IBM CIO's Strategy: Run, Transform, Innovate

Like other CIOs, IBM's Mark Hennessy knows that a dollar saved on data center operations is a dollar earned for business-technology innovation. IBM has moved the dial on its IT budget 10 percentage points toward innovation in recent years, and Hennessy says there are still more operational efficiencies to be gained.I sat down with Hennessy for more than an hour recently in New York to talk about how he has adapted to being a CIO. A 25-year IBM veteran, he took over as CIO about 18 months ago, having spent most of his career on the business side, in sales, marketing, finance, and, most recently, as general manager of IBM's distribution sector, which works with clients in the retail, travel, transportation, and consumer products industries.

Hennessy's IT team supports the company's strategy in three broad ways: by running and optimizing IBM's internal IT operations, by working with IBM business units in support of their objectives, and by facilitating company-wide collaboration, innovation, and technology requirements across 170 countries.

In times past, IBM had as many as 128 different CIOs across its businesses. These days--in support of CEO Sam Palmisano's strategy of establishing a global, integrated enterprise--it has only one, and Hennessy is it.

When I asked how he measures the performance and effectiveness of IBM's IT team, Hennessy pointed to its "run-to-transform" ratio. IBM's IT department is divided into three groups: a "run" organization that's responsible for keeping systems running smoothly; a "transform" team focused on business-process simplification and other business transformation; and an "innovate" unit that pursues leading-edge technology initiatives.

A few years ago, IBM was spending 73% of its IT budget on keeping systems and services running and 27% on innovation. This year, its run-to-transform ratio will hit 63%-37%. Roughly speaking, IBM is shifting an additional 2% of its IT budget from run to innovation each year, and Hennessy has every expectation that his group will continue moving the ratio in that direction. "I don't see an end in sight," he says. In fact, Hennessy says that IBM's run-to-innovation ratio has improved more this year than last. "So it's actually accelerating for us," he says.

Where do the efficiencies come from? The same place other CIOs find them. Server virtualization, data center consolidation (IBM has consolidated 155 data centers down to five), energy savings, applications simplification (from 15,000 apps to 4,500 apps), end user productivity, organizational collaboration, shifting skills globally, and business-process simplification. IBM has internal IT projects underway now in the areas of its supply chain, finance, workforce management, and order-to-cash processes.

Hennessy reports to Linda Sanford, IBM's senior VP of on-demand transformation and IT. Practicing what it preaches, IBM doesn't think of its IT organization as being merely an IT department. "We call it BT and IT," Hennessy says, giving business transformation equal billing to the software, systems, and services side of its mission.