IBM began offering complete business solutions to clients in 2003 in response to market demand. This represented a shift from IBM's previous focus on selling individual technology products. Some of the key challenges IBM faced in developing its solutions business included: defining solutions consistently, developing sales skills for complex solutions, tracking solutions sales, and managing the dual business model of selling both individual products and integrated solutions. To address these challenges, IBM took steps such as defining a formal solutions portfolio, creating dedicated solutions sales roles, establishing governance systems to develop and manage solutions, and developing rigorous processes for ongoing solutions innovation.

1. IBM Global Business Services
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Background
In response to market demand in 2003, IBM began offering clients complete
business solutions. IBM was widely recognized for providing technology
components, but clients were looking for more. They sought a collaborative
partner to help define business problems and develop solutions. Clients were
telling IBM that two-thirds of their IT acquisitions were based on solutions.
IBM’s own market insights also projected a high growth rate for solutions. IBM’s
clients needed a partner that understood their business rather than a vendor of
commoditized components and services. A key driver for this change was that
clients did not feel they were capturing the full value of IT components and the
piecemeal efforts to integrate them.
Customers demanded that IBM bring more to the table than materials,
experience and assets. IBM’s sales team reported that solutions create greater
value for clients, differentiate IBM’s value proposition, and create a better fit with
the way clients want to buy. IBM recognized solutions would help integrate IBM’s
full equation – hardware, software, services and industry insights. The question
was not “Are solutions good?” but rather “How good are our solutions?”
In 2003, IBM embarked on a solutions transformation with three objectives:
1. Develop a business model to enable IBM to address the emerging solutions
market.
2. Create a portfolio of powerful solutions that deliver superior value to IBM’s
clients and shareholders, including:
฀ Better, faster, and lower risk for clients,
฀ Market differentiation, and
฀ Increased revenue and margins for IBM.
3. Develop a business design to allow IBM to execute both, the new solutions
model as well as the traditional product and services models.
Limitations of the existing Business Model
In 2003, IBM products, such as hardware and software, and services brands
formed the Line of Business (LOB) structure. In total, there were seventeen
major brands. These were, and remain, the primary P&L owners and control
major functions such as sales coverage, pricing, product development and
investments. Sellers in both brand and client teams are focused on a quarterly
cadence. IBM processes, systems and reporting are organized around these
brands. Client relationships are primarily focused on technology buyers –
typically the CIO.

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This model had been quite successful and was deeply entrenched in IBM’s
culture and infrastructure. The success of this business model needed to be
preserved to meet quarterly expectations. The challenge was defining a new
strategy that maintained the success of the existing model while redesigning the
business to accommodate the new solutions model.
Table 1: IBM’s Product and Services Business Model versus Product, Services and Solutions Model
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:LY]PJLZ
=HSL 7YVWVZP[PVU ฀ Products broadly targeted cross-industry ฀ Solutions target key issues within select
฀ Value through “speeds and feeds” and industries
reduced IT cost ฀ Value through delivering business value –
฀ Customer selection based on large, sound faster, lower risk, higher benefit
companies ฀ Customer selection based on innovative/
฀ Relationship with IT buyers – typically CIO leading-edge companies
฀ Relationship with line of business executives
6WLYH[PUN 4VKLS ฀ Delivery means “ship and install” ฀ Delivery means months or years working with
฀ Sales representatives with transactional and client
consultative sales skills ฀ Sales representatives with visionary
฀ Typical sales cycles are 1-6 months consultative sales skills
฀ RD and Customer Needs are the innovation ฀ Typical sales cycles are 6-18 months
engine ฀ Client team is the innovation engine
฀ Solution development based on cross-brand
review board is the innovation engine
-PUHUJPHS 4VKLS ฀ Profitability from product costs and through ฀ Profitability through increased pull-through
labor cost uplift revenue
฀ Pull-through revenue is not consistent ฀ Higher likelihood of pull-through revenue as
฀ Less investment required up-front customer buys into overall “solution”
฀ Focus on quarterly targets ฀ Up-front investment required as team works
with client to identify problem and develop
solution scope
฀ Focus on capturing client’s wallet-share
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Defining Solutions
When IBM embarked on its solutions transformation, each brand and geography
had distinct variations to the same solution. For example, each group offered an
ERP solution which included accounting as part of the solution, but there was no
consistency in the level of accounting that was included. Defining each solution
in a consistent way across all brands was a major issue but was necessary to
make it easy for a client to understand, easy for a sales representative to sell and
easy for product development to identify gaps in their components.

