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December 13, 1999

E-Business 100
IBM Follows Its Own Advice

Illustration by James O'Brien wo years ago, IBM began spending millions of dollars for advertising to exhort its customers to transform themselves into E-businesses. And then management had a revelation. "We had to expect our customers to turn around and ask us what IBM was doing to transform itself into an E-business," says Dick Anderson, general manager of Enterprise Web Management.

So IBM--which ranked No. 2 on the InformationWeek E-Business 100 list--followed its own advice and began a number of initiatives to adopt E-business practices. The goal was not just to sell products, although sales to customers through the "Shop IBM" Web site and to resellers through E-commerce channels may reach $15 billion this year. IBM employed Internet technology to improve processes across a number of its operations, including procurement, customer service, business-partner relations, and employee support.

"We had different audiences that we thought we could focus on with this," Anderson says. "It's establishing new linkages and new ways of doing business." But the executive is quick to dismiss any idea that IBM's transformation is complete. "Everyone is in a 10- or 15-year transformation," he says. "So I don't want to suggest that we're there."

Though it may not be there yet, IBM certainly can point to a number of early successes from its E-business efforts. Take customer support, for example, for which IBM has moved more of its call-center functions to the Internet. Last year, 14 million such transactions were conducted over the Web, and IBM expects that number to reach 35 million this year--about 58% of all customer-service requests. That cuts the cost of such transactions by 70% to 90%--an estimated total cost avoidance of some $600 million this year--even while providing customers with more comprehensive and timely support, according to Anderson.

IBM is taking the same approach toward servicing its business partners, who will account for $5 billion to $7 billion of the vendor's E-commerce revenue this year. Resellers and other partners can use the Web to place and track orders and access product-marketing information. Arranging financing terms, which used to take up to 10 days to process, is now completed in as little as 20 seconds. On the procurement side, IBM purchased $3 billion in goods and services over the Internet from some 10,000 suppliers, saving $110 million in the process.

IBM's E-business efforts are directed inward as well. The company's intranet, which gets some 65 million hits a week, is used for everything from collaborative product development to online distributed learning programs--the latter saving IBM an estimated $80 million in the first half of this year alone.

But Anderson is the first to acknowledge that transforming a business into an E-business isn't easy. Some of the biggest challenges have nothing to do with technology. For example, IBM--as do all technology companies--prices its products differently around the world, based on such variables as local business factors and regional competition. But that becomes difficult with the Web, "where the world can see one price," Anderson says.

And E-business doesn't negate the need for old-fashioned business practices such as building relationships with suppliers. For example, IBM uses Internet links to help its subassembly contract manufacturers lower their costs by finding suppliers of cheaper components--and then passing some of those savings along to IBM. "But to do that, we had to convince our subassembly manufacturers to upload their bills of materials to us," Anderson says. Getting suppliers to divulge that kind of information requires the kind of trust that has been the foundation of vendor-customer relationships since commerce began.

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