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    one page away you ’ re from the no-holds-barred story of one year in the life of a company. It’s the story of b i g b at t l e s , s t i n g i n g d e f e at s & g r i t t y c o m e b a c k s. u n e x p e c t e d a l l i a n c e s, d a r i n g f o r ay s & g a m e -c h a n g i n g d i s c ov e r i e s. In many ways, it ’ s a story about the future, as well as the recent past, and about all business today. which means it ’ s about e-business. and one in particular. annual report 2000

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    t h e story of ibm is really many stories. We’re opening up new markets and extending our lead in others. We’re fighting back in businesses we pioneered and changing ourselves in some fundamental ways. Last year, we absorbed our share of hits, too. But we won more than we lost. And closed the year on a high note. All the while, we’ve kept working, inventing and partnering to write the next chapter of the story we started five years ago. The story of e-business. So, while this year’s report is not a simple narrative, it does yield one singular theme. It’s ultimately the story of hundreds of thousands of people tackling scores of the toughest business and technological challenges over 12 intensely challenging months. It’s one story we’re proud to tell.

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    table of contents chapter 1 r e p o rt s o f o u r de m i s e Feisty comebacks in servers, storage and databases chapter 2 t h e l e a d e r’s d i l e m m a Managing success, growth and expansion in services, software and semiconductors chapter 3 the plot thickens Changing the game through Linux and e-sourcing chapter 4 into the wild Bold forays in technological and business innovation chapter 5 coming home IBM as an e-business

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    revenue net income ($ in billions) ($ in billions after adjustments) 100 10 87.5 88.4 81.7 8.1 78.5 75.9 80 8 71.9 7.0 64.8 64.5 62.7 64.1 6.3 6.0 5.9 6.1 60 6 40 4 3.0 2.3 20 2 1.4 .01 91 92 93 94 95 96 97 98 99 00 91 92 93 94 95 96 97 98 99 00 earnings per share — diluted total expense as a ($ after adjustments) percentage of revenue (after adjustments) 5 50 44.5 4.44 41.6 38.3 3.72 4 40 3.29 31.4 3.00 28.8 28.3 3 27.5 30 2.71 26.7 2.55 25.3 23.6 2 20 1.24 1.00 1 10 .62 -.02 91 92 93 94 95 96 97 98 99 00 91 92 93 94 95 96 97 98 99 00

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    c h a i r m a n ’s f o r e wo r d d e a r f e l l ow i n v e s t o r , Last year at this time, I said 2000 looked to be a year of great promise for IBM — as well as a year of great uncertainty. I said that, based on the way things were playing out in our industry —and in business in general —and because But, add it all up —the highs, lows and sideways IBM, more perhaps than any other company in moves of 2000 —and IBM had a solid year. For the information technology, was vulnerable to cus- sixth straight year we reported record revenue — tomer wariness over “Y2K problems.” $88.4 billion. Our earnings rose to $8.1 billion, a It turned out that last year was, in a word, unique. 16 percent increase, resulting in another record As you may remember, our company entered the in earnings per diluted common share. After year facing a severe drop-off in customer demand making substantial investments — $5.6 billion in because of Y2K. Many of our largest customers research and development, $5.6 billion in capital had frozen big-ticket technology purchases heading expenditures and more than $500 million in into the new millennium, and that persisted until strategic acquisitions that strengthened our busi- almost the middle of 2000 . ness portfolio —we had enough cash to increase Then, in a flip-flop the likes of which I have our dividend to shareholders and to buy back never seen, demand went through the roof. $6.7 billion of common shares. Within a 30-day period last summer, orders for The most disappointing note was that our year- some of our products tripled. We couldn’t build to-year stock price went down for the first time fast enough to fill orders and, to make matters since I joined the company —to $85 from $108, a worse, we had shortages of some key components. decline of 21 percent. Of course, just about all Thanks to the determined, round-the-clock work information technology stocks dropped, in what of literally hundreds of thousands of IBMers, we might be called a NASDAQ crash, and IBM fared got supply and demand into better balance in the better than most. Also, over the past eight years final quarter of the year, and we finished strong. IBM’s share price has increased nearly 800 percent. But, I don’t need to describe to you the frustration Even so, we can do better. of not being able to satisfy customer demand, par- What about 2001? Can the recent trend con- ticularly in view of the drought we had endured. I tinue? Whether or not there is a softening of the am determined that’s not going to happen again. U.S. economy, IBM should be in reasonably good p a g e n o. three

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    louis v. gerstner, jr. Chairman of the Board and Chief Executive Officer john m. thompson Vice Chairman of the Board samuel j. palmisano President and Chief Operating Officer

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    c h a i r m a n ’s f o r e wo r d competitive shape. Of course, we all hope such a to e-business. And if 2000 comes to be seen as a downturn doesn’t occur. But if it does, the ebbing watershed (and I think it will), that will be because tide may not beach all boats. For one thing, services this was the year the world’s established enter- offerings like outsourcing and hosting are cost- prises awoke to the true possibilities of e-business. saving propositions for our customers. Services, in I believe a broad consensus has emerged that this regard, is a countercyclical business. And in a e-business is just … business, real business. And tightening economic environment, customers are real business is serious work. going to invest in projects that deliver rock-solid, tangible, near-term payoffs, not in speculative, T H E G A M E T O D AY exploratory schemes. As a result, this may be a prime One word you heard a lot last year was “buzz.” It’s opportunity for IBM to improve its market position. what the cooler members of our industry were supposed to create to get all their constituencies T H E D O T- C O M C R A S H : W H AT I T M E A N S excited about what they were doing. Unfortunately That’s not the way things seemed a year ago. Back for them, this isn’t a very buzz-y period for our then, it looked as though Internet start-ups were industry. In fact, it’s downright boring, but oh so taking over and traditional bricks-and-mortar important for the future. enterprises had better jump with both feet into Customers tell us the battleground has shifted “e-tailing” or get steamrolled. to computing infrastructure. Of course, IBM is no Well, as we all know today, it didn’t happen. longer alone in saying that the PC era is over, nor The crash brought out the usual pundits and in pointing to the explosion in personal access weathervanes —the same ones who a year earlier devices (as well as an even wider array of things had declared that dot-coms were taking over the with embedded intelligence, such as appliances world. Only now they were saying, “This e-business and cars). Most of our competitors today are saying was mostly hype anyway. E-nough!” that enterprise servers, storage and software are Since, in many ways, IBM gave birth to all things key, and that they must be bulletproof, robust, “e” five years ago, I’d like to offer a perspective. scalable, never-go-down. But I’m not sure we all The collapse of the dot-coms was not a failure of agree on what “infrastructure” actually means. e-business. It was the failure of an overly narrow Businesses are coming to see that their computing approach to e-business. For all the proclamations infrastructure cannot be designed or built around we have been hearing about a “new economy,” the any one product —or even any particular type of problem with most dot-coms was that their business technology, whether databases, or servers, or stor- model —win customers through lower prices — age. None of those tails can wag this entire dog. wasn’t anything new, not to mention transformative. For one thing, the pieces all have to work with one IBM has always said that e-business involves another. For another, in order to function in the more than transforming one part of a company, real world —where there is a hodgepodge of exist- such as selling directly over the Net. We said the ing systems within any company and among its real action, the real work—and the ultimate payoff— customers, suppliers and trading partners —they involved the transformation and the integration of have to take a broad view of the full spectrum of the entire enterprise, from the customer all the way infrastructure elements. through the supply chain. Things have played out The point is, no company’s systems are an pretty much that way —and that may have been a island. They’re part of a new, emerging, global bucket of cold water for some. For IBM, it was a infrastructure that is made possible by the emer- tough but ultimately heartening reaffirmation of the gence of the Internet, and that no one enterprise strategic direction we set in place several years ago. can —or wants to —own. It’s collectively owned, So, if there is a lesson to be extracted from the accessed and relied upon by every business, dot-com crash, it may be this: There is no short-cut government, school, hospital and neighborhood. p a g e n o. five

