IBM undergoes internal on-demand overhaul

When Sam Palmisano mapped out his strategic vision last year, he told clients that IBM Corp. would be its own on-demand guinea pig. Big Blue's chief executive pledged to assign a top IBM official to internally revamp the company in a bid to save billions and improve IBM's flexibility and responsiveness. In IBM's view, 'on-demand' means moving beyond mere integration of systems to create a more flexible IT infrastructure agile enough to rapidly adapt to changing business conditions.

IBM soon after named Linda Sanford to the newly-created position of senior vice president of enterprise on-demand transformation. A 27-year veteran of IBM, Sanford has worked in nearly every unit of IBM, serving most recently as head of its storage group. On Jan. 1 she began her new job and started pulling together a team of 300 and a list of priorities.

"As we are reinventing ourselves we will be able to share our experiences -- the good, the bad and the ugly -- with our customers," Sanford said. "'The first task was to take a look at 'what does it mean to be an on-demand company?' We knew we had to get that boiled down to something a little more concrete."

By the end of her first month Sanford had settled on four projects:

-- Integrated Supply Chain: This project predated the on-demand initiative it is now linked with. IBM executive Bob Moffat has been working since early 2002 on overhauling IBM's $40 billion supply chain, from procuring parts from a network of 33,000 suppliers to filling several million customer orders each year from IBM's catalog of 78,000 products. Hardware was Moffat's first focus, and his efforts have driven IBM's inventory to its lowest level in a decade, while the company said its margins are improving. IBM estimates it saved $5.6 billion from its supply-chain restructuring efforts in 2002.

Reforming the supply chain also meant exiting non-core business, such as the PC manufacturing operations IBM began outsourcing last year. "We want greater variability in our own cost structure," Sanford said. "We don't want to have to own it all and do it all. We want to focus our investments and look for partners who have the expertise and scale to drive more efficiencies than we could ourselves."

The next frontier for the supply chain group is software and services.

"We're beginning to apply traditional hardware concepts, like supply and demand, to services," said Barbara Martin, IBM's vice president of customer fulfillment. "We're working very closely with the services team to apply these principles. It started in the last six months or so -- it's still in the development phase. We recognize the places where there's opportunity, and we're developing plans on how we can capitalize on that."

--Customer Buying Experience: One of Sanford's first fact-finding projects in her new job was conducting interviews with a number of IBM partners and customers to determine the biggest pain points others encountered in trying to do business with IBM. From those interviews came IBM's "total buying experience" initiative to make interacting with the company easier.

Increasing self-service options for customers is an early priority in that project. IBM offers online invoices for most of its products, and is working on providing online contracts. IBM's back-office runs on an SAP AG system, and it offers its major distributors a direct link into that system for order placement and tracking.