IBM Managed Services Overview Nashville

© 2009 IBM Corporation

Nashville Virtual Trade Mission –Smarter Sourcing

Impacting the bottom-lineA discussion around a transformation framework leveraging the value of IBM Services

© Copyright IBM Corporation 2009

Nashville Virtual Trade Mission–Smarter Sourcing

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Payers and Providers are focused on managing cost and operational efficiency while being responsive to an demanding/competitive consumer marketplace

Business Imperatives

Transformational Business Processing

Aligning IT with Business

Modernizing Core Systems & Processes

Infrastructure Consolidation/ Virtualization

Resiliency

Medical Costs

Healthcare Competitive Levers

Disease Health & Wellness Management

Consumerism

Pay for Performance

Mergers & Acquisitions

Reduce Admin Costs & Improve Efficiency

Grow the Business

Provider Collaboration



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CEO Business Model Question: How will I compete in the marketplace? What are my differentiating capabilities? What processes should I own?

Source: IBM Institute for Business Value based on McKinsey analysis Source: The Global CEO Survey 2006 (Sample size = 765)

Sourcing frees up resources and lower cost of non-differentiated activities

Sourcing enables innovation & transformation to enhance differentiation

10%

20%

30%

40%

50%

0%Underperformers Outperformers

Quantity of New Ideas from External Sources

% o

f re

spo

nd

en

ts

Outperformers source 30% more ideas from external

sources

0%

Sp

end

ing

as

per

cen

tag

e o

f sa

les

23–27%

Product or service

building blocks

32–47%

Critical yet non-differentiated

business processes and

components

Differentiated business

processes and components

13–28%EBITDA

5–10%Prototypical company

Sourcing funds innovative changes

Sourcing: Leveraging Partners in Strategic Ways to Drive Higher Priorities, Gain Access to Skills, and Free Up Monies to Invest in Growth



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A high-level framework for identifying opportunities for cost savings and operational improvements using outcomes based sourcing

Sub-optimal Industry Standard

Commodity

Differentiator

Strategic CriticalityMeasures a process or component’s level

of importance in terms of adding value to a

firms competitiveness.

Optim

ized

Develop/ Keep In House

Sourcing Candidate

Tra

nsfo

rmat

ion

Partnering Candidates

Investment Candidates

Critical yet non-differentiating(commodity)

Unique and Differentiating(proprietary) OptimalSub-Optimal

Business Component PerformanceMeasures how well a component functions

vs. other competitors



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IBM is a Services Led Company: IBM delivers the “full equation” by aligning business needs with enabling technologies

Upgrades, user supportNetwork operations center

help desk

Application development,migration, maintenance

Applications

System support

Telecom operations

Hardware operations

Desktop support

Infrastructure

Support processes

Operational processes

Managementprocesses

Business transform

ation

Infrastructure management Data center e-business hosting Network management Desktop management

Business transformation services Claims processing Human resources Finance and administration Procurement Customer relationship management

Application services Package Custom Web-based Development Maintenance

Business solutions Application innovation Business intelligence Customer relationship management Financial management Industry-specific solutions Secure identity solutions Human capital management Supply chain management

Server Migration Services

Storage Migration Services

Proof-of-Concept Centers

IBM Innovation Centers

Middleware Development

SOA

Technology enablers

IBM Global Services contribution to IBM total revenue

IGS 55%

Midrange Servers

6%

9%

2%6% 1%

76%

IBM

SUN

HP

COMPAQ

DELL

OTHER

%

Multi-Vendor Technology Profile

Data Centers 423

Mainframes 1,286

MIPS 1,110,289

Storage (TBs) 11,205

Mid Range Servers 206,641

End User Seats Supported 3,808,000

Skills 84,628

Global Infrastructure Statistics

Services is a significant contributor of value to our clients, and is a key growth area for IBM

Services Revenue is Significant to IBM



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IBM's global sourcing footprint is unmatched

Mexico

Costa Rica

Peru

Venezuela

Canada

United States

Legend

Application Services

Business Process Outsourcing

Remote Infrastructure Management

Argentina

Brazil

Romania

Okinawa

India

China

Czech Rep.