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    c h a i r m a n ’s f o r e wo r d value of services microelectronics contracts signed oem revenue ($ in billions) ($ in billions) 60 4 55 3.2 45 3 38 2.5 33 2.2 2.0 2.0 27 30 2 24 15 1 96 97 98 99 00 96 97 98 99 00 In that respect, computing infrastructure is rapidly technology. And certainly, many are asking: Where becoming like all the other kinds of infrastructure will the value be? The profits? Who will set the we take for granted in the world —the telephone agenda? What will matter most to customers? system, the highways, the power grid. We ask ourselves these questions all the time. I This has been a long time coming. The main think we can now see clearly that competitive obstacle has been a lack of standards in our industry. advantage in the future will rest essentially on Simply put, without standards, computing systems three things: technological innovation, the ability cannot work with each other. And if your com- to help customers integrate technology with their puter can’t work with all the other computers in business, and the capability to make information the world, then you’re limited in how you can buy technology easy to acquire and manage. and sell, trade stock, book a vacation, receive Each of these capacities takes a long time to build, health care and cast a vote over the Net. And in and the barriers to entry are daunting. These are not the same way, your company is limited in how it things you can simply buy your way into. Step back can work with its trading partners, its suppliers, its from the array of all the things IBM is and does customers —and you. today, and what you’ll see is a company strengthen- The Internet, of course, began to change all that ing its position in these three fundamental areas. by bringing common standards to network connec- tivity. Now, the astounding adoption of the Linux 1. Technology Innovation. Make no mistake. A world operating system—and the broader Open Source of standard computing technology increases, not movement of which it is a part—are pushing stan- decreases, the value and competitive advantage of dards over the top (which is why IBM has made innovation. And that requires real science. Not such a huge commitment to Linux). Standards are a just software developers, but also quantum reality of our industry today. There’s no going back. physicists. Not just storage specialists, but com- This is wonderful for customers and users of putational biologists. Not just people who move computing. But for many technology companies, data, but people who move atoms —one at a time. it is an earthquake. No longer will the battle be We have all of that. won or lost over computing technology controlled This ability to invent is IBM’s ace in the hole. by one company. Success going forward will The scope and impact of what our researchers require open platforms, and tech companies that have invented in just the past eight years —during rely on closed, proprietary technologies will dry which they have continually set record after record up. In fact, some of the players riding high today in patents —is remarkable. We are in the midst of a may never, without major strategic adjustments, Golden Age at IBM Research. Equally important see their current growth rates again. is how rapidly we’ve moved those innovations into Now, some people assert that standards- the marketplace. From silicon germanium to copper based computing will commoditize information chips, from silicon-on-insulator to WebSphere, p a g e n o. six

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    c h a i r m a n ’s f o r e wo r d distributed intellectual software revenue property and ($ in billions) licensing royalties ($ in billions) 4.0 2.0 3.5 1.7 3.3 1.5 3.0 1.5 2.6 2.4 1.1 2.1 1.0 2.0 1.0 0.8 1.0 0.5 96 97 98 99 00 96 97 98 99 00 from self-managing servers to microdrives — IBM’s need to make —technology decisions, product technology business has become a multibillion- decisions and process decisions —derive from some dollar juggernaut. much more basic, strategic choices. So the first That’s important. If the first age of e-business thing a customer needs is a partner with a deep, was an age of supply —a seemingly endless abun- experience-based understanding of their business, dance of Web sites, new businesses, new business of business in general, of e-business in particular. models and capital —then the second age of Of course, a “solution” isn’t truly a solution e-business will be an age of demand. Before long, unless your customer can implement it quickly we’ll see Internet traffic grow a thousandfold, and affordably. Business transformation doesn’t propelled by, among other things, an explosion in mean much if you can’t then enable applications the number of client and embedded networked and get the infrastructure in place. One of IBM’s devices that will reach into the trillions. That’s a key competitive advantages is our experience in lot of bits and bytes that businesses are going to actually building and integrating e-business have to capture, manage, store, access, analyze and systems and e-business infrastructure for our use. And no matter how much more efficient we customers (and for ourselves). make our current computing infrastructure, no matter how many more bright young people go 3. Managing Technology’s Cost and Complexity. And into computer science, it won’t be enough. We’re then there’s the question of how a company should going to need whole new levels of scientific and acquire and manage information technology. This technological discovery, much of it aimed at cre- is not trivial, especially when you understand the ating self-managing e-business infrastructure. vast, sophisticated computing infrastructure that Who would you bet on to create and patent the will be required to support real e-business. lion’s share? There’s traditional purchase, of course. And outsourcing—where a partner like IBM Global 2.Business Innovation. So, new technology is essen- Services takes on the operation of a customer’s tial. But let me tell you, when I was a customer, existing I/T systems and staff. IBM is already the I never turned to IBM because of a piece of tech- world leader in strategic outsourcing, including nology; I took that for granted. Instead, I turned more than 50 deals signed in 2000 that were valued to IBM because they helped me apply all their at more than $100 million each. But now, we have amazing technology to my business. I valued bigger ideas about how to help our customers. IBM’s applied intelligence, its ability to understand How about moving infrastructure out of the my problems and help fix them. corporate data center, and onto the Net? Don’t This capability will be even more important as own it. Rent it as a service, on an as-needed, as-used e-business moves into the realm of serious business basis. This is what we call “e-sourcing,” and it will transformation. All of the decisions that customers vastly increase companies’ access to computing p a g e n o. seven

