February 2010 Kay Stephenson Financial Client Executive Selling to the CFO February 2010 Kay Stephenson Financial Client Executive

Agenda Financial Markets & the Impact on I/T Selling Financial Selling as part of the Total Solution Addressing CFO Priorities IBM Global Financing Toolkit for Business Partners

Changes in the financial markets Sub-prime meltdown $Ts global asset write-downs Loss of liquidity, credit markets conserving cash Bank/Financial institution failures and acquisitions Increased corporate defaults especially speculative grades Increasing default rates on multiple asset classes Increased number of bankruptcies Cutbacks in personal & corporate spending Increased unemployment Weakened US economy

Tightening credit markets Impact to our clients Access to capital shrinking Less credit available in the market, and more restrictions Costs of external capital rising Credit lines needed to support core business needs Pressure on spending CFO involved in decision-making Near-term investments must have strong business case Economic uncertainty Tightening credit markets Stock market turmoil What has not changed: The future success of any client is still dependent on their ability to invest in meeting their customers’ needs and improving their competitive position

What does this mean to I/T sellers? Understand health of client’s business Annual reports, analyst reports, company website Utilize online tools (i.e. Yahoo! Finance, Google Finance, www.cfo.com) Not every client is creditworthy Understand industry dynamics and their position in industry Validate opportunity with finance team/CFO in addition to the sponsor/line of business exec, know current approval process Incorporate financial justification (business case) in proposals Focus on payback and timing of ROI Translate I/T costs into business value Helps your sponsor sell internally Financial Selling is key to providing the TOTAL SOLUTION Selling Positions you as a trusted business advisor

Financial Selling 101 Leading with a Financial Selling Approach How Financial Selling Changes the Game Leading with a Financial Selling Approach What is Financial Selling? Using financial values, metrics & approaches as a part of the sales process Relating financial metrics to the client’s business objectives to support your solution Demonstrating to the client that you understand their business Helps YOU align I/T costs with BUSINESS VALUE Allows YOU to discuss the true TOTAL COST of OWNERSHIP of the solution Enables YOU to overcome client objections and CLOSE THE DEAL Elevates YOU up the client decision chain Understand client requirements and funding sources Engage IGF early Create a VISION for the potential VALUE Make TCO the client’s evaluation criteria Enhance the Include a monthly payment option in all your proposals As you move towards a financial selling approach, IGF can work with you to present a value driven proposal. This begins first by understanding what Financial Selling is. In its simplest terms, it is about using financial values and metrics as part of the sales process and relating them to the customer, to show them that you know their business. Financial selling can help you tie the IT costs to specific business value; using Total Cost of Ownership and ROI analysis which in turn elevates you up the customer decision chain. How IGF can help – its important to engage IGF early in the sales process. Working with the IGF seller to understand the customer requirements and funding sources and In turn make TCO the customer’s evaluation criteria. Here are some terms that you will hear during this presentation. Let’s take a moment to become familiar with them: Return on Investment (ROI) Calculates expense and quantifies the strategic value of the IT initiative demonstrates how technology can help an organization achieve it’s objectives Investment Decision Values include: Net Present Value (NPV) Internal Rate of Return (IRR) Payback/Break-Even (BE) compares the relative value of competing uses for funds Total Cost of Ownership (TCO) Limited to the expense implications of an Information Technology (IT) investment Primary method used by enterprises try to align IT investment with organizational strategy Treats technology as a cost center rather than a source of strategic value to the company Does not compare IT initiatives against other capital expenditures There are additional terms in the appendix of the presentation that you can reference as well.

Addressing the CFO’s priorities Cash Flow Improvements Preserve cash Reduce spending Risk Avoidance Operational Investment Short-term returns Shorter payback periods Realize ROI < 12 months

Cash Flow: Preserve Cash Every source of cash has a cost Bond placements (underwriting costs, settlement fees) Stock placements (EPS dilution) Bank facilities/lines of credit (origination fees, indexed rates, covenants) Retained earnings (opportunity cost – business growth) In the current economic environment, do not assume that your client still wants to pay cash.

Cash Flow: Preserve Cash Most clients are interested in…. Additional source of credit that does not impact current credit lines Access to low-cost funds, even if they are not interested in leasing Better terms and greater flexibility than current bank facilities IBM Global Financing offers credit qualified clients an alternative source of cash at competitive rates, often below market, with flexible terms Large Upfront Expenditure Affordable monthly payments

Cash Flow: Reduce Spending New monthly payment is 5% lower than original lease payment Est. monthly payment ($) Lease Term (Months) Initial 36mo Lease 12 48 36 POWER5+ 570 $6,079 / month* 24 60 Technology Upgrade New Base Lease 36mo POWER6 570 MES Upgrade $6,378 / month* $271,774 $225,634 $0 $50K $100K $150K $200K $250K $300K POWER6 570 Purchase Lease 17% savings over purchase Based on 36 month FMV lease at Best Credit rates FMV leasing lowers total cost of ownership Reduces upfront cash investment Lowest monthly payments Pay for portion of asset used (IGF takes residual value position) IGF assumes costs of disposal Facilitates cost-effective technology upgrades Mid-lease or End of Lease Holds or reduces monthly payment Reduce potential for book losses Gives I/T Management more control over technology upgrades & refreshes

