As IBM Corporation prepares to celebrate its first century next year, a veteran leader who has just taken the helm of the company’s financing arm, managing $35 billion in assets, shares his plans to keep IBM Global Financing (IGF) the “enabler” of success — for both its clients and its parent.
Bob ZapfelGeneral Manager, IBM Global Financing
Bob Zapfel took on the role of general manager of IGF this past January, the latest in a storied more than 30-year career with the financing arm’s parent company. Having served as IBM’s general manager for Strategy and Business Development, Global Technology Services (GTS), from mid-2008, Zapfel was responsible for the development of GTS’ strategy, which focused on enabling GTS to compete and differentiate itself on the basis of the quality and innovation of its products and solutions — while delivering them at market-competitive prices. Prior to his leadership role with the Strategy and Business Development team of GTS, Zapfel served as general manager for GTS’ IT Delivery team, a position in which he had direct responsibility for IBM’s global IT outsourcing delivery teams worldwide — a workforce of more than 90,000 people. These responsibilities came after a career that began with IBM in 1977, when Zapfel joined the company as a marketing representative.
His proven record as an “enabler” for clients and IBM during his career made his migration to lead IGF earlier this year a natural progression, Zapfel feels.
“My career has mostly been in sales and services leadership roles,” he explains. “I’ve had the good fortune at IBM to run some pretty large business units — 60,000 to 90,000 people over the past six or seven years,” Zapfel says. This substantive operating experience has provided him with plenty of opportunities for direct, face-to-face, day-to-day interaction with C-level executives at many of IBM’s largest clients.
Zapfel credits his constant interaction with these client CEOs, CFOs and CIOs for giving him “a good long-term perspective on how clients are trying to leverage IT to drive growth.” Today, at the helm of IGF, he is looking for fresh opportunities to make IGF “an enablement vehicle” for the unique IT-fueled growth plans of each of his clients. “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,” Zapfel says.
For Zapfel, his extensive experience with IBM client executives has been invaluable, especially in his new role leading the company’s financing arm. IGF provides IT leases, loans and a comprehensive asset management strategy to more than 125,000 clients in 55 countries. By understanding the thought processes of the C-level decision makers within IGF’s client base, Zapfel has a distinct advantage in then being able to find ways to utilize financing to enable the success of each of these clients.
“At the end of the day, we’ve got clients to satisfy and a parent to satisfy,” says Zapfel. “IGF’s goal is to put financing around a software services and systems package that makes sense for the client and helps IBM grow more rapidly as a parent.”
So how has this strategy worked, especially in the difficult economic climate of the past few years? “I think that if you look at IBM generally and IGF specifically, we really have weathered the downturn much better than most,” Zapfel says.
He attributes this success to a very simple commitment to remaining disciplined and focused on IGF’s mission: providing leases and loans to finance the acquisition of IBM and non-IBM hardware, software and services; working capital and supply chain financing to help IGF’s partners run their business; and comprehensive services for used IT assets, including resale, buyback and recycling. “We did not stray from our core,” say Zapfel. “We maintained our focus on business-to-business financing and did not seek to enter the consumer finance space.” He cites IGF’s strong underwriting and credit management capabilities as other significant factors in enabling IGF to weather a downturn that saw many of its competitors floundering.
“As the market got challenging, we saw many of our clients scrutinizing and second-guessing where they were going to invest,” says Zapfel. He saw a growing number of IGF clients looking first to their own cash for financing purposes rather than leveraging a financing agent. This forced IGF to redouble its focus on its own level of competitiveness and the attractiveness of its finance offerings. While IGF remained focused on its core competencies, its fresh look at how its offerings stacked up in the new financing climate yielded some new products — and very promising results.
“We just announced a better-than-zero financing program around IBM-based Intel servers,” says Zapfel. The program has IGF offering 0% financing for 36 months for hardware and complementary software and services. “This is a market-leading offering,” Zapfel admits. And the logic behind it was grounded in the first-hand knowledge IGF has cultivated from its close relationship with its clients and their C-level decision makers. “I don’t see too many clients who just buy hardware by itself,” he notes. “They need software and services, too.”