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    c h a i r m a n ’s f o r e wo r d power, expertise and innovation. IBM is already • In servers, after years of investment and one of the world’s largest hosting companies, with invention, we transformed our products from the revenue that doubled in 2000. And we are working inside out, integrating our offerings with common rapidly with telecom partners to build new IBM technologies, common chip architecture, a common e-business hosting centers worldwide. development platform in Linux, interoperability Finally, often overlooked in IBM’s portfolio is with dozens of leading applications —and took a capability our customers and business partners them to market as the IBM eServer family. value highly, because it makes e-business real and Customer reaction has been swift and enthusiastic. financially manageable. IBM Global Financing • After deciding a couple of years ago to exit the is the world’s largest provider of I/T financing — enterprise application software business, we have a $4 billion business managing over $40 billion put into place a powerful set of partnerships. In in assets. 2000, we established strategic alliances with 50 leading independent software companies, most of UNDER THE HOOD whom had previously been going to market mainly When you look at these industry trends, at our strate- with some of our top competitors. gies and at what’s happening “under the hood” • In component technology, we are getting our within IBM, not only did our company have a good innovations to market not just inside our own year in 2000, but prospects for 2001 are even better. products, but inside the products of other high- As I’ve reported here, not only is the marketplace tech companies. At the same time, we made a key ready for IBM, but we’re ready for it. A whole lot shift from increasingly commoditized, general- of hard, disciplined work turning our strategic purpose DRAM chips to high-end microprocessors plans into reality is now coming to fruition. And in for servers, chips for pervasive computing devices helping our customers build their computing and chips for networking equipment. It’s taken us infrastructure, we have the advantage of having a time to build up our technology portfolio, but now strong position in all its major parts —middleware, we have it, and demand is white-hot. In the market enterprise servers, component technology and for pervasive device chips alone, our revenue enterprise storage. In every one of those fields, increased 80 percent last year. Revenue from net- we’ve made major gains. working infrastructure chips grew 137 percent. • In software, value continues to shift from the • The list goes on. We reanimated our enterprise operating system to middleware, which links all storage business with a product we call Shark; kinds of servers and all the applications with every restructured our PC unit and returned it to prof- kind of client device. A few years ago, IBM set out itability in the second half of the year; drove the to build a software business focused on middle- growth of Linux inside and outside IBM; and ware. It wasn’t glamorous. We just quietly staked out new ground in emerging markets, such invested billions of dollars to create a set of open as life sciences. products that work with every industry-leading platform. And what’s happening? Explosive • Finally, there’s services, which in many ways is our growth. Our DB2 database revenue was up more trump card. We provide consulting, implementation than 70 percent on UNIX and Windows NT plat- services, outsourcing and now e-sourcing, aimed at forms in 2000. MQ Series messaging software was the heart of the hosting and service provider oppor- up more than 60 percent. And WebSphere, our tunity. After years of hard work, we’ve got the most e-commerce middleware, tripled year over year. capable services business in the world. In fact, IBM Industry analysts estimate that the middleware is now the largest business and technology consul- market —already $77 billion today —is growing at a tancy. We have 50,000 consultants who billed more 14 percent annual clip. than $ 10 billion in revenue in 2000. We have p a g e n o. eight

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    c h a i r m a n ’s f o r e wo r d financial highlights — International Business Machines Corporation and Subsidiary Companies one-year performance Percent Percent Increase (dollars in millions except per share amounts) 2000 1999 Increase Normalized FOR THE YEAR Revenue $«88,396 $«87,548 1% 1% Net income $«««8,093 $«««7,712* 5% * 16% Per share of common stock: Assuming dilution $«««««4.44 $«««««4.12* 8% * 19% Basic $«««««4.58 $«««««4.25* 8% * 19% Cash dividends paid on common stock $««««««909 $««««««859 6% 6% Per share of common stock $«««««0.51 $«««««0.47 9% 9% AT Y E A R E N D Total assets $«88,349 $«87,495 1% 1% Total debt $«28,576 $«28,354 1% 1% Stockholders’ equity $«20,624 $«20,511 1% 1% * Includes a net benefit from the 1999 sale of the IBM Global Network and other 1999 actions. s i x-y e a r p e r f o r m a n c e 6-Year (dollars in millions except per share amounts) 2000 1994 CAGR ** FOR THE YEAR Revenue $«88,396 $«64,052 6% Net income $«««8,093 $«««3,021 18% Per share of common stock: Assuming dilution $«««««4.44 $«««««1.24 24% Basic $«««««4.58 $«««««1.26 24% Cash dividends paid on common stock $««««««909 $««««««585 8% Per share of common stock $«««««0.51 $«««««0.25 13% AT Y E A R E N D Total assets $«88,349 $«81,091 1% Total debt $«28,576 $«22,118 4% Stockholders’ equity $«20,624 $«23,413 -2% ** Compound Annual Growth Rate p a g e n o. nine