Hungary

Australia

Philippines

New Zealand

Spain

UK

Poland

Slovakia

France

South Africa

Ireland

Portugal

Vietnam

Work flows to the places where it will be done best – that is, most efficiently and with the highest quality. It’s like water finding its own level. The forces driving it are irresistible. The genie's out of the bottle, and there's no stopping

it. It's only going to evolve from this point forward. -- Sam Palmisano, Oct 3, 2006, ISEAD Global Leaders Series



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Examples of Outcome Based IT Outsourcing Engagements & Business Value

Data Center Outsourcing

15-Year IBM outsourcing client, contract extension recently signed

Expected savings of 33% over life of extensionFocus on new business opportunities Improved market visibility and competitivenessIncreased systems availabilityMinimized maintenance of existing processes

eBusiness Hosting

Speed to market: 6 weeks vs/ 6 months

Dynamically manage costs to growth as business expands

Quickly meet HIPPA/CMS security requirements

Quick access to skills not readily available

Access to leading technical capability: IBM Partnership

Top 15 BCBS PayerTop 10 BCBS Payer

BCBS Claims Processor

Data Center Outsourcing/End User ServicesEnabled more responsive capability developmentImproved customer serviceImproved service levels Consistent system availabilityImproved system response timeHeightened operational efficienciesDelivered expected customer savings

Comprehensive IT Outsourcing AgreementSaving $100M over 5 year termSignificantly improved PMPM costs

Labor, Hardware and Cost AvoidanceFlexible, responsive and resilient infrastructure that

increases business effectiveness and improves customer satisfaction while decreasing risk

Data Center Move to Hardened FacilityImproved visibility and competitiveness in the

marketplaceMet efficiency expectations of financial markets

Top 10 For Profit Payer



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Examples of Outcome Based Busines Process Outsourcing Engagements & Business Value

Hardcopy Claims Processing Business Value:Savings estimated $4M+Consistently exceeding 99% data qualityProcessing 6,341,000+ hardcopy claims/yearImplementation of Six Sigma quality effortsOptimized existing processesIntroduction of technology improving accuracy

Claims Pend Processing:$80M of annualized savings through:

• Accuracy Improvement• Labor Savings

$3M savings in productivity improvement of 15%/3 YearsProcessing Accuracy 99.75%+, TAT reduction by 48%Out-performed onsite contact over 14%Increased Productivity 80% from 140 to 240 Claims/day

Enrollment Processing: $1M of annualized savings $300K savings in 12-15% productivity gains/3

years Improvement in Accuracy TAT reduction by 50% and errors by 35%. Robust, real-time and flexible reporting Sales team focuses on core responsibility. Stable workflow environment supports high

compliance

Claims Finalization-Other Payment Liability Processing:Over $4M of estimated annualized savings through:

Accuracy Improvement Process improvement Labor Savings

Lowering cost while improving service levels.Reinvesting savings for customer facing growth activities

Payer

Top 5 Payer Top BCBS Payer

Top 5 BCBS Payer



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Examples of Outcome Based Application Management Services Engagements & Business Value

Core Systems ModernizationProjected savings over 5 years up to $61M.Flexible, responsive infrastructure to increase business

effectiveness improve customer satisfaction.Faster response to market changes and customers.Major savings payback in health management costs.Ability to release and support new products in less time.

Application Management ServicesNew contract saves $20M/year, provides usage

based pricing5X improvement in product launches in 5 yearsIncrease in application availability to 99.8%Reduction in reported problems by 80%Access to broad skill base within IBMLeverage synergies of AMS staff & IBM Experts

to deploy new technologies

Applications Development and Maintenance:Implemented CMMI V 1.2Six Sigma Reduction of Post Production Defects to 3.6Saving of 2K hours every year by Reduced Turnaround TimeTicket Backlog Reduced in 60% Year 1Leveraged Tools Reduced Reengineering Effort by 75%Implemented Single Project Management Tool

Core Systems Modernization: Legacy Systems Maintenance

Cost of IT support and maintenance reduced by 30-40%.

4 improvement projects implemented each month; 30% for users, 45% for IT labor reduction, 25% for system efficiency.

IT labor reduction projects: permanent reduction of 300 labor hours/month achieved in each of 2 years.

Top 10 BCBS Payer

Top BCBS PayerTop 10 BCBS Payer

Top 5 Payer

© 2009 IBM Corporation

Nashville Virtual Trade Mission –Smarter Sourcing

Smarter sourcing- combining process-based effectiveness with the ability to leverage wage arbitrage selectively to yield better results at lower costs.