This commitment to finding opportunity to expand IGF’s financing relationship — even in the teeth of one of the most stubborn downturns in recent memory — is a trademark of IGF’s discipline and focus on enabling the success and growth of its clients. Other IGF offerings provide similar opportunities for maintaining growth by focusing on the benefits its clients are seeking to remain competitive.
“Our asset recovery business — GARS, for Global Asset Recovery Services — is a good example,” according to Zapfel. GARS allows IGF to structure leases and other financing with any residual value of the assets built into the front-end pricing of the lease. “We’ve essentially built a reverse supply chain capability with our GARS business — one in which we’re very efficient at recapturing value at the end of the lease-stream that we have priced in for the client right up front,” Zapfel says. By taking the assets at the end of their life and managing them in an environmentally friendly way to reuse them, while continuing to squeeze economic value out of them during the full lifecycle of the lease, GARS is proving valuable both to IBM shareholders and to the client.
“Through GARS, we can bid more aggressively at the front of the lease,” Zapfel explains. “It’s another advantage of having IBM as a broad financing partner: we have the capability to finance assets end-to-end, across the lifecycle, and our clients appreciate it.”
Looking beyond the present, Zapfel sees some trends that he feels could impact IGF’s offerings for both the immediate future and a bit further down the road. One of the most significant of those trends is the gravitation of financing toward the countries experiencing and projected to experience the most economic growth. For Zapfel, the intuitive sense of a shift in financing to follow a shift in economic growth is hardly news. Obviously, growing markets need financing.
“Globally, the rate and pace of investment in growth markets is higher than in more mature markets,” Zapfel says. “We are seeing more of an uptick in China, India and South America than in the U.S., the UK and Germany, but that’s a broad market statement and certainly not unique to IBM,” Zapfel says. “By 2015, we expect that our total volume in the emerging markets will be larger than it was in the U.S. last year,” Zapfel says. “That’s just the natural dynamics of rapid growth in those markets.” While he feels the mature, established markets will still be vitally important, Zapfel says more of the growth is — and will be — happening in places other than the U.S. and Western Europe.
Along with a global shift toward growing markets, a shift in product mix being financed is occurring as well, according to Zapfel. “In the first six months of this year, we have continued to see a heavier focus being placed by our clients on investments that leverage software and services as part of the financed package and not just the buying of a hardware asset,” Zapfel says. He feels this focus will probably remain an ongoing trend as IGF clients increasingly recognize how inextricably hardware is tied to the software and services that run on it. Zapfel sees software and services growing from its current position of roughly half of the financed solutions of IGF clients.
“There is clearly movement toward more software and services being financed, and I think it will continue to go that way,” says Zapfel, but he acknowledges that at some point a new equilibrium will emerge in the ratio of software and services to hardware being financed: “You’ll continue to see the hardware assets being an important component of our financing business but not the dominant component that it would have been a decade or two ago.”
And, of course, the much-anticipated changes to the leasing playing field as lease accounting standards move toward convergence could have a big impact — or maybe not, according to Zapfel.
While he has not yet had time to fully review the boards’ convergence proposals in depth, Zapfel remains confident in the strength of the leasing product. “At the end of the day, our research shows that clients choose to leverage a financing partner for multiple reasons,” he says. “Trying to keep things off their balance sheet may be one reason in some cases, but it’s not the dominant reason.” Zapfel feels the convergence proposals will be reviewed and some form of modification accepted, but the impact may be less significant than many expect. “I don’t view it as something that is going to cause the leasing value proposition to no longer be relevant,” Zapfel says. “It’s something we’ll all adjust to.”
But even as ongoing challenges evolve, Zapfel’s commitment to IGF’s role as a partner in understanding and working toward the success of its clients will not diminish. “We really are an enabler,” Zapfel says. “The IBM Global Financing mission is both to enable IBM’s success and to enable our clients to implement key IT projects and initiatives that drive their growth and success. We’re in the sweet spot when we achieve that mission for both our IGF client base and IBM, our parent company,” says Zapfel.
Stephen J. McCabe, a frequent Monitor contributor, has written on credit management strategies, finance training for sales professionals and management techniques for today’s leasing industry in recent issues of the Monitor, ABF Journal and ELT. McCabe is a senior writer for Susan Carol Associates, communications specialists in equipment leasing and e-commerce. For more information, visit www.scapr.com.
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