IGF

Financing Technical Innovation

IBM ^® Credit Corporation was founded in 1981 as a five-person, wholly-owned IBM subsidiary in the US. From small beginnings, IBM Global Financing (IGF), as it was eventually renamed, has grown to a worldwide organization composed of hundreds of sellers, accountants, analysts and business support, credit and pricing specialists. Today it has more than 125,000 clients in more than 50 countries, and finances more than US$36 billion in IT assets.

Recognizing a need

Prior to 1981, IBM had operated on a lease-and-rental business model, in which companies would lease IBM machines, such as mainframes, directly from IBM or from leasing companies who owned IBM machines. As the 1980s began, IBM realized it needed a new business model to generate more cash up front to re-invest in research and development of new technologies for its clients. But those clients were used to monthly lease payments, not paying the entire cost of an IBM mainframe. In 1981, the IBM Credit Corporation was formed to provide a way for IBM clients to finance their IT purchases.

"Product End-of-Life Management Operations graphic
47.8% Recycle
37.3% Resale
8.7% Reuse
4.0% Waste to Energy
1.6% Landfill
0.6% Incinerate
2005, percentage by weight."

Global Asset Recovery Services

Early on, clients would finance and lease their IT equipment directly from IBM. This meant that at the end of the lease, IBM owned the used product. In the 1980s, there was debate within the company about whether there was a secondary business for used IBM products. IBM Credit Corporation created a “reverse logistics” process for returning, refurbishing and then reselling used hardware. Today, the division is the IBM Global Asset Recovery Services (GARS); in 2010, it sold more than US$1.9 billion in used equipment. Less than 1% of IBM materials in the program end up in a landfill.

IBM funds IT

This advertisement for IBM Global Financing explains how the organization can help businesses innovate during tight economic times.

For 30 years, this “business within the business” has given IBM clients the financial means and competitive advantage to grow and innovate. Today, it is the largest captive IT financier in the world.

IBM had long been in the business of renting equipment when, in the late 1970s, it began to shift to a purchase-only model. The transition to the purchase model was informed, in part, by an antitrust suit brought by the US Department of Justice in the 1970s. In 1982, the Justice Department dropped the case, concluding that it had “no merit,” but IBM had already been shifting its model to adapt to the changing market.

“IBM needed to be sure that there was a reliable source of financing for clients to buy new technologies and do so in a manner that was fast enough to fulfill the technology advances that would come out in the 1980s, 1990s and 2000s,” said John Callies, who joined IBM Credit Corporation as employee number 100 in 1984, and became general manager of IGF 20 years later. “The creation of the IBM Credit Corporation was integral to IBM’s ability to transition from a rental business model to a purchase business model.”

By setting up IBM Credit Corporation as a separate financing subsidiary, IBM also was able to increase its capacity to borrow capital to invest in the development of competitive technologies such as new mainframes and PCs—all this while protecting its credit rating and strengthening its influence and relationship with clients.

“We created very early on, very simple contracts and documentation that allowed clients to have the same comfort and reliability of the IBM financing alternative as they had with the IBM company’s products.”

John Callies

GENERAL MANAGER, IBM GLOBAL FINANCING, 2004-2010

Interviewed March 15, 2011

“Financing is one of the fundamental elements of the IBM toolkit that we employ with our clients to help them be successful in leveraging IT for their growth.”

Bob Zapfel

GENERAL MANAGER, IBM GLOBAL FINANCING, 2010-2011

Monitor Magazine

September 2010

“The IBM Global Asset Recovery Services business unit has been able to contribute to improving environmental performance by linking key elements of reverse logistics into the integrated supply chain. It has made a direct impact on the 3 R’s by reusing systems and parts, by reducing the need to purchase new parts, by reducing material dispositioned to the landfill, and by recycling commodities in the remanufacturing and demanufacturing areas where appropriate. It is also poised to leverage its expertise into e-business opportunities and expand its service offerings further into the OEM market.”

Ed Grenchus, Shirley Johnson and Dan McDonnell

“Improving Environmental Performance Through Reverse Logistics at IBM.” In IEEE International Symposium on Electronics and the Environment

2001

In the 1980s, IBM’s financing arm focused primarily on hardware leases, which included mainframes in large data centers. In 1984, the unit launched a division, now called Global Asset Recovery Services, to refurbish and resell equipment. In 2010, the division sold more than US$1.9 billion in used equipment. Less than one percent of IBM materials in the program end up in a landfill.

As IBM began to shift its mix of business to software and services in the 1990s, the complexity of client and Business Partner projects increased, and IBM’s financing arm began developing offerings to meet those new needs. The IBM Open Infrastructure Offering was first offered to a major US chemical company in 1995. It combined IT and financing into a single agreement that included planning, budgeting and implementation of technology to respond to client needs for the duration of the contract—something that requires expert financing knowledge to estimate technology future values and cost evolution over time.

In the 1990s IBM Business Partners needed a source of capital to purchase IBM technology to resell and distribute to their clients. IBM Credit Corporation became one of the first IT financiers to enable clients and Business Partners to finance these accounts receivables. Since its inception, IBM’s financing arm has provided hundreds of billions of US dollars in working capital to IBM Business Partners to help them run their business, and enable the sale of IBM products and services.

By the turn of the century, the independent local subsidiaries IBM established over time had been consolidated under a single structure, rebranded as IBM Global Financing. In 2000, IBM Global Financing moved to a globally integrated enterprise model by opening its first Center of Excellence in Okinawa, Japan, to support global operations. Other Centers of Excellence opened later in Rio de Janeiro, Brazil (2003), Budapest, Hungary (2005), Kuala Lumpur, Malaysia (2007), and Atlanta, Georgia (2006). The standardization of processes, better business controls posture and replication of best practices driven by the centers have resulted in millions of US dollars in savings that contribute to IBM’s bottom line.

“What makes IBM Global Financing truly unique is its ability to anticipate change and uncover new possibilities to enable IBM growth around the globe. Currently we are focused on helping the company capitalize on business opportunities in growth markets, as well as enabling the IBM services and software portfolio through financing,” said Martin Schroeter, general manager of IGF. “With financing, IBM makes it easier for more clients to take advantage of our capabilities in cloud computing, business analytics and Smarter Planet initiatives.”

Visit IBM Global Financing

Selected team members who contributed to this Icon of Progress:

David Finley Founder and President, IBM Credit Corporation
Harry Kavetas President, IBM Credit Corporation
James Forese Chairman, IBM Credit Corporation
Wilson Lowery Chairman, IBM Credit Corporation
Joe Lane President, IBM Credit Corporation, and Group Executive, IBM Global Financing
Mark Loughridge General Manager, IBM Global Financing
John Callies General Manager, IBM Global Financing
Lisa Scholnick Vice President, Finance, IBM Global Financing
Carmen Ene Vice President, IBM Global Financing, Northeast Europe
Annie Choy Vice President, IBM Global Financing, Asia Pacific
Bob Zapfel General Manager, IBM Global Financing
Martin Schroeter General Manager, IBM Global Financing