IBM 2003 Annual Report Download - page 10

8
CHAIRMAN’S LETTER
Remaking IBM
To some people, it may seem bold to have made all
these moves during the worst market ever seen in the
IT industry. But I don’t believe it was particularly
risky, because it was driven by client demand and the
realities of the technology. What’s really important
for you to understand is that our commitment to lead-
ership in the high-value spaces and in innovation isn’t
a mission statement. It’s a business model. And it
commits us to continual reinvention of IBM itself.
Over the past several years, we’ve taken aggressive
steps to remix our business so that we are positioned
for long-term leadership and new opportunities in the
high-value enterprise space, however that changes.
We have, since 1997:
•exited or reduced our presence in such areas as
application software, hard-disk drives, networking
hardware, low-end printers and retail PCs—which we
estimate have declined from 31 percent to 25 percent
of IT industry revenue;
•entered or increased our presence in distributed
middleware, non-hardware maintenance services,
Intel-based servers and mobile PCs—which have
grown from 40 percent of industry revenue to
46 percent, and are expected to continue outper-
forming the overall IT market;
•increased our revenue in business and technology
consulting services, infrastructure services and
infrastructure software—which generate superior
long-term revenue growth, profit, cash and return
on invested capital—from 48 percent to 64 percent
of our total, with expectations of increasing that
going forward;
•grown aggressively in emerging markets; in China,
India, Russia and Brazil we generated revenue of
$3 billion last year and saw double-digit growth;
•upped our rate of new account growth, giving us a
total of 730,000 large, medium and small enterprise
clients—with IBM’s small-and-medium business
segment alone growing 14 percent to outperform the
market in 2003, adding $2.4 billion in revenue; and
•incubated successful new high-growth businesses
such as life sciences, digital media, application man-
agement services, e-business hosting services, Linux
and pervasive computing—each of which has already
become a $1 billion-plus revenue stream. In the areas
we’re targeting within life sciences and digital media
alone, third-party analysts see more than $60 billion
of market opportunity by 2006.
While we do all this, we’re continuing relentlessly
to improve execution. By becoming an on demand
business ourselves, we’ve made big strides in product
cycle time, new product introduction, sales productivi-
ty and simplification of our processes. Our inventories
are at their lowest level in more than 20 years, and our
continuing progress in integrating our supply chain
took $7 billion of cost out of the business in 2003,
surpassing what we achieved in 2002.
Business value, and a company’s values
As I mentioned last year, we’ve been spending a great
deal of time thinking, debating and determining the
fundamentals of this company. It has been important
to do so. When IBMers have been crystal clear and
united about our strategies and purpose, it’s amazing
what we’ve been able to create and accomplish. When
we’ve been uncertain, conflicted or hesitant, we’ve
squandered opportunities and even made blunders
that would have sunk smaller companies.
It may not surprise you, then, that last year we
examined IBM’s core values for the first time since
the company’s founding. In this time of great change,
we needed to affirm IBM’s reason for being, what sets
the company apart and what should drive our actions
as individual IBMers.
Importantly, we needed to find a way to engage
everyone in the company and get them to speak up on
these important issues. Given the realities of a smart,
global, independent-minded, 21st-century workforce
like ours, I don’t believe something as vital and personal
as values could be dictated from the top.
So, for 72 hours last summer, we invited all 319,000
IBMers around the world to engage in an open
“values jam” on our global intranet. IBMers by the
tens of thousands weighed in. They were thoughtful
and passionate about the company they want to be a
part of. They were also brutally honest. Some of what
they wrote was painful to read, because they pointed
out all the bureaucratic and dysfunctional things that
get in the way of serving clients, working as a team
or implementing new ideas. But we were resolute in
keeping the dialog free-flowing and candid. And I don’t