Cash Flow: Reduce Spending Focus on Total Cost of Ownership Consider price performance & total operating costs TCO Review usually favors a shorter refresh cycle FMV Leasing can lower IT acquisition costs by 10-20% over outright purchase Optimize price performance improvements Residual value position by lessor Transfer risk of obsolescence to lessor Transfer cost for Disposal of Asset Avoid higher maintenance costs on older equipment An IT investment discussion that includes TCO can help you get the discussion beyond the initial acquisition costs or away from just delivering the best price. What is the total picture of this investment beyond acquisition? As you may know, acquisition costs represent less than half of the overall total cost of ownership. Here is what some of the leading analysts say: IDC: “for modern IT platforms, 30% of the total cost is the cost of acquiring the equipment. The balance is for IT labor/services to configure, maintain, upgrade, reconfigure, and ultimately decommission the equipment.” Forrester: “IT organizations are spending from 70-80% of their total IT budgets on maintenance and ongoing operations” For clients who typically purchase their IT assets, they have a view of longer useful life for that asset, beyond three years. It is after three years that operating and support costs begin to dramatically increase, actually increasing the total cost of ownership compared to a three year refresh cycle. With FMV leasing, clients pay for the use of the asset, thereby incurring less ongoing cost compared to an owned asset. The three year refresh programmtically gives the client the IBM advances achieved in price performance, power, cooling and space. So, what is the next step in working with clients who view IT assets with a long useful life? Target Customers: Stagnant Clients waiting for 5 Yr hardware Useful Life to end Clients w/in 3-4 Yrs of 5 Yr hardware Useful Life Questions to Ask Your Client: Have you considered viewing your assets over a shorter life? What does your TOTAL COST OF OWNERSHIP look like? We’d like to discuss refreshing and minimizing the cost to refresh Potential Objections: 5 Year Depreciation can dictate 5 Year Refresh Earlier Refresh can cause ‘budget/book loss’ implications with cash clients How IGF can help TCO/Lease discussion designed to move client off these objections Compare monthly lease costs to current maintenance payment on older equipment Compare “book loss” implications against TCO savings over lease cycle Propose Sale leaseback and equity upgrades for owned assets Compare monthly lease costs to current maintenance payment on older assets

Risk Avoidance: Operational Risk Leasing/financing helps client to: More closely align the costs to the expected benefit Improve short-term return on investment Accelerate break-even/payback on a project Project Costs Project Benefits Financed Payments Use of deferral can further reduce risk

Risk Avoidance: Investment Risk 0% 20% 40% 60% 80% 100% 1 2 3 4 5 FMV Leasing transfers risk of obsolescence Rapidly changing technology driving shorter cycles Asset value drops ~50-75% in first year of ownership Potential for book losses FMV leasing transfers risk of proper disposal Growing legislation surrounding environmental issues and data destruction IBM Global Financing has experience and expertise to ensure compliance with all environmental legislation Book Value Asset Value

Return on Investment – Break Even Analysis ROI analysis compares the costs to the strategic value of the I/T initiative CFO analytics for comparing the relative value of projects competing for funding Payback/Break-Even (BE) Net Present Value (NPV) Internal Rate of Return (IRR) Contact your FSE or Channel Rep for assistance on ROI calculations

Return on Investment – NPV analysis Low Rate Financing and FMV leasing enhances the NPV of a project Assumes FMV lease at Best Credit Rates on hardware, with IBM Global Financing low rate financing on hardware and software Customer incremental borrowing costs estimated at 9%

Return on Investment ROI ROI ROI ROI analysis compares the costs to the strategic value of the I/T initiative Net Present Value (NPV) Internal Rate of Return (IRR) Payback/Break-Even (BE) Allows client CFO to compare the relative value of projects competing for use of available funds Hardware Services Major cost / return mismatch $ Maintenance $ $ ROI ROI ROI Year 1 Year 1 Costs more closely aligned to expected returns Year 1 Improved cost / return alignment Phase I Phase II Phase III Year 3 Year 1 Year 2 Year 3 Year 2 Year 3 Phases I - III Year 1 Year 2 Years Years Years BAU Term Financing example IBM Project FinancingTM example

