Q 12 2 Q 1 2 3 Q 1 2 4Q 1 2 1Q 1 3 2Q 13 3 Q 13 4 Q 1 3 1 Q 1 4 2Q 1 4 3 Q 14 4Q 14 1Q 15 2Q 15 5, 000 4, 000 $Mi llio n Bank Debt Average % (CP+Bank Debt):~25% % Of Debt In CP & Bank Debt 15 10 CP Plus Bank Debt / Total Debt (%) Debt ($B) 1 ,47 0 1,5 00 CP 30 25 20 U SD U SD IGC E UR JPY C HF 3, 000 2, 000 1, 000 20 09 C u rre nc y U SD US D IG C EU R JP Y C HF T o tal 20 09 6 51 4, 53 1 0 0 0 5, 18 2 20 10 2 010 33 0 1 ,3 84 51 0 0 1 ,9 27 201 1 201 1 1, 67 5 0 830 0 321 2, 82 6 2012 20 12 1 ,4 00 1 ,5 00 0 0 0 2 ,9 00 2013 2 01 3 2, 003 0 0 5 10 0 2, 513 2014 20 14 0 64 1 ,03 8 204 0 1 ,30 6 20 15 2 015 0 0 0 0 13 8 13 8 2 01 6 201 6 0 0 0 0 0 0 2017 20 17 3 ,0 00 0 0 0 0 3 ,0 00 2018 2 018 1,6 00 0 0 0 0 1,6 00 2019 20 19 7 50 0 0 0 0 7 50 20 20 2 020 0 0 0 0 0 0 202 1 202 1 0 0 0 0 0 0 20 22 20 22 0 0 0 0 0 0 2023 2 023 0 0 0 0 0 0 2024 202 4 0 0 0 0 0 0 LIQUIDITY ANALYSIS / CASH - DEBT < 3 MONTHS Total Debt $35 T o tal 15 , 093 6, 095 3, 252 1, 225 4 58 26 , 123 0.5 June 4, 2009 $20 3% $15 $10 1Q08 Actual 2Q08 3Q08 7.3 1.5 2.0 7.0 1.2 2.0 10.6 1.0 2.3 12.9 0.6 2.7 8.7 0.7 2.7 6.2 1.1 2.6 6.8 0.1 2.9 8.0 1.7 3.2 8.2 1.1 2.9 7.3 1.6 3.1 5.3 1.7 3.0 6.0 1.0 3.0 10. 8 10. 2 13.8 16.1 12.0 9.8 9.8 12.9 12.3 12.0 10.0 10.0 2.7 3.1 3.4 4.6 0.4 2.3 1.4 2.0 1.8 1.2 0.2 1.7 0.8 4.8 1.6 3.4 0.3 1.5 2.2 0.3 1.6 1Q07 Actual 2Q07 3Q07 4Q07 Actual 4Q08 Actual 1Q09 2Q09 Projected 3Q09 4Q09 Cash 5% 4% Percentage (%) Total Debt ($B) ($B) Intere st Expense as a % (QoQ) 3M Li bor (Q oQ) $30 $25 1 >202 4 >20 24 3 ,9 82 0 0 0 0 3 ,9 82 6% $40 1.5 0 US TC + IIG Others Countries Total WW Cash Debt < 3 Months US TC + IIG Others Countries Total WW Debt 5.7 0.0 2.7 8. 3 4.9 0.0 2.2 7. 1 2.9 2.0 2.4 3.9 2.8 2.3 2.9 2.6 2.2 7.3 9.0 9.1 7.3 7.7 5.2 3.2 7.2 5.2 4.1 US TC + IIG 1.6 1.5 2.1 1.2 7.6 (1.0) 8.9 (2.2) 6.0 (2.4) 1.6 0.8 3.8 (2.5) 6.6 (0.3) 7.0 0.9 6.5 (3.2) 1.9 1.4 3.8 0.7 Others Countries (0.6) (0.2) (0.2) 0.4 (0.6) 0.2 0.7 1.4 1.2 1.5 1.5 1.4 2. 5 3. 1 6.5 7.1 2.9 2.6 2.1 7.7 9.1 4.8 4.8 5.9 0 2% 1% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2001 Matching engine aligns staff to open project positions Real-time data analysis identifies defects and improves yields 4.2 Liquidity < 3 Months $5 $0 2002 2003 2004 2005 2006 2007 2008 2009 World wide Pipeline analysis helps predict and optimize performance 4.45 4.7 4.95 5.2 Revenue ($B) Linkage and analysis across data sources enables compliance and lowers risk Deployment of sellers to best opportunities improved through optimization Simulation of future investment performance enables higher portfolio returns Business Analytics and Optimization (BAO) The application of business analytics to enterprise performance will allow better and faster business decisions Enterprise Transformation HR Risk Planning HR Resource Resource Manufacturing Risk Planning & & Manufacturing Resource Analytics Hub Management Management Forecasting Management Management Forecasting Sales Sales Management Management GF A/R + Others A cqui siti on Buyback FCF (Ops) 13% 2.9 2.0 (0. 1) (1.5) (0. 1) 0.0 (0. 1) X </= $4,778 67% Mean = $4,694M 1.4 (1 .5) 6. 2 (0 .5) (0.7) X </= $4,386 5% 4.4 21. 7 2 3% 0. 3 (0.6 ) 0. 0 (0.6 ) 12.3 2.5 2.8 2.9 17.5 37 % 3.3 3. 5 0.3 Term Debt (New - Maturity) 4.3 2. 7 1 4.9 0.8 (2.8 ) 0.2 (3.0 ) Change in CP Balance GF A/R + Others 6. 