In 1999, IBM realized that it was killing off promising young projects to focus on the bottom line. Things have changed. From Building A Better Skunk Works:
Adkins was a guinea pig for developing what IBM calls ‘emerging-business opportunities,’ or EBOs. The mission is to find areas that are entirely new to IBM and can grow into profitable billion-dollar-plus businesses in five to seven years. So far the program has been an extraordinary success.
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Harreld, who runs the program, promised the board that EBOs alone would produce two percentage points of growth for IBM. Given Big Blue’s awesome size, that ain’t hay: It means about $2 billion of new revenue every year. The actual results have wildly surpassed all expectations. Since the program’s inception in 2000, IBM has launched 25 EBOs. Three failed and were closed down, but the remaining 22 now produce annual revenue of $15 billion, a figure that’s growing at more than 40% a year.But the impact reaches further than today’s results. These internal startups are beginning to influence IBM’s culture. “Through EBOs, IBM has become more of a learning organization,” says Caroline Kovac, who built a new $1 billion, 1,000-employee business in computing for “life sciences” clients, such as pharmaceutical and biotech companies. “We’ve become more willing to experiment, more willing to accept failure, learn from it, and move on. It’s more a part of our culture and our official processes. Now being an EBO leader is a really desirable job at IBM.” Harreld says he doesn’t even have to recruit EBO leaders anymore: “Today I have my peers coming to me and offering to run these.”
The executives put in charge of these emerging business opportunities need to shift to an entrepreneurial mindset:
At first, the process is confusing and difficult for the transplanted executive, who’s still stuck in the mind-set of running an established division. “It takes me and them four months at least to stop the crap,” Harreld explains. “In an established business it’s all about keeping things under control. These guys are so buttoned up. You bring them into a new business area, and it’s almost hilarious.” When Adkins embarked on his new venture, Harreld re-calls, he showed up at his first few monthly meetings insisting that there were no problems. “Rod came from a culture where the senior managers feel they’re expected to know all the answers to all the questions and deal with the issues themselves,” explains Gary Cohen, who helped Harreld run the EBO program from its inception until last year. “You understand a mature business because it has a level of predictability. But with an EBO, there’s a lot you don’t know, and you have to discover, learn, and adjust.”The second big cultural bump usually comes when EBO leaders try to empire-build, Harreld says. “Everyone tries to staff up because in a company like this, how do you measure stature? One, revenues. Two, people. Having run and built businesses, I’ve learned the hard way that you shouldn’t staff up before you have clarity.”
So EBO leaders begin working alone, or maybe with a single colleague, as Kovac did with the Life Sciences initiative. Harreld gives them a little money, and they try to tap IBM’s collective expertise. “We wanted to be Tom Sawyer getting the rest of the company to paint our fence,” Kovac says.
IBM’s EBO leaders start out by proving the concept behind the venture through small pilots. They try to “go deep” with market experiments involving just a few prominent customers. “Whether it adds up to $1 million or $50 million may not be a good measure,” says Cohen. “But it will tell you a lot about whether customers and clients think what you’re doing is valuable.” If these small pilots meet specific milestones for success, only then does IBM make the decision to pour resources into the project.