About IBM:

At IBM, we strive to lead in the invention, development and manufacture of the industry's most advanced information technologies, including computer systems, software, storage systems and microelectronics.

We translate these advanced technologies into value for our customers through our professional solutions, services and consulting businesses worldwide.

Information Technology:

IBM has been in the information technology (IT) industry since that industry began, and we've seen it change many times. Often, we've led those changes. Today, we are again aligned around a single, focused business model: innovation. IBM takes its breadth and depth of insight on issues, processes and operations across a variety of industries, and invents and applies technology to help solve its clients' most important business and competitive problems.

Although we remain committed, as ever, to lead the development of state-of-the-art technologies and the products and service offerings built around them, we measure ourselves today by how well we help clients succeed. That's at the core of what we value, but it's also because the IT industry is on the cusp of a profound shift. The ubiquity of networked computing is changing the ways organizations can, should, and will do business — bringing dramatic improvements in productivity, transforming industries, and creating opportunities for entirely new market segments. That is what we mean when we talk about On Demand Business.

Management Systems:

For any enterprise hoping to endure, no "system" or array of systems can effectively make the most important decisions. In fact, in today's pace of business, reliance on a top-down, hierarchical set of management principles could present unnecessary risks and dangers.

To be sure, any company committed to fiscal, legal, client, social and environmental responsibility will institute controls and audits to promote behavior that's ethical, accurate and responsible. IBM seeks to be among the best companies in this regard. But these checks are only as effective as the underlying principles of the organization and its people.

And IBM has been managed according to guiding principles since its earliest days. A set of such "basic beliefs" was laid down by Thomas Watson, Sr., in 1914 and served the company for most of the rest of the century, earning IBM the reputation of a well-managed company — even among the best in the 20th century.

In late 2003, IBM began the work of reshaping its programs and policies to align with how we understand our values today: dedication to every client's success; innovation that matters, for our company and for the world; and trust and personal responsibility in all relationships. In some instances, we have adapted or updated programs that already represented what it means to be an IBMer. In many other cases, we are streamlining processes and establishing initiatives that didn't exist before, which will help us build a company that better reflects these values.

In 2004 and into 2005 — and for as long as we continue to innovate and reinvent ourselves, as we have always done — we are asking ourselves tough questions about how our values should help us make decisions in running our business. And we are redesigning our management system, based on those values, to support the very best this company has to offer.

Personal Business Commitments:

In addition to periodic review of and commitment to our Business Conduct Guidelines, every IBMer is also assessed on his or her own job performance and its impact on our company, including applicable areas of corporate responsibility.

A manager's review of an employee's performance is based on the commitments the employee made, in writing, at the beginning of the last year, or more recently, if the job has changed. We call this process "personal business commitments," or PBCs.

Each employee determines commitments for the year, with his or her manager's approval. (The chairman's commitments are approved — and his performance later reviewed — by the Board of Directors.) At the end of the year, success toward those commitments is reviewed with the manager, and the manager gives an overall rating of the employee's performance.

In 2004, the PBC program was revised to reflect IBM's values more concretely, and employees used these values and IBM's business strategy in determining their commitments for the year. As part of the program changes, first-line managers were given more flexibility than in previous years in determining employee ratings, and managers themselves must now be rated at least above average in managerial skills to receive a top rating overall.

For executives, managers and all other employees, performance against business commitments — including commitments related to issues of corporate responsibility — influences decisions related to promotions and career advancement. Performance assessments on these commitments are a factor in decisions about an employee's performance bonus, merit pay increases and stock options grants, as well.