Finance Transformation & IT FEI Summit

Carlos Passi Asst Controller, Business Transformation Finance Transformation & ITFEI Summit

Agenda • IBM Finance Transformation • Leveraging Technologies & Tools • Global Integration • Risk Management • Business Analytics • IT Infrastructure (Virtualization & Cloud) • Evolution of IBM Finance

‘94 ‘96 ‘98 ‘00 ‘02 ‘04 ‘06 ‘08 (1)Finance E/R Goal <1% The Journey… Over the past decade, Finance has leveraged new IT technologies to transform the organization, driving simplification, productivity& effectiveness. (1)Finance E/R 1.4% • Country focused • High labor count • Disparate systems • Administrative focus • Conducted Hackett benchmarking study – Finance E/R 2x competition • Created Global Finance Process Owners • Focus on core accounting transaction systems (Transaction foundation) • Implemented common processes (WWCOA) & global systems • Global Centers of Excellence: Planning / Financial systems / Acct / Treasury • WW Finance transformation in Planning, Services, Cash Management, Tax, Business Controls, A/R, Capital Tracking, Access Management • Cognos BI & Planning Systems • Horizontal integration of processes (SAP Assets, Payables, Procurement) • Improve collaboration/access for internal customers (ODW) • Focus on core competencies / Outsource transaction processes (BTO AP/FA) • Ubiquitous self service access to financial information (Portal, FIUI) • Undertook several enterprise initiatives: Y2K / Euro conversion / VM migration / Web exploitation • Focus on reduction of WW application portfolio (theoretical minimum) • Conducted second Hackett study to reset benchmarks (1)Finance E/R 1.5% Access | Integration | Innovation (1)Finance E/R <2% Effectiveness (1)Finance E/R >3% 1 Cost of Finance as a % of Revenue Efficiency Characteristics (Starting Points) Characteristics (Best of Breed) High Cost & Disjointed Low Cost & Integrated PEOPLE (ORG)Unit, Application & Geo SpecificSlow & Task FocusedCountry Centric & Isolated PEOPLE (ORG)Global CoE’s / OutsourceAgile & Value FocusedProductive & Collaborative PROCESSComplex & DisparateLocal InitiativesTransactional / Reporting PROCESSSimplified & StandardizedEnterprise/Horiz InitiativesDecision Support / Analysis TECHNOLOGYOpen & Standard / SOAOnDemand / Self-ServeSmall StrategicPortfolio TECHNOLOGYLegacy / InterfacedProprietary / Monolithic Disintegrated Portfolio Continuous progress marked with significant milestones

The Stack… Single World Wide Consolidation System, Cognos BI Tools, CFO Portal Consolidation, Reporting & Analysis Data Standards (WWCOA), Currency, Product Maps Decision Support Common World Wide Planning System, Consolidated & Geographic Finance Information Warehouses Financial Enrichment Layer Financial Warehousing, Planning APPLICATIONS / SOLUTIONS P R O C E S S L A Y E R S Common Ledger, F/A, A/P, A/R, Interco (WW Run-Once Solutions) Finance Transaction Layer Ledger, Fixed Assets, A/R, A/P, Intercompany, Pricing, Costing, Treasury Finance as a Service (SOA) e.g. SABRIX, WWPRT Enterprise Layer Enterprise business transaction applications and corporate data facilities

Our processes and information technology are centered around trusted sources of data Executive Dashboard FIUI CFO Portal WebServer EDGE APEX Accounting Consolidation FIW-C CORPORATE Lotus Notes Databases Actuals EMEA STRATEGIC OPERATIONAL SYSTEMS AP JAPAN Americas FIW-MC E/ME/A FIW-MC AP FIW-MC NA/LA Lotus Notes Databases LEDGER LEDGER LEDGER

INCREASE VALUE MANAGE RISK REDUCE COST Finance leverages and exploits new technologies to drive value, manage risk and reduce cost Blue Harmony • COGNOS Integration • Research (STAR) Business Analytics Global Integration & Consolidation New Technologies & Tools IT Infrastructure Risk Management Continuous Control Monitoring (CCM) • Virtualization • Cloud Computing