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    c h a i r m a n ’s f o r e wo r d created a network of Business Innovation Centers, For me personally, I experience this time with a offering customers everything from front-end Web mixture of satisfaction, confidence and hope. design to the heavy lifting at the back end. And just Satisfaction at IBM having stuck to its guns —and as important, we have built a field force that includes gotten things pretty much right. Confidence in thousands of experienced industry specialists—many our ability going forward to deliver on our promise, of them former professionals in their respective and to deliver on our customers’ needs. And hope domains, from manufacturing to consumer prod- about the genuinely transformative future that is ucts, from health care to government. opening up before all of us —businesses, schools, governments, entire societies. * * * And there’s something else, too. This is fun. I find myself relishing this work as never before. There’s When I look back on the past five years, I think simply nothing like working as hard as you can with that, for a lot of people, the “e” in e-business came an extraordinary group of people to hit your targets, to mean “easy” or “escape”— e-business represented to prove yourself against tough odds, to build some- a kind of magical way of avoiding everything tradi- thing entirely new, even to change the world. For tionally associated with “business.” All the planning. me, it’s the most satisfying feeling there is. All the process. All the relationship building. All We’d better not blink. These next couple of the checks and cross-checks and safeguards. Boring years are going to go by in a flash. stuff like accounting. Gut-wrenching stuff like accountability and responsible public policy. The * * * magic “e” seemed to offer the prospect of leapfrog- ging right over all that, achieving wealth overnight— I want to introduce two people to you who are in a sprint, rather than a marathon. very important to the future of IBM. Some of us, though, actually enjoy business. We • Sam Palmisano was named president, chief enjoy the competition. Our adrenaline kicks in at operating officer and a director of IBM in the prospect of a long-distance race. We accept — September. He has a stellar record of achievement we relish —the pragmatic, tactical, roll-up-your- in the 27 years he has worked at IBM, including sleeves-and-dive-in aspects of planning, and stints as head of our services, PC and server busi- process creation, and management systems. It nesses. His primary responsibility is making sure doesn’t feel boring. It feels like building some- that we execute well and that all our business units thing important and significant. work as one team. Our fourth quarter results are, The soaring fantasies of the era we’re now leaving in part, evidence of Sam’s expertise. were, perhaps, inevitable —and, in their own way, inspiring. Big shifts in history usually begin with a • John Thompson, elected vice chairman and a romantic revolution. Whenever people set out for director in September, is responsible for research, the unknown, they do so in a spirit of adventure. new business opportunities, new technology, new But, when they arrive there, they put down roots. directions. While everyone’s focused on the ball, They build something that lasts. John is focused on the fences. So arguably, the most striking thing about this moment in e-business’s short, eventful life is the people who are now at the front of the march. The era we’re now entering calls for a new breed of adventurer. The veterans have joined the crusade— with vigor. Indeed, we’ve never felt so energized. In the pages that follow, we hope to communicate our Louis V. Gerstner, Jr. excitement about what we are doing. Chairman and Chief Executive Officer p a g e n o. ten

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    and so our story begins

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    chapter 1 r e p o rt s o f o u r demise in markets we o n c e le d s t o r a g e, ( o r s h o u l d h av e ) — h i g h -e n d u n i x s e rv e r s a n d d at a b a s e softwa r e — w e ’ r e b att l i n g b a c k a n d m a k i n g u p lost g r o u n d. p a g e n o. t h i rt e e n

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    d at a b a s e s o f t wa r e When the world’s information ran the data management marketplace on IBM mainframes, IBM databases started in the mid-’90s, with massive managed it all. But when the world investments in the product itself; then shifted to smaller computers and we built marketing and mindshare; the model known as client-server, and finally we put in place a dedi- we ceded major portions of that cated sales force. Through the database leadership. The methodi- course of 2000, DB2 grew three cal comeback that has put us back times faster than the industry on within striking distance of the lead in Windows NT and UNIX platforms. ibm db2 software revenue on unix and windows nt platforms grew % in 2000 .73 in the past 18 months, approximately 1,000 companies have either replaced or chosen ibm ’ s db2 database products over oracle. major software vendors like siebel , sap and peoplesoft have selected db2 as their preferred database. p a g e n o. f o u rt e e n

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    “We’ve come all the way back. Now it’s time for each of us to look in the mirror and say, ‘This is personal. There’s no way I’m going to sit back and let any competitor encroach on my account.’” sherry yazdi Data Management Sales Team Leader

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    “We penetrated half of our chief competitor’s key accounts even before we had all the advanced function for Shark. Okay, in December we shipped it. Now things are really going to get fun.” john power Worldwide Marketing Manager, Shark

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    enterprise storage Take your eye off the ball in this 1990s, we labored at a substantial industry, and the penalties are disadvantage in the marketplace severe. In the marketplace for for storage subsystems. Enter the storage, we’ve patented more tech- IBM Enterprise Storage Server nology than any other company, code named “Shark.” In 2000, the and in 2000, IBM received the U.S. first year after its launch, we National Medal of Technology in shipped nearly 4,000 Sharks, and recognition of decades of leader- revenue for high-end disk storage ship in storage. But for most of the increased 21 percent for the year. in 2000, ibm shipped 73% more terabytes of storage than the previous year — increasing shipped disk storage to more than 11,000 terabytes in 12 months. 60 % of global 100 companies have already purchased and installed a shark enterprise storage server. combined, all shark enterprise storage servers worldwide hold more than 7 petabytes of data, roughly equal to the printed text of 700 u.s. libraries of congress . cindy gallo vincent hsu barry rudolph Shark Testing Manager Microcode Development Vice President, Disk Storage Systems and Software

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    unix s e rv e r s The painful irony of our history in the market, invest, mobilize and Web servers is that we invented compete. Today, behind IBM- the RISC chip —the basic building invented technologies like silicon- block of the UNIX marketplace. on-insulator and copper-based But rather than exploit that tech- microprocessors, our p Series nical head start, we watched as a eServer is the price/performance handful of competitors did —and leader. The S80 is the fastest- built advantages so significant some selling UNIX server in history, and considered them insurmountable. our overall UNIX server revenues Some, but not us. We made the were up 28 percent for the year, decision in the late ’90s to stay in 49 percent in the last quarter. in 2000, ibm unix servers held more industry performance benchmarks than any other vendor. number one in supercomputing ibm leads the top500 list of supercomputers, with 215 of the world ’ s 500 fastest, most powerful supercomputers. according to idc , ibm is the number one worldwide server vendor when measured by revenue. dave turek Vice President, Scientific and Technical Computing Offerings, Web Servers p a g e n o. eighteen

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    “In the battle for Web server leadership, it’s a performance play. So name your benchmark. For the last two years, our performance has been second to none.” rod adkins General Manager, Web Servers

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    chapter 2 t h e l e a de r’s di le m m a o u r s t o ry continues with a v i c t o ry and a le s s o n : t h at b e i n g t o p o f t h e c h a rt s m ay b e g e t i t s ow n k i n d of challenge, as when mar k e t de m a nd r a c e s a h e a d s u p p ly, o r w h e n s u c c e s s s e rv e s of to d a m p e n t h e c o m p e t i t i v e f i r e . If they were running self-standing IBM’s revenue last year. They plan enterprises, John Kelly, Doug Elix competitive strategy, lead vast work- and Steve Mills would be Fortune 150 forces, make decisions about where to CEOs. They’re not. Instead, they run invest and when to divest —and stand IBM’s technology, services and software accountable for their results. And in businesses, respectively—businesses that 2000, they all had to adjust on the fly generated more than 60 percent of to changing market conditions. p a g e n o. t w e n t y- o n e

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    john kelly, iii doug elix Senior Vice President, IBM Technology Group Senior Vice President, IBM Global Services

