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Think (Again)

As IBM marks its centennial, its finance team plays a critical role in driving continuous transformation. CFO Mark Loughridge explains how, and why.

Aside from centralizing key functions, have you changed your global strategy in any other way?

Yes. In 2007 we switched from a system where we paired a major market with a growth market, such as Germany with Eastern Europe. Now we segment countries based on whether they are major markets or growth markets, and they run on different operating platforms accordingly. For example, in major markets we drive for productivity, whereas in emerging markets we drive for growth. So even in the recession we invested in growth markets at a rate about 10 points higher than in major markets. As a result, we’ve seen the revenue from growth markets grow from 12% of our business in 2003 to 21% last year, and we expect to approach 30% by 2015.

One interesting note is that while the overall growth rate in those markets has been very predictable, on a country-by-country basis it’s been very volatile. That really emphasizes the value of running back-office operations not within each country but in a [centralized] way. You don’t want finance trapped in a country that is up 30% one year, down 30% the next — you want it in a shell so it can apply its capabilities across all countries.

IBM’s performance over the past few years makes it appear almost unaffected by the recession, yet that can’t be the case.

A couple of things helped us. First, our roadmap told each unit what its commitment was through 2010, and each was expected to stay on that trajectory. We made it very, very clear that we weren’t coming off our numbers because of the recession. And second, the fact that a large part of our business is annuity-based reduces the impact of turbulent times.

What is the “roadmap” all about?

In 2007 we realized that, as a result of our transformation, investors weren’t sure how to model us, so we developed a roadmap explaining where we were going through 2010.

It began as a communications tool, a way to articulate both strategic and tactical goals so investors would have more clarity, but soon we were using it internally for all kinds of goal-setting, because it really helped us look well beyond the next quarter. It was very galvanizing, so as we reached the end of the period covered by that map, we developed a new one through 2015.

The first version was created top-down, but the one we’re operating under now was developed bottom-up. It’s a roll-up of the business plans of every unit, and I can go to managers anywhere in the world and ask them to tell me how they stand in relation to the roadmap and I’m sure they could all do it. It’s a different kind of collaboration between finance and operations, and it gets back to that co-pilot concept I mentioned earlier. We aren’t here to mark people’s papers. We’re here to be part of the team. We’re really against cost-cutting just to make it through a specific project or situation.

The current roadmap calls for $8 billion in savings between 2011 and 2015. To what degree does finance “own” that goal, or take front-line responsibility for driving it?

The power of the roadmap is that it is not simply a financial plan. It is owned by every leader in the business who is accountable for results, and that includes my team. It’s a bottom-up approach planned with, plumbed through, and executed at every level of the business.

What risks are most top-of-mind for you right now?

We see several tremendous opportunities in the marketplace: business analytics, cloud computing, Our Smarter Planet initiative [using data to drive actionable insights, particularly to solve large-scale problems], and emerging economies. For me, the biggest risk is missing one of those opportunities. That’s what has motivated us to continue to invest throughout the downturn and into the future.

Scott Leibs is editor-in-chief of CFO.

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