8 2.3 13.7 42 % 1.0 12 .9 15 Dividend TermDebt (New - Maturity) (0.7) Acquisition 2. 6 Buyback FCF (Ops) A cquisi tion B uyback GF A/R + Others FCF (Ops) TermDebt (New - Maturity) Change in CPBalance Dividend GF A/R + Others Term Debt (New - Maturity) Di vidend Acquisition Change in CP Balance 7.6 12 .3 Di vidend 9. 6 13 .5 Core Debt to Cap 49% CP 0. 5 Available GCF IB M C ash Change in CP Balance Core Debt Net Income Total Equity Buyback FCF (Ops) Integrated, granular view of resource data to support fact-based decisions 25 20 Development Development (1 .5) (4.1) 1 .0 (5.1) (0 .7) (2.0) (1.9 ) (0. 2) 1 2.0 0 .0 (1. 9) (0.7) (0 .0) (2.0) 0 .0 2 (0.3 ) 10.0 $B 10. 0 10 5 4Q'08 1Q'09 2Q'09 3Q'09 4Q'09 Pension Equi ty Impact 1Q'05 2Q'05 3Q'05 4Q'05 1Q '06 2Q'06 3Q'06 4Q'06 1Q'07 2Q'07 3Q'07 4Q'07 1Q '08 2Q'08 3Q '08 4Q'08 1Q '09 ROA May 31 -$3.0B 51% 44% 1 5% 2 8% D ebt M atur ity P ro fi l e by Qu arter next 5 ye ars 60% 3,5 00 T e r m D e bt M a t ur it y P ro fil e a s of M a y '0 9 2,90 0 3,0 00 2,5 00 2,0 00 40% 30% 20% 10% 5 0 0% 1Q'05 2Q'05 3Q'05 4Q'05 1Q'06 2Q'06 3Q'06 4Q'06 1Q'07 2Q'07 3Q'07 4Q'07 1Q'08 2Q'08 3Q'08 4Q'08 1Q'09 1 ,24 2 1,0 42 1,00 0 1,0 05 50% Term Debt 1,0 00 5 10 500 5 00 6, 000 3 21 21 0 0 0 1 64 0 0 0 0 1 38 0 3Q 10 4Q 10 1 Q 11 2 Q 11 3Q 1 1 4Q 11 1 Q 12 2 Q 1 2 3 Q 1 2 4Q 1 2 1Q 1 3 2Q 13 3 Q 13 4 Q 1 3 1 Q 1 4 2Q 1 4 3 Q 14 4Q 14 1Q 15 2Q 15 5, 000 4, 000 $Mi llio n Bank Debt Average % (CP+Bank Debt):~25% % Of Debt In CP & Bank Debt 15 10 CP Plus Bank Debt / Total Debt (%) Debt ($B) 1 ,47 0 1,5 00 CP 30 25 20 U SD U SD IGC E UR JPY C HF 3, 000 2, 000 1, 000 20 09 C u rre nc y U SD US D IG C EU R JP Y C HF T o tal 20 09 6 51 4, 53 1 0 0 0 5, 18 2 20 10 2 010 33 0 1 ,3 84 51 0 0 1 ,9 27 201 1 201 1 1, 67 5 0 830 0 321 2, 82 6 2012 20 12 1 ,4 00 1 ,5 00 0 0 0 2 ,9 00 2013 2 01 3 2, 003 0 0 5 10 0 2, 513 2014 20 14 0 64 1 ,03 8 204 0 1 ,30 6 20 15 2 015 0 0 0 0 13 8 13 8 2 01 6 201 6 0 0 0 0 0 0 2017 20 17 3 ,0 00 0 0 0 0 3 ,0 00 2018 2 018 1,6 00 0 0 0 0 1,6 00 2019 20 19 7 50 0 0 0 0 7 50 20 20 2 020 0 0 0 0 0 0 202 1 202 1 0 0 0 0 0 0 20 22 20 22 0 0 0 0 0 0 2023 2 023 0 0 0 0 0 0 2024 202 4 0 0 0 0 0 0 LIQUIDITY ANALYSIS / CASH - DEBT < 3 MONTHS Total Debt $35 $20 3% $15 $10 1 >202 4 >20 24 3 ,9 82 0 0 0 0 3 ,9 82 T o tal 15 , 093 6, 095 3, 252 1, 225 4 58 26 , 123 June 4, 2009 1Q08 Actual 2Q08 3Q08 7.3 1.5 2.0 7.0 1.2 2.0 10.6 1.0 2.3 12.9 0.6 2.7 8.7 0.7 2.7 6.2 1.1 2.6 6.8 0.1 2.9 8.0 1.7 3.2 8.2 1.1 2.9 7.3 1.6 3.1 5.3 1.7 3.0 6.0 1.0 3.0 10. 8 10. 2 13.8 16.1 12.0 9.8 9.8 12.9 12.3 12.0 10.0 10.0 2.7 3.1 3.4 4.6 0.4 2.3 1.4 2.0 1.8 1.2 0.2 1.7 0.8 4.8 1.6 3.4 0.3 1.5 2.2 0.3 1.6 1Q07 Actual 2Q07 3Q07 4Q07 Actual 4Q08 Actual 1Q09 2Q09 0.5 Projected 3Q09 4Q09 Cash 5% 4% Percentage (%) Total Debt ($B) ($B) Intere st Expense as a % (QoQ) 3M Li bor (Q oQ) $30 $25 1.5 0 6% $40 V alu e s in 1 0^ -3 0 40 35 US TC + IIG Others Countries Total WW Cash Debt < 3 Months US TC + IIG Others Countries Total WW Debt 5.7 0.0 2.7 8. 3 4.9 0.0 2.2 7. 1 2.9 2.0 2.4 3.9 2.8 2.3 2.9 2.6 2.2 7.3 9.0 9.1 7.3 7.7 5.2 3.2 7.2 5.2 4.1 US TC + IIG 1.6 1.5 2.1 1.2 7.6 (1.0) 8.9 (2.2) 6.0 (2.4) 1.6 0.8 3.8 (2.5) 6.6 (0.3) 7.0 0.9 6.5 (3.2) 1.9 1.4 3.8 0.7 Others Countries (0.6) (0.2) (0.2) 0.4 (0.6) 0.2 0.7 1.4 1.2 1.5 1.5 1.4 2. 5 3. 