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    In the early days of 2001, john kelly, doug elix and steve mills sat down to talk about the wild ride of the year past and the opportunities of the year ahead. lessons learned Kelly: For us, the big lesson of 2000 was that if you have leadership technology, “build it and they will come.” In the first quarter, I’m sitting near 70 percent uti- lization —which is death in my business — but we knew what was coming, and just kept building. In the third quarter, it popped. We thought we were in a high- growth business; what we didn’t realize was we were in a hypergrowth business. Even that’s an understatement. Elix: Tell me about it. In services, we worked through a transition that spanned three quarters. We’d had great business in systems integration and even doing Y2K work, and then suddenly we had to transition all of those services com- pletely to e-business -oriented services, hire thousands of people and retrain thousands of our own people. It wasn’t until the fourth quarter that we saw the momentum return to the business. Kelly: But in any one of our cases, we’ve got to continue to have confidence that the business is going to grow. steve mills Senior Vice President, IBM Software Group

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    Mills: The thing I like about what you’ve making the call been doing in the OEM business is getting Mills: You can’t study things to death. There more utilization, more customers, across are development opportunities where you more industry segments, and that gives you don’t have a lot of time to do long, compli- some cushion against the ups and downs. cated business cases. You have to incubate a It’s the single-customer phenomenon that number of them, pilot them and see whether can kill you. they’re successful. The ones that aren’t, you’ve got to be prepared to terminate quickly and Kelly: Right. Customers and segments. But efficiently, and the ones that do take off, you we came from a background of doing too nurture them and grow them. many things. And we’ve finally focused on the top segments and key customers. The trick now is to keep the team focused, Kelly: A vendor in Japan built a because there’s always the temptation to packaging plant to support our go for the high-volume opportunity in lower-margin products. We’ve made the growth, on a handshake. We shook decision that’s not our game. hands, and they literally started digging the hole in August. By Mills: I think this was a year that the end of the year, the plant taught many people that no tree is was online. going to grow straight to heaven. Elix: In almost every one of our big growth In software, we’d had a number businesses, we’ve started based as much on of very good years, and a lot of management judgment as on business cases. growth, and in retrospect, I don’t I mean, conversion to the customer relation- ship management services, to e-procurement, think the reasons for that success to supply chain: we didn’t spend a lot of were as well understood as they time doing complicated business cases to get those off the ground. have become this year. Having said that, we do still have to make the case for capital investment. To build the Web hosting business required a tremendous commitment of capital— $4 billion so far. And we also have huge investments in bringing people on board to meet the increasing demand in the professional services business. We’re hiring more than 19,000 people a year. That’s a tremendous investment, as well, which we now do almost as a matter of course. Kelly: For me, well, there aren’t a lot of companies in the semiconductor business prepared to put $5 billion on the table for big fabricators. We can. We did. Somebody asked me what you feel like when the com- pany says, “Okay, here’s $5 billion. Don’t let us down!” Mills: And I bet you said, “I didn’t blink an eye!” Kelly: Actually, I said I felt relieved, because I’d already started the project. In fact, I had Lou Gerstner up in Fishkill a few weeks after I got the approvals. We’re driving in, and a lot of progress is already visible. The cranes were there, and there must have been several hundred construction workers at the site. And Lou looked at me and he said, “John, you started this before I approved it.” So, back to the question: The day I got the funding, I was relieved.

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    the a dva n t a g e of scale managing the future Kelly: There are challenges built into being Mills: Thinking customers today understand one company with a portfolio of businesses, that you can’t implement a transformed as opposed to being a pure play, self-standing, e-business enterprise unless you get the single-minded operation. The challenges are infrastructure underneath it running. They dwarfed by the advantages, but they’re still also know they need a partner that can look there to be managed. across all these processes and see how to One of them is this balance you have put them together. Infrastructure is going to strike: Make sure you capitalize on to be a winning play for us this year. the assets of the rest of the company, be an asset yourself, and balance that with Elix: For us, outsourcing is back strong. the focus you need to succeed within your We cracked the market in Asia —in a way, market segment. we created the market in Asia. Then there’s e-sourcing (see page 33), and the business Elix: Exactly. We’re the biggest, most capable transformation that underpins all of the services organization in the world, but we infrastructure and hardware and software can’t and won’t go in front of a customer changes. That holds tremendous opportu- without the right alignment across the cor- nities for growth. poration. When we start to put together a solution, being hardwired to colleagues who Kelly: We’ve planted ourselves in an incredibly have great customer relationships at one end fast-growing segment. So whether it’s chips and who are actually building the products for servers, chips for infrastructure for the and technologies at the other end is a trump Internet, or chips for pervasive devices, we’re card we play again and again and again. parked in the sweet spot. And we have a broad spectrum of customers in each segment. We’re ready to go wherever this thing is compete? cooperate? yes. going to go. Kelly: A lot of my best customers are some You can’t live through a year like 2000 of IBM’s biggest competitors in the server and not learn a lot. One of the advantages and box business, and no one has ever con- that the three of us have had is that we grew strained me from selling our great technology up in our businesses. We have a gut instinct to them. So I just keep driving. for it, so we can make decisions —even big ones —faster. Mills: Yeah, us too. It’s a diverse world. We have to coexist with, support and sell to companies that other parts of the product or services organization compete with. But we certainly jump on opportunities where we can leverage another part of IBM, because we know software can pull hardware and services into a sale. Elix: Right. We made this decision many years ago. We are a multi- faceted company that is in many product areas, as well as many service areas. Kelly: I mean, some parts of the business have tough challenges in this —some of the product houses. But there are lots of areas where it’s positive synergy. One of my biggest customers is somebody that Doug calls on, so the better Doug does, the more components I sell.

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    market opportunity IDC projects spending on I/T investments to grow 11 percent over the next five years, with the fastest growth services coming in services, microelectronics 149 138 and software —the areas on which 126 IBM has been focusing. 109 $ 470 billion market for information 97 98 employees at ibm global services 99 00 technology services (in thousands) Estimates show the market for In 2000, IBM Global Services hired I/T services will grow 14 percent more than 19,000 people. It invested annually to $ 470 billion by 2003. $ 400 million in professional devel- opment and knowledge tools, and $ 50 million in e-business training. market opportunity investments semiconductors $ 69 billion market for non-pc chips $ 5 billion invested Analysts estimate a $ 69 billion IBM is investing $5 billion over market for chips used in networking the next four years to expand chip infrastructure, pervasive computing manufacturing and packaging devices and enterprise information capacity. This includes a $2.5 billion technology—three of the fastest facility in East Fishkill, N.Y. — the growing segments of this industry. first to integrate IBM’s leading chip-making technologies into larger, 300mm wafers. market opportunity investments software $ 77 billion opportunity for middleware 50 major alliances IBM forged 50 strategic alliances with business software specialists to increase sales of hardware, services, database software and Analysts estimate that today’s other middleware. IBM is investing $77 billion market for middleware heavily in WebSphere —including is growing 14 percent annually. a $1 billion investment in 2000 for marketing, partner development and sales programs.