May 2009



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Client needs and global labor supply, coupled with technology and macro- economic trends are driving the evolution of a Globally Integrated Enterprise Model

Technology: Internet and wireless comms. Open standards - shared IP …enables global componentization

Macro Economic Trends: The rise of Emerging markets…GDP

growth of 6.5% 2X of developed mkts

Emergence of a “developing country” middle class

Global trade and mobility

Client Needs: Grow markets, cross border M&A Reduce cost Diversify sourcing strategy - multi-

country Reduce number of vendors

Global Labor Supply Emerging economies provide low-cost

high-quality talent War for Talent Increase Talent expertise

“The new business models are based on integration, cooperation and an exchange of resources – and above all the new business model is focused on the requirements of the global client.” Oswald Grubel, CEO, Credit Suisse Group

Clients Needs

Global Labor Supply & Expertise Globally Integrated

Enterprise

+

Technology

Macro-Economic Trends

=

Globally Integrated Enterprise Global talent pool and specialization Diversified supply base Global centers of excellence Flexible sourcing capabilities Global resource optimization Streamlined infrastructure Internal & external collaboration Seamless integration



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Why Smarter Sourcing Now?

Outsourcing for less expensive labor alone does not provide enough value in today’s demanding economy

– IT cost ratio for India vs. the U.S., used to be 5-to-1; it is now just 2-to-1 or 3-to-1, and it continues to decline1

Companies must go beyond traditional outsourcing and wage arbitrage

Companies need to establish a more strategic or smarter sourcing approach

– Strategic partnership with vendor

– Target process improvements

– Yields improvements in quality and cycle time 1 Organizational Effectiveness, Mark A. Thompson, Dean, Quinnipiac University School of Business, Fall 2007



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Smarter Sourcing Benefits

Offers measurable benefits in three key areas

– Cost, quality, and cycle time

Provides insight into progress, status, and risks of in-flight projects

Bridges inherent global communication, cultural and process gaps

Leverages vendor’s leading-edge development practices within client organization

Ensures more effective knowledge transfer from sourcing partner to the organization



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Staffing “Pyramid” Optimization

Process Improvements

Global Development Plan

Helping our clients “do something better, more efficiently, more productively.”

Smarter Sourcing Approach

Smarter sourcing combines process-based effectiveness with the ability to leverage wage arbitrage selectively to yield better results at lower costs.



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GBS has implemented and is expanding its Globally Integrated Capability Model

Third GenerationGlobally Integrated Delivery

Network 2008-2009

Fourth GenerationGlobally Integrated Capability Model

2009-2011Integration across our GBS network

Cost competitiveness + Low Cost Labor

Integration across GDC network

Emergence of regional delivery centers

Common Process, Methods and Tools for seamless integration

Specialized domain and industry skills; global centers of excellence

Higher IP content

Planned geo work shift

Globally Recognized: Recognized by clients and competitors for insights and capabilities in the industry Attract best candidates externally and internally

World Class Capabilities: Provide clients with access to expertise, assets and delivery

capabilities in critical industry solutions Deployed in roles in sales, solutioning, service delivery and asset

harvesting/development for the industry

Globally Deployable: Resources are globally deployable with aligned performance

metrics Plays a critical role in the rapid expansion in the Growth Markets

The Best of IBM: Integrates GBS Service Line insights and capabilities into the

industry solutions Collaborates across IBM (e.g., S&D, SWG, IBM Research, GTS)

in the development and enhancement of differentiated propositions and solutions

Hub for Capability Network:: “Nerve center” for industry and domain capability networks across GBS

based in GD Links community of practitioners along industry, solution, service line and

ISV dimensions Bulk of resources co-located with delivery teams for several major client

engagements Closely integrated with GBS industry teams in the IOTs as well as with GD

Expertise and Quality: “Best of IBM” across the service lifecycle

Value: Business outcomes aligned to strategic objectives at a competitive price

Speed of Response: Seamless and timely access to resources and assets

Ease of Doing Business: Consistent & seamless relationship with IBM

Client Benefits

1



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Faster. Local. More flexible.

Because we can.Because we must.

Because we want to.

…and we Close the Loop on Globalization…leveraging the best of offshore back to our shores

Bringing the best of breed of global experience, tools, methods and processes locally completes the ‘loop’ of globalization