1 6.5 7.1 2.9 2.6 2.1 7.7 9.1 4.8 4.8 5.9 0 2% Liquidity < 3 Months $5 $0 1% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2001 Matching engine aligns staff to open project positions 2002 2003 2004 2005 2006 2007 2008 2009 World wide 4.2 Increased GBS utilization by 18% over the last 4 4.45 4.7 4.95 5.2 Revenue ($B) Real-time data Linkage and Simulation of Pipeline Deployment of years through a global alignment of resource analysis analysis across future analysis helps sellers to best supply and demand identifies data sources investment predict and opportunities defects and enables performance optimize improved Improved project-based PTI performance improves yields performance compliance and enables higher through lowers risk optimization portfolio returns Cloud IBM’s internal Cloud implementation moves resources to more cost effective platforms while enhancing the work environment Analytics Collaboration Development and Test Blue Insight LotusLive 109,000 users growing to 200,000 75% of all web conferencing CIO Dev/Test Cloud Desktop Storage Business Services Workplace Cloud Network Storage Cloud Production Cloud Up to 40% savings in storage costs 1,000 applications identified 1200 users in Time to build a development & China Dev Lab, pilots with test environment another 1000 from 1 week to 1-2 hours users in process Enterprise Productivity Initiatives Summary $78B $16B $12B 2005 2009 2009 Shared Service Total Cost Spending and Expense Shared Services $2.4B End-to-end Process Transformation $2.5B Integrated Operations $3.1B Apply the proven principles of the Globally Integrated Enterprise to all of IBM’s spending Beginning the Smarter phase of our transformation -- uses a rich, new set of technologies and capabilities to reduce spending, improve productivity and enable revenue growth Already achieved $4.7B of productivity improvements over the last 4 years Confident in ability to further improve productivity by $8B from 2011 through 2015 Certain comments made in the presentation may be characterized as forward looking under the Private Securities Litigation Reform Act of 1995. Those statements involve a number of factors that could cause actual results to differ materially. Additional information concerning these factors is contained in the Company's filings with the SEC. Copies are available from the SEC, from the IBM web site, or from IBM Investor Relations. Any forward-looking statement made during this event or in these presentation materials speaks only as of the date on which it is made. The Company assumes no obligation to update or revise any forward-looking statements. These charts and the associated remarks and comments are integrally related, and are intended to be presented and understood together. In an effort to provide additional and useful information regarding the Company’s financial results and other financial information as determined by generally accepted accounting principles (GAAP), certain materials presented during this event include non-GAAP information. The rationale for management’s use of this non-GAAP information, the reconciliation of that information to GAAP, and other related information is included in supplementary materials entitled “Non-GAAP Supplementary Materials” that are posted on the Company’s investor relations web site at http://www.ibm.com/investor/events/investor0510/. The Non-GAAP Supplementary Materials are also included as Attachment II to the Company’s Form 8-K dated May 12, 2010.