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    performance 58 85 28.0 27.0 46 23.7 38 60 revenue from e-business serv- 51 ices — which include e-commerce 19.5 consulting, e-business enablement 16.2 43 26 38 and e-hosting services— grew 24 more than 70 percent in 2000. ibm signed $10 billion in outsourcing contracts in the Asia Pacific region in 2000 — more than twice the value of contracts signed there in 1999. 96 97 98 99 00 96 97 98 99 00 96 97 98 99 00 services revenue outsourcing backlog ($ in billions) Total number of signed ($ in billions) strategic outsourcing Backlog represents the total contracts valued at more amount of revenue remaining than $100 million on signed contracts performance 223 revenue from logic chips 28 184 % grew 50 percent in 2000. 158 ASICs, the most prevalent form of custom logic chip, are used in all types of electronic products where functions and 77 performance requirements 64 can’t be met by off-the-shelf processors. In 1999, IBM microelectronics became the number-one sup- plier of ASICs, and continued oem revenue this leadership in 2000. growth in 2000 96 97 98 99 00 number of new custom microchip designs for customers performance 221 % 3.5 3.3 64% 2.6 51% 2.4 2.1 websphere revenue growth 23% in 2000 on unix and windows nt Nearly 35,000 customers are using 96 97 98 99 00 98 99 00 IBM WebSphere as e-infrastructure software, including most of the distributed db2 distributed software world’s top commercial banks, tele- software revenue revenue growth communications, health care and ($ in billions) (year over year) Wall Street brokerage companies.

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    chapter 3 the plot thickens whole n e w f r o n t s o p e n t h at p r o m i s e to dwa r f t o d ay ’ s m a r k e t b at t l e s. introducing l i n u x a n d e -s o u r c i n g. v i c t o ry w i l l g o t o t h e f i r s t o n e with t h e r e s o u r c e s, v i s i o n a n d c o m m i t m e n t t o s e i z e t h e m o m e n t. p a g e n o. t w e n t y- n i n e

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    Why i believe Linux w i l l change f u n d a m e n t a l ly t h e i n f o r m at i o n t e c h n o l o g y industry. an opinion by irving wladawsky-berger , Vice President, Technology and Strategy, IBM Server Group If Linux were just another operating system, we wouldn’t be all that high on it. But that’s what’s so interesting. Linux is an operating system, but it’s also radically different from anything that has come before it. It changes the way software is created and delivered. Linux is like the Internet itself —it’s unowned, standards and fundamentally reconfigured and unownable. Anyone can propose software our products, our strategy and our culture changes, as long as those changes are returned toward open systems, common standards and to a loose-knit network of developers known collaborative business practices. as the Open Source community. It’s a highly 2. It alters the way our industry delivers value to selective, disciplined process that serves two its customers (which is very good news for IBM). purposes: It throws technical innovation into A lot of people who have played by one set of perpetual fast-forward; and it guarantees the rules in this industry are going to find out world that Linux will always remain beyond they’re now playing a different game. The the control of any single vendor. widespread adoption of Linux is going to neu- In my mind, then, Linux is a phenomenon tralize any vendor’s ability to exercise control— that holds the potential to change the game over customers or software developers—based along two important dimensions. on that vendor’s proprietary operating system. 1. It fulfills a big promise: all hardware, soft- When applications are no longer lashed to a ware and applications working together. Linux specific operating platform, control and choice is a wonderful thing because it is the first shift away from the technology company, operating system to run on any hardware and into the hands of customers. This makes platform. That means it can do for business possible an equally seismic shift in the way applications what the Internet did for net- value is delivered —through services, through working and communications —deliver on the middleware, through servers. promise of truly open, interoperable, any- So, we’re going to invest $1 billion in Linux, to-any computing. and we’ve dedicated 1,500 programmers to In a world where a billion people using a enable every IBM hardware and software trillion devices are all interconnected, can product for Linux. Our strategy is to accelerate you imagine that software and hardware that its adoption as a platform that can support hasn’t even been invented yet will have to heavy-duty, enterprise workloads —such as coexist? Of course! Linux will make that pos- those already in production with customers sible, and that’s one reason it’s going to grow like weather.com, Shell International Explora- a lot faster than any other operating system tion and Production in the Netherlands, and over the next several years. Telia, Scandinavia’s largest telecommunica- It’s interesting to me that some people are tions company. surprised that IBM is embracing Linux, while We think that, at the end of the day, the other large technology companies are trying operating system that provides the most flex- to act as though Linux weren’t happening. ibility to customers is the one that is going to This shouldn’t be a surprise. Linux is bring- end up winning. We’re voting with our cus- ing the game back into our zone, precisely tomers on this one. We’re betting a big part because we saw the world moving to open of IBM’s future on Linux. p a g e n o. t h i rt y

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    over the next three years, ibm is a ibm will invest more than founding member 300 m i l l i o n to develop $ and contributor to the linux consulting, implementation open source development lab. and support services.

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    ibm is investing with $ 4 billion 230 data centers over the next 3 years to worldwide, ibm is working with partners build out its e-business such as at&t, qwest, telecom italia and hosting infrastructure. ntt to open new ibm e-business hosting centers around the world in 2001.