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Market Sizing Solutions
Reliable estimates of clients’ spend on many categories were not available from
secondary research. Data, such as application spend by industry or services
spend by business process, had to be modeled using proprietary market
research. This data was used to establish an estimate of the solutions market.
Pricing Solutions
When IBM had previously sold solutions, each brand calculated its own price and
the solution price was aggregated from the component prices. This meant IBM
was unable to capture value from the intellectual capital it provided to inform the
arrangement of components, which created extra value for the client. Risk was
calculated for each component and sometimes the risk was overestimated when
aggregated into a solution. Thus, IBM sought to adopt a solutions based pricing
approach. This approach used a centralized solutions pricing team instead of
having each brand set prices. The brands, however, did not want to give up their
price control and felt they were not being compensated for the risk they were
forced to take on the sale, resulting in resistance to the centralized model.
Managing Dual Business Model Design
Since each brand’s sales representatives were pursuing their respective
component sales, there were no resources dedicated to selling solutions. The
challenge was to ensure brand sales representatives did not lose focus on short-
term objectives while collaborating across brands to drive longer-term solutions
growth.
Tracking Solutions Sales
Sales metrics, incentives, pricing, offering development, and client management
processes were all geared toward selling brands. There were no systems in
place to measure the solutions pipeline, track its success, and compensate
sales representatives in a brand-driven product sales environment. Without these
systems, it would be challenging to quantify the brand revenue derived from the
pull-through effect of solutions, making it difficult to convince brand executives to
further invest in solutions. This issue was compounded as many solutions were
delivered over a long period of time, using multiple purchase orders, under the
original solution vision.

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Developing Solution Sales Skills
Solution sales have much longer sales cycles and are typically not bought by the
same single-product IT purchaser. This often creates challenges because point-
product sales representatives want to approach their traditional buyers, sell their
product and move on. Solution sales, on the other hand, require deep industry
or functional knowledge coupled with a consultative sales approach. Selling
solutions also requires the ability to create relationships at much higher levels in
an organization. IBM did not have that type of sales force and was missing out
on many solution sales opportunities. Another challenge in the go-to-market area
was balancing the aggressive pursuit of point-product sales, which were still
required, while collaborating with clients to design long-tern solutions. It is hard
to convince traditional sales representatives to devote time to solution sales if
their incentives are primarily to sell point-products. Sales representatives with the
ability to sell solutions and products were highly valued by the brand teams, who
were reluctant to let them become pure solutions sales representatives.
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Defined and Sized Solutions
IBM started by defining what is meant by a solution. The definition of a solution,
now consistently adopted across IBM, is an offering typically from more than
one product brand that solves a client’s business or IT problem through a
value-enabling combination of technology and high-value services. High-value
services are those which combine labor based services with other assets
such as software, frameworks, tools, techniques, industry insight and other
intellectual capital to accelerate clients’ value realization and minimize their
solution implementation risk. The next step was to select the type of solutions that
IBM would offer. IBM decided to support two types of solutions, Business and
Technology, at the corporate level. Underneath each type of solution would be
building blocks comprised of individual point-products or pre-bundled collections
of point-products (see Figure 1). Finally, IBM conducted formal research on
the selected solutions to size their market potential. Using this approach, fifty-
two solutions across seventeen industries were identified to receive corporate
funding. The rest were either subsumed under these high-level solutions or
retired.