Blue Harmony (Enterprise Transformation Initiative) Implementing common SAP platform across 3 major processes Potential Benefits for IBM • Productivity efficiencies from FIN, OTC and OTO • Enhance solution selling capabilities, improved customer satisfaction and retention • Improve DSO and other capital measures • Simplify IBM’s Applications landscape by retiring ~1000-systems Blue Harmony enables IBM’s GIE strategy as it simplifies operations in 3 major processes and helps to reach earning-per-share targets • Leverage global resources through common processes • Adopt standards for seamless intra and inter-organization operation • Provide adequate control through compliance and governance • Better information • Better decisions • Better executions • Improve productivity and efficiency to expand margin and grow EPS

CCM (Continuous Control Monitoring)Managing risks in key business processes • Uses IBM Complex Event Processing (CEP) technology to extract information from internal business applications and analyze the data against predefined criteria • Monitors high risk transactions in key business processes that are administered in an automated environment to deter and detect circumvention of controls • Current implementations & sampling of rules include: • Accounts Receivable (WW focus, 37 countries, 48 rules) • Customer / Enterprise concessions exceeding a country limit and/or customer credit rating • Deviated Refunds (sent to IB address or changed customer address) • Invoices for low credit rated customers • Aged (30+ days) collection activity that is not documented for large valued invoices • Business Partners (6 countries and 67 rules) • Multiple/excessive discounts applied to same BP • Processed payment doesn’t match approved disbursement amount • Purchase returned but credit not applied timely • General Procurement (1 country and 5 rules) • Orders open for 180 days without activity • Adherence to required to vendor source selection and fair value (SS/FV) analysis Screen Shot from CCM (Activity Alert):

Integration COGNOS IntegrationIncreasing the value of finance through business analytics FMS (Field Management System) Commissions • One of IBM’s largest suite of applications supporting the incentives process • Allow sellers to track quota attainment and perform sales reporting at a customer level • FMS enables the implementation of key business strategies: • 30 days to pay; Monthly commission payments • Ledger-based measurements • Line-of-sight measurements for employees • Increased incentive value to employee • Timely management information to executive team • Improved discipline and controls in the process • Reduced resource stacking; Reduced manual workload • Leverage Cognos products to solution new business requirements; and opportunities to transform and simplify processes. • Potential to fundamentally change how IBM Finance will support the business and add greater value. WW Spending Harmonization • Drives WW standardization of spending analysis and reporting • Replaces multiple local spending Apex cubes with one common WW cube using Cognos TM1 platform • Potential benefits to IBM: • Better control of spending and quicker decision making • Support career growth for finance professionals • Common source of information for better business controls and simplified access control

Firm LOAD- ONLY PILLAR LOAD-ONLY PILLAR LEADS-ONLY PILLAR LEADS-AND-LOAD PILLAR STAR (Statistical Tracking & Assessment of Revenue)Consistent metric-driven model for performance estimation METHODOLOGY STAR Model: • Consistent metric-based method (statistical model based on historical data) • Link tracking measures to performance • Accurate in early weeks, low volatility over weeks • Re-focus human effort from estimating outcomes to decision-support activities Opportunity data from EIW(i.e., Siebel) Each opportunity detail is modeled Revenue data to calibrate parameters Quarterly transactional revenue Load data Provides value of closed deals ready to ship Compute Probability of Winning and Expected Yield of each opportunity using detailed EIW data Orders Predict, based on history, the Future Yield due to opportunities not yet in the pipeline wk1 wk2 wk3 wk4 wk5 wk6 Today wk 13 End of Quarter Assessment Precision Comparison WEEKLY PILLAR WEIGHTING MODEL Computes historically optimal weights for each pillar, by week, geo/region, and brand Developed by IBM Research FINAL OPTIMIZED ASSESSMENT an optimal weighted average of the four pillars for each geo/region, and brand

Today, Finance IT activities align with the Dynamic Infrastructure and makes use of virtual hosting Evolution of IT Infrastructure – IT Simplification • Key Technologies (unordered) • Service oriented architecture • End-to-end service mgmt • Comprehensive virtualization • Ensembles & scalable servers • Converged networks • Cloud computing services • Top IT Requirements (all are vital) • Agility – rapid deployment, self-service, … • Resiliency – availability, disaster recovery, … • Security – trusted computing, surveillance, … • Greenness – energy efficiency, low impact, … • Low Cost – TCO (HW, SW, labor,facilities,…) • Software as a service • Information as a service • IT appliances • Real-time data streams • Mobile client services • Virtual worlds

