William M. Zeitler Senior Vice President and Group Executive IBM Systems and Technology Group Today we are announcing a series of important changes. Specifically, we are positioning ourselves to lead in small and mid-sized business, the fastest growing segment of our industry. Before I describe these changes, let me give you some context. At this year's PartnerWorld, Sam Palmisano was clear that SMB is IBM's largest single opportunity for growth and will soon become our largest sector. In 2006, the SMB market for systems was more than $32 billion in revenue, but IBM had about 15% share of that opportunity – less than half of the share we have in the enterprise systems segment. In STG, our goal is to grow our share in SMB over the next decade to match what we have in the enterprise segment where we have well over 30%. To begin on this path, we have to make fundamental changes. That's what today's announcements are all about. 1. We will integrate Business Partner teams. Business Partners tell us that working with IBM is often very complex, with too many brand teams, terms and conditions, tools and programs. Much of that complexity is driven by STG, which along with related services and financing accounted for 80% of IBM's Business Partner sales in 2006. An analysis, led by Ravi Marwaha, General Manager of Global Business Partners, determined that we need to integrate our teams and processes, and leverage our core franchise much more aggressively – including building services offerings on our hardware platforms – in order to achieve dramatic growth in SMB. So we will take the following steps: We will integrate channel sales coverage in the geos. The local STG, Global Technology Services, and the Global Business Partner Organization channel sales and management teams will become an integrated team. They will present one unified face to Business Partners on systems and related services, including more resources for education and training. The software channel resources will remain in Software Group – due to their unique specialization – yet will work cooperatively on a new array of integrated, cross-IBM offerings. We will integrate services offerings with systems platforms. STG is embracing a new cross-brand mission along with GTS: Develop new offerings that integrate services and software on hardware, with the right pricing for the SMB market. This will make it simpler for our Business Partners to integrate services and software as part of systems platform sales. The Global Business Partner Organization is the channel integration point, now in STG. The Global Business Partner Organization will continue to drive its cross-IBM mission as the integration point for Business Partners, with a new reporting line into STG. This will help drive simplification and consistency in programs as well as terms and conditions across our systems brands, enable the unified coverage team, and help to deploy the integrated offerings. I look forward to working with Ravi and his team to execute this critical strategy. He will report directly to me. 2. The STG organization will reflect greater client focus. Last year I said we would move from a product line orientation to a focus on the client segments that fuel the systems marketplace. As of July 1, we accelerated this effort. We launched a new STG sales coverage model for SMB. Previously, the same STG sales resources covered both enterprise and SMB clients in a territory. Effective immediately, we are assigning an SMB Systems Sales Manager to each territory to manage SMB sales resources for all STG brands with an aligned set of sales plays and objectives. At the same time, we are also beginning sector implementation using the same model in select areas. Full deployment across SMB and sectors in every region and IMT is planned for January 2008. In addition to these actions in the territories, we will also align our activities increasingly by client segment in the global brand organizations to address the accelerating bifurcation in our System i client base between large enterprise and SMB. We will create a new enterprise-focused Power Systems business unit under Ross Mauri. This expands Ross’s responsibilities to include both System p and the high-end System i products we sell into enterprise clients – specifically the i570, i595, and i5/OS – and associated skills. This acknowledges the unique focus and specific demands of our large enterprise clients. The SMB business under Marc Dupaquier, which will be known as the Business Systems unit, will retain responsibility for the low-end System i products – the i550, i525, i520, and i515. This team will focus on the SMB client segment. Its mission will be to extend System i capabilities to ensure continued relevance to SMB and build on its integrated, easy-to-use value proposition. Going forward, Marc will work with Rod Adkins and the brand GMs, as well as with Software Group and GTS, to develop and drive a consistent roadmap and value proposition extending across all of our SMB server, storage, and blade offerings. System z, System x, and System Storage units remain unchanged, but they will coordinate with Business Systems as appropriate on SMB offerings. 3. We will design breakthrough products for SMB. People in every size business today are required to assemble, integrate, and troubleshoot incredibly complex IT environments – much of which was conceived before the Internet era. IBM has a unique role to play in dramatically simplifying and modernizing these environments through innovation. Our System i Express and BladeCenter S product announcements were important steps forward. This fall, as proposed in InnovationJam, Marc Dupaquier's team will unveil a more ambitious SMB roadmap, staking out a clear leadership strategy embracing new technologies, open standards, and Web 2.0 software capabilities. Leading in SMB If we are to significantly grow our share in SMB, we have to begin now. These announcements lay the necessary ground work. We will align our teams in the territories and in the global organizations. We will energize the partner community around our platforms. And we will drive innovation that matters for SMB clients. I know that through this effort that we will open a new door for our business and a new era of leadership for IBM.