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Figure 1: Solutions Taxonomy
Created Solutions Sales Team
Since one of the critical challenges was a lack of dedicated specialists selling
solutions, the existing sales capability was augmented by creating three new
sales roles dedicated to selling solutions in industries with recognized solution
sales potential. This virtual organization is co-managed by Sales and Service,
with coverage based on industry critical mass. The three new roles were:
Business Solutions Professionals (BSP): Support large engagements and
have deep industry and business solutions knowledge. They are focused on
a defined set of business solutions and are compensated on services, ISV,
hardware and software revenue. Since most of IBM’s business solutions are
services-led solutions and the type of technology skills required closely mirror
those of IBM’s business services professionals, these new sales roles are
included under Services even though they are funded by the sales organization.
Technology Solutions Professionals (TSP): Assist when technology is the
solution. Individuals in this role have deep knowledge of specific areas of
technology infrastructure combined with deep industry knowledge. They focus
on technical solutions and are paid on services, ISV, hardware and software
revenue. Since most of the required skills are technology consulting sales skills,
these professionals reside under the technology professional services group.
Territory Sales and Solutions (TSS): Are solutions professionals who focus
exclusively on small and medium business customers in the Americas and
EMEA. They support large engagements with these businesses. They have deep
knowledge of complete service offerings and focus on solutions within their
respective territories. They are paid on services, ISV, hardware and software
revenue.
The creation of these new roles allowed existing sales teams and brand
specialists to maintain focus on the point-product sales business.

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Solutions Governance Systems Lessons Learned
In order to develop and manage the solutions portfolio, a cross-brand solutions
management system was created (see Figure 2).
Figure 2: Cross-Brand Solutions Management System
Funding for solutions comes from Corporate and is administered by a cross-
brand steering committee, the Solution Board. Return on investment is managed
through careful tracking of the solution’s contribution back to Brands through a
ledger managed by Finance. The Solution Board is comprised of voting members
from all brands. Field teams come forward with ideas for solution development
which are voted on by the Board. Project work streams report status on a weekly
basis to Project Leadership, and Project Leadership reports status on a quarterly
basis to the Solutions Board.
Established Solutions Pricing Discipline
Traditionally, each brand’s components within a solution were priced separately
utilizing brand pricing models. The price of the solution was calculated from the
aggregate of prices of the individual components. Geographic regions managed
deals with global brands and had final authority on pricing models. Traditional
models considered cost, risk and other factors to arrive at a component price.
Support for complex deals resided in each geography, with complex “deal hubs”
established to support solution deals. IBM did not seek to define a single pricing
methodology for an integrated solution. This would have been too complex.
However, pricing needed to capture both asset value as well as increased
solution value. Several pricing mechanisms were considered viable options and
are now administered by account/deal teams through the negotiation process.
Value pricing of the core asset content and intellectual property has potential for
higher margin.

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Established Solutions Coverage, Sales Cadence and Metrics
To minimize impact on the core business, the solution sales management
cadence was integrated with the core business in each geography. The coverage
model is depicted in Table 2.
Table 2: IBM’s Brand-Centric Sales Model versus Brand and Solutions Sales Model
)YHUK*LU[YPJ 4VKLS :VS[PVUZ 4VKLS
:HSLZ *V]LYHNL ฀ Limited number of appropriately skilled ฀ Highly skilled solution sales and delivery
solution sellers covering a commonly resources aligned to selected solution plays
recognized set of key solution plays recognized across the business units
,UHISLTLU[ ฀ No defined solution sales discipline and ฀ A defined set of solution sales roles with
inconsistent skill levels supporting tools and infrastructure for
฀ Proliferation of fragmented IBM solution professional development
centers around the world ฀ Clear organizational construct for a
rationalized set of appropriately funded
solution centers
4LHZYLZ ฀ No consistent way to categorize and define ฀ A common approach to solution taxonomy
specific solutions to allow for a common and definitions and a tracking of solution
view across business units and credible sales from opportunity identification to
measurements delivery to compensation
0UJLU[P]LZ ฀ No effective means to measure and ฀ Process and tools to capture and report
compensate on solution revenue and profit solutions revenue and profit as well as place
solution sellers on leveraged sales plans
4HUHNLTLU[ ฀ Ineffective solution sales pipeline ฀ A defined solution sales management system
management due to brand and geo-centric including roles and responsibilities, cadence
sales model and reports
Established Rigorous On-Going Solutions Development Process
IBM’s fundamental belief is that ideas for solutions come from clients and
customer needs. Consequently, the decision of whether to use an existing
solution or approach the Board with a new idea resides with the client-facing
teams. Typically, the client teams first check the solution asset repository for any
existing solutions that can be modified to suit the required purpose. If this search
is unsuccessful and the Board recognizes the potential value in developing
a new solution, it will provide funding to the project team to move forward.
Preferential approval is given to developing solutions that meet an existing client’s
requirements. Once the solution is developed and piloted, it is handed over to
one of the Global Delivery Centers (GDCs), which focus on managing these
solutions. GDCs manage proposal templates, work products and deliverables in
an asset repository for use by other client teams with similar problems for which
the solution could be leveraged and customized (see Figure 3).