Substantial savings: energy, software and system support costs zLinux target: 80% energy, 85% floor space Inventory hygiene, including application to server mapping Dramatically faster provisioning Improved security and resiliency Quality – simple, stable, available Decision-Making: Integrating Enterprise and business unit view Mindset/culture of distributed vs. mainframe Workload selection -- multidimensional nature Incomplete/dated inventory records Detailed date for internal business case Integrating project/ program priorities Virtualization benefits are significant Large Scale Migration Challenges Expected Benefits of Virtualization Next Steps: Evolution of business intelligence to Cloud Computing

Delivering Business Intelligence through Cloud Computing WHAT IS CLOUD COMPUTING? WHAT WILL THIS BRING? • Saves $23M over 5 years(on System z Linux) • Infrastructure savings – provisioning a common service • Operations expense – reducing BI infrastructure • Talent restructuring – common BI tooling landscape • Supports a massive install base of +200K knowledge workers • Provides delivery of a widely used, common service within the IBM enterprise • Centralizes the delivery of BI services using economy of scale to deliver value to all adopters, regardless of size • Enables faster time to value for adopters and allows users to consume services at a rate and pace to match their investment • Creates a standard BI process that prevents an infrastructure build per project investment Cloud computing provides dynamically scalable and virtualizedcomputing resources as a self service. Tenants can subscribe to this service focusing on capability instead of infrastructure. Infrastructure and capabilities are standardized and provisioned through automation. Business model allows tenants to pay for usage, fixed cost vs variable cost

Overview for a private Business Intelligence (BI)Cloud offering • In 1Q09, the 3rd most popular search term on Gartner.com was business intelligence • Despite the difficult economic conditions, in 2008 the growth in BI platform sales was at 20% • Strategy is a tops down approach that starts with business services to capture tactical ROI and market interest: • Leverage existing GA products & services to jumpstart sales for private clouds • Use the CIO account to drive product requirements and a marketing showcase • Consolidate and virtualize BI silos across an enterprise for large cost savings/avoidance • Grow cloud at the rate and pace of the market …while offering a stake in the ground for expansion into clod delivered data centric consolidation and cloud services. The vision Business intelligence Master data management / integration Content / data management 14

Transformation Roadmap for BI Cloud The BICC is the underlying foundation for the entire transformation in IBM ‚ Phase 3: > 12mo Phase 1: 3 - 6 mo Phase 2: 6mo - 12mo Expansion into data • ETL services • Offering data warehouse services • Semi-structured / unstructured data access • Evolution into IMCC platform offerings Expand the Cloud • Create a standard services catalog • Automate the boarding process • Provide auditing • Automate billing and rating capability • Integration w/CHQ cloud transformation team • Notes integration pilot* Bring Cloud to the User • Consolidate & centralize BI • Leverage data as-is • Standardize boarding processes & services • Identify the processes for automation • Identify services for catalog Boarding schedule for IBM tenants Target is 120,000 IBM tenants by 1H2010

Business Analytics Global Integration Risk Management Infrastructure • COGNOS • STAR model • Blue Harmony • Continous Control Monitoring • Virtualization • Cloud Computing The evolution of Finance at IBM • Process Outsourcing /Global COEs • Technology Exploitation • Rationalized ERP • Information On Demand <1% • Shared Services • Web Enablement • Core Competency • Decision Support Effectiveness Globalization • Standard / Common Process • Automation • Functional Best Practices • Financial Reporting <2% Enterprise Integration E/R >3% Basics 1994 1998 2002

Finance Transformation in IBM – The Journey • Transformation has been an Evolutionary process… • Moving from a Country Based Model to a Global model • Standardizing Data and Systems • Reengineering Common Global Processes • Implementing and Promoting Self-Service • Consolidating Core Functions into Shared Services • Globalizing Centers of Excellence It is Hard…

passi@us.ibm.com

Finance Transformation & IT FEI Summit