Cross-training, identifying needed skills and boosting interdepartmental cooperation are key to IBM’s responsive business strategy.
hris Behonick had been in the same job at IBM for more than seven
years. As a member of the services support center, he came in every
day and supplied price quotes to various clients of IBM’s Global
Services business. He worked with the same clients on the same types
of transactions. Understandably, he was ready for a new challenge.
Behonick occasionally looked for another job,
but not aggressively. That’s why he was so surprised when his manager
approached him late last year about an opening in a different IBM
business unit as a relationship manager for IBM’s telecommunications
clients. He would be able to work with different types of suppliers
and clients.
Within a week, Behonick had started at the new
job, but was still available to train his replacement.
After three months, he says there is still a lot
to learn, but he is grateful for the opportunity. "You can’t grow if
you stand still," he says.
Behonick’s move, and the reasons behind it, are
an example of how IBM is instituting its well-advertised "on demand"
business strategy within its own ranks. The plan also illustrates a
crossroads that many businesses face: Will they respond to a changing
business environment by fundamentally transforming themselves, or will
they just do what they’ve always done but at a faster clip? IBM chief
executive Sam Palmisano is opting for transformation.
He first used "on demand" to describe the
company’s future at a 2002 meeting of IBM clients. Palmisano talked
about how the company had to become a business that could immediately
respond to its customers’ needs and help them do the same for their
clients.
During his speech, which was webcast nationwide
to IBM employees, Palmisano pointed to the banking industry as an area
in need of this kind of transformation. Banks, he said, have a huge
array of information about their customers, but it is all separated
into silos.
If they could integrate their business process
and technology so that a mortgage processor could view the customer’s
entire financial picture, loan applications could be processed online
within minutes and costs could be halved by reducing the use of paper.
While it all sounded nice in theory, Ted Hoff,
IBM’s vice president of learning, remembers wondering at the time
whether this was "a warmed-up version of e-business." Over the next
few months, Palmisano held a series of internal meetings to explain
his idea, and it became clear that what Palmisano had in mind was not
1990s e-hype.
And to convince customers that IBM could
transform their businesses, the company would have to transform
itself, says Donna Riley, vice president of talent.
Changing times
For a company as big as IBM, becoming more flexible
is no small task. But in an environment where clients want services
immediately, companies must adapt, says Susan Wehrley, president of
Susan K. Wehrley & Associates, a consultancy in Brookfield, Wisconsin,
that specializes in workforce planning.
Many firms are responding to this need for
faster services by adopting new technology. Instead, says Frank
Gillett, principal analyst at Forrester Research, companies first
should identify how their industry is changing, then figure out how
their workforce has to transform to accommodate the change.
In 2002, the stakes were high for IBM. Not only
would it have to act as a role model for the "on demand" concept, it
would have to convince potential clients that its technologies would
actually make their businesses more successful.
"In 2002, we were deep in a recession in the IT
business, and customers just weren’t going to buy technology for
technology’s sake," says Pierre Fricke, vice president of applications
and integration infrastructure at Ideas International, a Port Chester,
New York-based research firm. To be a technology leader, IBM had to
give its clients a reason to care about technology again.
The company has allotted a $700 million annual
budget to revamp its workforce capabilities. Of that, it allocated $40
million to training its 10,000 executives and managers on the new
business model and how to implement it. The rest of the budget was
dedicated to training the lower-tier managers and rank-and-file
employees.
To be more flexible and responsive to clients’
demands, IBM had to create a system to quickly identify needed skills,
spot areas in which those skills were in short supply, and put the
right people into place to fill them. This would involve teaching
workers new skill sets and getting them to work with other divisions.
If there are always employees willing to take vacant positions within
the company, the delays associated with being short-staffed become a
nonissue.
The new structure also would reduce layoffs,
which are a waste of resources, Riley says.
"It is the smart business thing to do to let
employees grow rather than having to pay to replace them," she says.
IBM’s performance last year may be a sign that
its work has started to pay off. The company reported that net
earnings for 2004 increased 11 percent to $8.4 billion. During that
year, 56 percent of employees whose jobs were in danger of being
eliminated were retrained and given new positions, according to Hoff.
The company says it has reduced layoffs by half
from 2003, though it would not disclose actual numbers. Riley
estimates that has saved IBM "tens of millions of dollars" in the past
two years.
Focusing on the top
For the executive training, Riley first had to
figure out what kind of leadership skills managers would need.
Reassessing the goals of its top people was not a new concept for the
firm. In 1995, under former CEO Lou Gerstner, IBM was getting ready to
sell off various divisions as part of its turnaround strategy.
Gerstner, however, realized that if the company
put all its parts together, it could provide a service that its
competitors could not. He decided that a new type of leader would be
needed to help create a more integrated approach. He turned to the Hay
Group, a human resources consulting firm in Philadelphia, to conduct a
series of interviews with company executives to define what kind of
leaders it would need.
The Hay Group’s research indicated that an
effective leader would be a decisive straight talker, among other
things, says Mary Fontaine, vice president and general manager at the
Hay Group.
When IBM selected the Hay Group again in 2003,
Fontaine and her team found the need for a completely different skill
set. After conducting 31/2-hour interviews with 31 executives who were
handpicked by top management, the Hay Group identified 10 competencies
that a new executive at IBM needed.
These included the ability to think across the
organization and a knack for influencing people in other areas of the
company. To be a true on-demand provider, the heads of IBM’s various
business divisions would have to work more closely together than ever
before, Fontaine says. The old days of executives just taking
ownership over their own units were over.
Today about 10,000 IBM employees, including the
company’s top executives and those on the executive path, are assessed
annually on these 10 traits. Salaries and bonuses are based on
performance and results, but only those candidates who demonstrate
these qualities will be considered for promotion—a key incentive since
the majority of executives at IBM are promoted from within. In 2004,
only 60 of 5,000 of the top executives at IBM were hired from outside,
according to Hoff.
When Riley unveiled the new competencies to its
executives in 2004, she let them know they’d have a year before they
would be evaluated on them as part of their annual reviews.
The rank and file
IBM has changed the review process for
rank-and-file employees as well. In addition to a detailed development
plan employees devise for themselves, the company is offering online
courses on how the on-demand strategy can apply to different
industries.
Sales units that implemented these online
learning modules saw a 12 percent higher quota attainment in 2004 than
those that did not. IBM does not attribute that jump solely to the new
focus, but the improved performance does lend credibility to the use
of the modules, Hoff says.
The latest test of IBM’s strategy began last
month, when the company reported its first-quarter net income. It rose
3 percent to $1.4 billion, or 84 cents per share, from $1.36 billion,
or 79 cents per share a year ago, failing to meet analyst
expectations. As a result, the company says there may be layoffs in
Europe in the coming months. Whether IBM will be able to reduce some
of those layoffs as a result of its training initiatives remains to be
seen.
Analysts agree that the changes IBM is making
are good ones, but some remain skeptical about whether the company is
actually creating a business where employees and their talents are
instantly available to clients.
"All of these things prove that IBM understands
workforce management," says David Smith, an analyst at Gartner Group.
"Does it mean they are ‘on-demand?’ I think it depends on who you talk
to."
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