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Figure 3: Solution Development Process
Focused on Results
Clients have responded well to IBM’s solutions offerings and IBM continues to
invest in new and innovative solutions. Clients increasingly understand the value
of total solutions across their business, especially in core processes. IBM has
grown the solutions business to over $14 billion in revenue at approximately 12%
annual growth, and has been able to capture increasing margins. IBM’s results
over the past several years demonstrate success in increasing transaction size
as well as gross margins. Solution assets are now being refined and more tightly
integrated into software frameworks to “assetize” these solutions and enable
IBM to deliver additional value to clients by providing codified or semi-custom
modules.

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Time Spent on Solutions Definition Was Valuable
Prior to this transformation, each brand and geography had a distinct set of
solutions. There was no consistent definition of solutions or what comprised a
solution. An inventory identified over thirteen hundred solutions at one point,
many of which were duplicates, with different names in different geographies,
or different solutions for similar business issues. It was critical to rationalize the
solutions portfolio and focus on a consolidated set that would be managed at a
cross business unit level. This meant discontinuing many solutions and routing
funding to the selected few.
Focusing on the ‘Front-End’ Enabled an Accelerated Launch
Two approaches were considered to enable IBM to bring these solutions to
market. The first was to develop and implement the complete organization,
processes and infrastructure to support solution sales, and the second was
to focus on establishing a solutions pipeline and develop the necessary
organization, processes and infrastructure to support it. To accelerate the launch
of IBM’s solutions, the second approach was adopted. Skilled sales resources
were identified and deployed in the field to start building relationships with
customers and developing sales leads. These resources were provided with
professional development support to hone their solution selling skills, and as they
began to develop the solution sales pipeline, the processes and infrastructure to
support them were put in place. This reduced IBM’s time to market and ensured
that a viable market existed before investing substantial resources.
Integrating Processes and Metrics throughout the Organization was Critical
To enable the continued success of the existing products and services business
model, existing metrics were maintained for brand sellers. New metrics were
developed for account teams and solution sellers charged with creating
solution-based value for clients. Prior to these new metrics being developed,
solution sales activities had been observed but they had not yielded the
expected returns. Once the solution metrics were developed, it was necessary
to implement processes to support tracking and visibility. Without this visibility,
brand executives, who were funding solutions, were simply left to guess the
return on much of their solutions investment. Creating a cross-LOB dashboard to
track actual sales and margin contribution of solutions opportunities and paying
bonuses to sales teams accordingly, proved to be challenging as legacy systems
and processes had to be preserved alongside the processes and systems to
support the new model.

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Balancing Scale vs. Customized Fit Proved Challenging – Leading to Larger
Account Focus
Solutions by definition are a hybrid of products and services; less standardized
than products, and less customized than services. The challenge is to leverage
a collection of assets and customize them to meet customers’ unique needs.
Building solution scale means keeping customization to a minimum while
ensuring delivery of maximum value. Achieving this balance requires establishing
strict disciplines around codifying assets and focusing only on targeted
customers and business/technology issues. The initial focus of both large and
medium customers proved too broad. Eventually large enterprises and accounts
with buying behaviors indicating their preference to purchase solutions were
targeted.
Realization of Higher Margins Required Focus
Robust and consistent techniques for valuing Intellectual Property (IP), especially
the aspect which brought all solution components together, were lacking. To
resolve this issue, solution teams required education on pricing models for assets
and IP in order to capture value delivered and drive margin improvements.
Without a strong focus on pricing (and education, if required), there is risk of a
solutions bundle returning less than the sum of its parts.

13. © Copyright IBM Corporation 2009
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April 2009
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About the Author is available on the Web at “Copyright and
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copytrade.shtml.
Anees Gopalani, an IBM Global Business Services Associate Partner,
is the Services and Solutions Leader for the Strategy Change
practice. He consults to Fortune 500 companies in the electronics and
general manufacturing industries on growth strategies and business
transformation. Anees can be reached at anees@us.ibm.com
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