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    Why i b e l i e v e e-sourcing w i l l f u n d a m e n t a l ly change t h e i n f o r m at i o n t e c h n o l o g y industry. an opinion by g i n n i r o m e t t y, General Manager, Strategy and Marketing, IBM Global Services The initial idea of outsourcing is simple enough. An enterprise decides to turn over its information technology department —both equipment and staff —to an I/T partner. The physical assets switch owners, and the people running the systems switch ID badges. The logic is compelling: an improved balance For IBM and the rest of our industry, this sheet; relief from the headaches of technol- has profound implications. It changes who ogy ownership and maintenance; and much our customers are and what we will sell to greater flexibility in meeting the infrastruc- them. Individual businesses may no longer be ture demands of doing real e-business. the primary decision makers when it comes Now, take that idea and surround it with to I/T purchases. Instead, those decisions the networked world. Very soon, it won’t be may eventually be aggregated to a small necessary for an enterprise physically to own, number of mammoth computing “service install, manage —or even house —any aspect of providers,” like telecommunications compa- a traditional computing environment. The nies and today’s hosting companies. processing, the storage, the applications, the We intend to provide the infrastructure systems management, the security, the load technologies that all of these service providers balancing —all of it can be provided over the will require. And we’ll provide many of these Internet as a service. Customers don’t have to services ourselves. We’re already one of the own it. They can rent it, and pay as they need world’s largest hosting businesses, and we’re it, as they use it. investing $ 4 billion to build out this capability. This is the trend we call “e-sourcing.” At E-sourcing will enable enterprises of all one level, this extends the benefits of out- kinds —both in the private and public sourcing. It allows enterprises to concentrate sectors —to tap into the full power of the Net. even more on their essential business priori- But in the end, the greatest benefit of ties. But that’s only the beginning. Because, e-sourcing will be in the freedom it unlocks. by giving up ownership, a company is vastly Sure, it will create enormous efficiencies. But increasing its access to computing power, and the game-changing impact will be freeing up expertise, and innovation. all companies —whether just starting out or We see the beginnings of this in Web host- well established —to focus on their core com- ing. By 2003, Web hosting is expected to be a petencies, and to experiment and be more $34 billion industry. Yet hosting is a very creative, with minimal commitment and risk. primitive version of the sophisticated com- To help our customers explore their most puting services that customers will be able to exciting possibilities —that’s why IBM is com- rent in the future. mitted to e-sourcing. ibm ’ s e-business hosting revenue doubled in 2000.

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    chapter 4 into the wi ld on the h o r i z o n, n e w wo r l d s s h i m m e r i n t h e m o r n i n g l i g h t. w h o w i l l get there f i r s t and d e v e l o p t h e i r p o t e n t i a l ? at n i g h t, w e d r e a m of n e w t e c h n o l o g i e s. at d ay b r e a k , w e c o n c e i v e n e w b u s i n e s s m o d e l s. p a g e n o. t h i rt y- f i v e

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    gerd binnig Nobel Laureate and IBM Fellow, Micromechanics and Nanomechanics real job: Finding the atomic tipping point

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    yvette burton Senior Consultant, Knowledge and Content Management Solutions real job: Understanding the organic life of ideas and conversations say the word “innovation” in the context of the information technology industry, and it’s easy to make the mental connection to the world of R&D, physical sciences, algorithms and invention. And for a lot of people, all that makes for a very and holographic storage to technologies for natural connection to IBM. But for us, that kind of specialized chips —including chips that consume innovation is only half the story. very little energy —that will power the next gener- There’s another kind of innovation—requiring its ation of Net-access devices. Our research stretches own special kind of ingenuity. It’s equally demanding from the most powerful supercomputer technol- and every bit as important to our customers. This ogy on the planet to the software and servers that is about the invention of new business models and power the most heavily trafficked sites on the Web. market structures, in every industry —from retail For the eighth straight year, IBM earned more and financial services to education, governance and patents than any other company (more, in fact, than the delivery of health care. our eight closest competitors combined). By year Tucked inside IBM Global Services is the world’s end, fully one third of those patents had made their largest business and information technology way from the lab to the marketplace—and were at consultancy. IBM Business Innovation Services is work powering our own products or licensed to populated by 50,000 consultants, each of them others. IBM’s total intellectual property portfolio specialized by industry, or in such disciplines as generated more than $1.5 billion in income in 2000. customer relationship management, supply chain, There are some companies that excel at technical business intelligence, digital branding, and security innovation. There are others that specialize in and privacy practices. consulting. Our ability to do both is a unique Of course, technological innovation is the genetic combination and strength, because customers who code of IBM. The record of achievement here commit to make a real transformation require both— reaches from prototypes of quantum computers the new idea, and the technologies to implement it. So what mental image should come to mind when you apply the word “innovation” to IBM? It has two closely related, but exceptionally distinct faces. And thousands of names. Meet just a few of them. p a g e n o. t h i rt y- s e v e n

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    mark dean shouheng sun IBM Fellow and Vice Researcher, Materials Chemist President, Systems Research real job: Self-assembling real job: Taking computing magnetic materials beyond the computer pekka leppanen Manager, Mobile Internet Solutions real job: Obsoleting the office greg conley General Manager, e-Markets real job: Decimating silos, intracompany and intercompany ajay royyuru Manager, Structural Biology real job: Protein origami cherie kagan Researcher, Electronic and Optical Organic Materials and Devices real job: Free-range components michael heideman Vice President, Global Services — Communications Sector real job: Turning showbiz and phone biz into e-biz janet caldow Director, Institute for Electronic Government real job: Government at the speed of business

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    russell lange IBM Fellow and Chief Technologist, Microelectronics real job: Semiconductor seismology gian-luca bona Manager, Photonic Networks real job: Data at light speed michael v. littlejohn General Manager, IBM Learning Services, Americas real job: Raising organizational IQ harriet pearson Chief Privacy Officer real job: That is her real job steve white Senior Manager, Massively Distributed Systems Group real job: Discovering the physics of market ecosystems stuart parkin IBM Fellow, Project Leader, Magnetoelectronics real job: Instant-on computing dr. russell ricci General Manager, Healthcare Industry real job: Tender loving e-care caroline kovac Vice President, Life Science Solutions real job: What makes us tick

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    The Wizard of Oz ©1939 Turner Entertainment Co.

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    chapter 5 coming home how the world ’ s largest proponent transforming o f e -b u s i n e s s i s its processes and culture to become t h e wo r l d ’ s l a r g e s t e -b u s i n e s s . a n d s o i t b e g i n s. When does a business become an in goods and services, interlock with e-business? Until recently, the answer your suppliers—and support thousands of seemed to be: when you can buy some- employees in scores of countries around thing over its Web site. Today, we know the world to learn, collaborate and work better. It’s when you work with your in real time …on the Web. That’s how customers, take and fulfill orders, pro- we’re helping our customers become vide services, procure billions of dollars e-businesses. And it all starts at home. p a g e n o. f o rt y- o n e

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    “Customers need fast and easy ways to do business with IBM. Our integrated Web-and-call-center channel, ibm.com — providing direct sales, service and support —does that. Today, customers can access more than 14,000 IBM products and solutions. And at $47,000 in sales per minute on an average business day, we’re IBM’s lowest-cost channel. IBM’s PC business now does about a third of its business direct, one of the reasons it’s returned to profitability.” doug maine General Manager, ibm.com 23.3 14.8 3.3 98 99 00 total e-commerce revenue generated with business partners, oem partners and through ibm.com ($ in billions) IBM e-commerce revenue grew sevenfold over the last three years e-learning to $23.3 billion. In 2000, e-commerce revenue through ibm.com grew 143 per- cent. And revenue generated by e-commerce with business partners and OEM partners each grew 50 percent. e-commerce

