IBM 2012 Annual Report Download - page 24

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Management Discussion
International Business Machines Corporation and Subsidiary Companies
The business model is resilient, adapting to the continuously
changing market and economic environment. The company con-
tinues to divest certain businesses and strengthen its position
through strategic organic investments and acquisitions in higher-
value segments like business analytics, Smarter Planet and cloud
computing. In addition, the company has transformed itself into a
globally integrated enterprise which has improved overall productivity
and is driving investment and expanding participation in the world’s
fastest growing markets.
This business model, supported by the company’s financial
model, has enabled the company to deliver strong earnings, cash
flows and returns to shareholders over the long term.
Business Segments and Capabilities
The company’s major operations consists of five business seg-
ments: Global Tech nology Services and Global Business Services,
which the company collectively calls Global Services, Soft ware,
Systems and Technology and Global Finan cing.
Global Services is a critical component of the company’s strategy
of providing IT infrastructure and business insight and solutions to
clients. While solutions often include industry-leading IBM software
and systems, other suppliers’ products are also used if a client solu-
tion requires it. Approximately 60 percent of external Global Services
segment revenue is annuity based, coming primarily from outsourcing
and maintenance arrangements. The Global Services backlog
provides a solid revenue base entering each year. Within Global
Services, there are two reportable segments: Global Tech nology
Services and Global Business Services.
Global Technology Services (GTS) primarily provides IT infra-
structure and business process services, creating business value
for clients through unique technology and IP integrated services within
its global delivery model. By leveraging insights and experience drawn
from IBM’s global scale, skills and technology, with applied innova-
tion from IBM Research, clients gain access to leading-edge,
high-quality services with improved productivity, flexibility, cost
and outcomes.
GTS Capabilities
Strategic Outsourcing Services: delivers comprehensive IT out-
sourcing services dedicated to transforming clients’ existing
infrastructures to consistently deliver improved quality, flexibility, risk
management and financial value. The company integrates long-
standing expertise in service management and technology with the
ability to exploit the power of new technologies from IBM systems
and software, such as cloud computing, analytics and virtualization,
to deliver high performance, innovation and improved ability to
achieve business objectives.
Global Process Services: delivers a range of offerings consisting of
standardized through transformational solutions including process-
ing platforms and business process outsourcing. These services
deliver improved business results to clients through the strategic
change and/or operation of the client’s business processes, applica-
tions and infrastructure.
Integrated Technology Services: delivers a portfolio of project-
based and managed services that enable clients to transform and
optimize their IT environments by driving efficiency, flexibility and
productivity, while reducing costs. The standardized portfolio is
built around key assets and patented software, and incorporates
best practices and proven methodologies that ensure predictive
quality of delivery, security and compliance.
Technology Support Services: delivers a complete line of support
services from product maintenance through solution support to
maintain and improve the availability of clients’ IT infrastructures.
Global Business Services (GBS) has the mission to deliver pre-
dictable business outcomes to the company’s clients across two
primary business areas: Consulting and Application Management
Services. These professional services deliver business value and
innovation to clients through solutions which leverage industry and
business process expertise. The role of GBS is to drive initiatives
that integrate IBM content and solutions and drive the progress of
the company’s four primary growth initiatives.
As clients transform themselves in response to market trends
like Big Data, social and mobile computing, GBS is aligning its exper-
tise and capabilities to address two interdependent categories of
opportunity: Front Office Digitization, which describes the markets
forming around new models of engagement with all audiences; and
the Globally Integrated Enterprise, which describes the mandate to
integrate data and processes in support of the new front-office pro-
grams, and build far more flexible information applications.
GBS Capabilities
Consulting: delivering client value with solutions in Strategy and
Transformation; Application Innovation Services; Enterprise Applica-
tions and Smarter Analytics. Consulting is also focused on bringing
to market client solutions that drive Front Office Digitization in
Smarter Commerce, Cloud, Mobile and Social Business.
Application Management Services: application management, main-
tenance and support services for packaged software, as well as
custom and legacy applications. Value is delivered through advanced
capabilities in areas such as application testing and modernization,
cloud application services, the company’s highly differentiated glob-
ally integrated capability model, industry knowledge and the
standardization and automation of application management.
Software consists primarily of middleware and operating systems
software. Middleware software enables clients to integrate systems,
processes and applications across a standard software platform to
improve their business results, solve critical problems and gain com-
petitive advantage within their industries. IBM middleware is
designed on open standards, making it easier to integrate disparate
business applications, developed by different methods and imple-
mented at different times. Operating systems are the software
engines that run computers. Approximately two-thirds of external
Software segment revenue is annuity based, coming from recurring
license charges and ongoing post-contract support. The remaining
one-third relates to one-time charge (OTC) arrangements in which
clients pay one, up-front payment for a perpetual license. Typically,
the sale of OTC software includes one year of post-contract sup-
port. Clients can also purchase ongoing post-contract support after
the first year, which includes unspecified product upgrades and
technical support.