Increase your odds of winning with IBM Global Financing! 125% higher odds with IGF working with small clients (<1000 employees) IBM’s Odds of Winning 36% higher odds with IGF for opportunities over $100K owned by BPs IGF 37% higher odds with IGF for Power Sys deals, 36% for Storage deals 88% higher odds with IGF for deals that have very long sell cycles Lose Win Study Objectives: Use rigorous statistical analysis to demonstrate that IGF involvement in pursuit of leads causes an increase in IBM’s odds to win. Approach: It is not sufficient to simply demonstrate that opportunities with IGF involvement are won with higher odds as compared to opportunities with no IGF involvement, because such a difference can be caused by other factors, for example: IGF sellers are more likely to get involved in IBM opportunities that have higher odds to win to begin with. Experienced IBM sellers may be better able to identify and pursue leads that they’ll win and may be more likely to involve IGF sellers in their deals. Therefore, a technique was used to control the effects of other factors and estimate the “causal effect” of IGF involvement on IBM’s odds to win. We examined STG opportunities in the USA over the period between 1/1/06 and 3/31/08 and measured their outcome as either a win or a loss. The analysis considered nearly 600 measurable attributes in determining which opportunities to compare, and, in so doing, compensated for factors that also could have explained why the probability to win certain opportunities tends to be higher or lower than others. Findings: IGF involvement was found to cause an increase in IBM’s odds to win certain types of STG leads. For large opportunities (> $8M), the increase in IBM’s odds to win was estimated at 119% (125% if the client has less than 1000 employees). The effect tends to be smaller and less robust for smaller opportunities, but still statistically significant. For example, for SMB clients and opportunities over $800K the increase in IBM’s odds to win was estimated at 43%. For opportunities over $100K owned by business partners the effect was estimated at 36%. In some types of deals, while odds to win were found to be statistically significantly higher with IGF involvement, the analysis could not assure the differences were caused only by IGF involvement. For example, across all STG leads over $100K, the effect was estimated at 12% and deemed statistically significant, but very sensitive to potential effects due to unknown or un-measurable factors. 2008 IBM Market Intelligence study of STG opportunities found that IGF involvement causes an increase in IBM’s odds of winning Odds of winning increase 36% for partner sellers when IBM Global Financing is involved

Smarter Financing Toolkit Low Rate Financing on IBM Hardware & Services As Low as 0% Software Financing Deferral Programs IBM Certified Pre-Owned Equipment

Low Rate Financing for IBM Hardware & Services Below market rates offered to credit qualified clients on IBM products Financing rates as low as 2.20% in the United States or 0.50% in Canada for eligible hardware As low as 2.80% in the United States or 2.60% in Canada on eligible Global Business Services Minimum transaction sizes as low as $5,000 Almost every IBM brand qualifies, from powerful IBM systems and storage to IBM services

As Low as 0% Software Financing Zero percent financing offer for multi-year licensing deals of Lotus Software IGF Low Rate Software Financing on all IBM SW deals less than $1.5M provides qualified clients with an attractive financing alternative Assumptions: Purchase Price = $200,000 Quarterly Payments in Advance First of the month billing option Based on 4Q acceptance Rates will vary based on customer credit rating Ask your IGF Channel Rep about the Software Cheat Sheet!

Deferral Programs Payment deferrals up to 90 days for Qualified clients IBM Hardware, including IBM Certified Pre-Owned Equipment IBM Software and Services Fair Market Value and Full Payout leases/loans 1-3 month no payments, followed by 36 monthly payments “No charge” 6 month deferral on select Power systems Fair Market Value only 7037, 7047, 9111, 9116, 9131 and 9133 only 36 monthly payments following deferral $25K - $1M deal size Subject to credit approval

IBM Certified Pre-owned Equipment Fully refurbished and tested to IBM standards IBM maintenance qualified 90-day quality satisfaction guarantee With IBM maintenance contract Wide range of equipment available Off the shelf or custom-configured Systems and features at a fraction of the original price Less stringent credit requirements for purchase or financing The Future is Green with IBM

Reseller Financing Inventory Financing Accounts Receivable Financing Large Sale Financing Asset Based Loans Revolving Credit Lines 45 days free on x Series Products

Inventory Financing with IBM Global Financing Reseller Benefits Increased Credit Capacity 45 Days free financing on x-Series (paid by IBM) 100% Advance Rates Online Account Management Ease of business – credit line available for all suppliers Flexible Structures – match repayment terms to Accounts Receivable turns Distributor 2. Ships Product 4. Pays Invoice 1. Issues PO 3. Invoices IBM Reseller IBM Global Financing 5. Invoices Reseller 6. Pays Invoice

IGF Top Value Propositions in Today’s Economy Provides alternative source of cash/capital/funding Provides lower costs of hardware acquisition Reduces client operational, investment & supplier risks Improves short-term return on I/T investments Accelerates the implementation of technology Leverage IGF

Additional Resources

Links to more information IBM Global Financing Offerings IBM Global Financing Speed Sheet Financial Selling Education Modules Planning Rate On-line Calculator Rapid Online Financing Tool Winning with Financing Flipbook C-Suite Selling with IGF Just Got Simpler Analyst Reports, White Papers & Case Studies