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    “IBM’s global purchasing activity is enormous and, therefore, complicated. To improve efficiency and effectiveness, we’ve applied e-business across the “We saved a lot of money last year by entire buying process, including the moving 36 percent of our employee ability to select suppliers, place orders training to an online environment. and handle payments online. What But that’s not the best reason to make once took 30 days now takes one.” the shift. With a mobile workforce like IBM’s, and the increasing complexity of patrice knight our customers’ businesses, we’re able to Vice President, Procurement Strategy provide just-in-time learning for people and Transformation who need to be with their clients and not sitting in a classroom. And we are pro- 377 viding these same types of e-learning 272 240 solutions to customers around the world.” nancy deviney General Manager, Learning Services 98 99 00 More than 200,000 employees have cost avoidance received education and training online. from e-procurement ($ in millions) New IBM managers are trained In 2000, IBM “e-procured” more than through an award-winning program $43 billion in goods and services —up that blends 75 percent e-learning 60 percent from 1999 —with 24,000 with 25 percent classroom training. suppliers worldwide. 94 of goods and % services are now purchased electronically e-procurement more than 350 $ in annual cost million avoidance through the use of distributed e-learning

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    “Let’s talk innovation. Today, U.S. health care enrollment is available via the intranet. Now, employees have access to personalized decision-making tools, such as a plan finder that helps them make health care choices; nearly 42,000 employees used the tool in 2000. Now, let’s talk convenience and control. More information is available than ever before, and transactions can be conducted at any time. Employees are tracking the value of their HR programs and making charitable contributions online, all without the use of paper forms.” barbara brickmeier Director, Global Benefits e-workforce Since 1998, IBM Human Resources has been a leader in the creation of Web- based tools and information to transform its employee relationships. Today, IBM employees use the intranet to access information, enroll and manage: • 401K Plans • Career Planning • Employee Stock Purchase Plans • Health Care Options • Pension Plans • Stock Options • Sales Commissions IBM has also launched a Web resource for retired employees. 83 % of U.S. employees reviewed and enrolled in their annual health care options via the intranet in 2000. “We’re using some of the best solutions from our alliance partners to transform and inte- grate our own systems and operations. The payoffs: stronger customer relationships, greater marketplace agility to reach new customers, and a wealth of experience we can put to work helping customers who are transforming them- selves. To be CIO of one of the world’s largest e-businesses, you need to see the complementary relationship between external business strategy and internal technology strategy.” phil thompson Vice President, Business Transformation and CIO IBM has avoided $4 billion in cost since 1998 through business process transformation of procurement, customer support and employee education. Today, IBM is working with its software alliance partners to implement “best-of-class” e-business capabilities inside the company to reduce cost in areas such as enterprise resource planning, customer relationship management and supply chain management.

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    “Don’t think of intranets as one-way com- munication channels. They’re much more — productivity tools, workflow managers, places to collaborate, virtual workspaces. We’re adding all that functionality to make IBM’s intranet a platform for some key e-business goals: to integrate IBM’s processes; redefine our culture and our brand; and empower individual employees, so they can access the company’s collective knowledge — and contribute their own. The payoff is a smarter collective organism.” mike wing Director, Worldwide Intranet Strategy and Programs In 2000, IBM’s intranet surpassed nearly all channels —internal or external —as the most credible, preferred and useful source of information about the company in the IBM Global Employee Survey. All but one … it was tied by the grapevine. 2.5 million visits by employees per week e-corporate culture e-transformation

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    reinventing education Scoil Mhuire Senior Primary School, Blakestown, Ireland; and Tran Quoc Toan Primary School, Hanoi, Vietnam

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    c o r p o r at e initiatives what does it mean to lead? In our business, there’s technical leadership, thought leadership, financial leadership, marketplace leadership—all the things docu- mented in this report. But any company that aspires to make a lasting contribution to the world must lead in ways that spread far beyond the confines of the marketplace, and winning, and profit. It’s leadership by serving; leadership by caring; created via online technology developed leadership in the community. It’s the kind of through the grant partnership, scored signif- leadership we think about when we think icantly higher on statewide exams. And in about the world our work will leave for our Houston, first-graders using an innovative children. At IBM, it’s how we apply our finan- speech-recognition technology called Watch- cial strength, resources and minds —more than me!-Read scored significantly higher on 300,000 of the most talented people in any comprehension and word recognition. industry, and one of the most storied and Underlying it all, IBM is perennially among aspirational of business enterprises—to change the world’s most generous corporations. In things, to make our planet a better place. 2000, we contributed more than $126 million That’s true now more than ever. The to programs around the world that help people arrival of a networked world brings with it the in need. Individual employees added another requirement for enterprises, governments and $49 million through matching grants and entire societies to establish new frameworks donations to nonprofit organizations and on virtually every vital public policy issue— educational institutions. And of incalculable not simply to foster the development of an value was the more than 4 million hours of important new platform for our economy, but their time and expertise IBMers volunteered to take responsibility for how its consequences to a broad range of local causes. will affect people and the planet. IBM continued its longstanding commit- Of special urgency with the rise of the Net ment to environmental leadership last year, are protections of the individual’s right to pri- ensuring that its operations and products vacy. In 2000, we appointed IBM’s first chief provide ever greater value to society while privacy officer —a senior executive charged minimizing their potential impact on the with guiding all our policies and practices in environment. Our participation in voluntary this area, and with working across the public initiatives to address global climate change and private sectors to advance workable pro- and our latest offering to facilitate the reuse tections of consumer and citizen privacy. and recycling of PCs are just two examples of Our largest ongoing corporate commit- environmental efforts that contributed to the ment remains the $45 million grant program significant recognition the company received Reinventing Education —which has the in 2000 for environmental excellence. potential to touch one in five children in We do all this because we know that people U.S. public schools, as well as children in have high expectations of leaders. High, but seven other countries, including Singapore, appropriate. We understand that if we aspire site of our latest grant. to lead in the creation of the networked world, Independent evaluations tell us that our we have to demonstrate the courage and wis- Reinventing Education efforts are doing dom to step up to the grand societal challenges what we set out to do —drive higher student it raises —both those as new as today’s head- achievement. In West Virginia, high school lines, and those as timeless as human society. students using standards-based math lessons, Because that’s what it really means to lead. p a g e n o. f o rt y- s e v e n

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    company mission At IBM, we strive to lead in the creation, development and manufacture of the industry’s most advanced information technologies, including computer systems, software, networking systems, storage devices and microelectronics. We translate these advanced technologies into value for our customers through our professional solutions and services businesses worldwide.

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