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Case Write-up

IBM's Decade of Transformation: Turnaround to Growth

Company Background

This case talks about the growth of International Business Machines Corporation, or IBM. IBM was

founded in 1911 through the merger of 3 companies. IBM started with Thomas J. Watson being the

first leader of the company joining three years later. In 1952, Watson Jr. became the leader and

under his leadership IBM became worlds dominant player in IT industry with development of

system/360 computers. With its launch in 1981, IBM PC became most successful technology

introduction of its time. In 1991, IBM was faced with a revenue decline, the companys earnings

dropped to negative $2.8 billion. Revenues continued to slide by more than 60% for each of the next

two years. John Aker, IBMs CEO from 1985-1993, started some actions to cut costs by eliminating

jobs affecting majority of employees. After Aker, Louis V. Gerstner took charge in April 1993.

Gerstner took putting customers first approach seriously. Under his leadership, IBM went to

market as One IBMand was on track by 1994 with a profit of $5 bn and revenues of $64 bn. Sam

Palmisano succeeded Gerstner in 2002. Palmisano wanted to bring IBM back to greatness, he

focused on collaborative innovation and ad hoc solution teams.

Organizational Structure and Culture

The organizational structure in 1993 included board of directors, one chairman of the board, two

vice chairmen and three Senior Vice presidents. Company had different divisions as Science & Tech,

General Counsel, networking systems, programming systems. It had 20 different SBUs which

collectively sold 5000 hardware products and 20000 software products. Commonality existed in the

products and processes of different SBUs, but they were not able to exploit it. But Gerstner changed

the company structure as well as culture after joining as CEO. He approved layoffs of 75000employees in 1993. 128 CIOs were reduced to 1. Number of data centers were reduced from 155 to

3 regional megacenters. Several senior executives responsible for country managers were fired and

many country managers resigned. He started a culture of operating as a team. He travelled different

company sites and visited employees to convey message and how to put principles in motion. Senior

executives started to Bear hugkey customers to prevent them leaving IBM, respect them and

provide the best service to customers.

Key Issues hurting company

IBM had different designs for components that were served exactly the same purpose in different

products which was a very big issue; as this required lot more employees to understand and workwith the different products that were doing the same work for different SBUs. The company had

125 separate data centers worldwide and 128 CIOs. There were 31 private and separate 5

networks and literally hundreds of different configurations of PC installations. Data processing

costs were a dramatic three times the industry average. The problem was that executives were

isolated by the deep level of hierarchy and a consensus-driven decision-making culture.

Executives would have the staffs prepare a delivered presentation where the staffs worked to align

positions and eliminate surprises.

Reorganizing as One IBM

In 1995, Gerstner announced e-business as IBMs growth strategy. Internet can be used asadvertisement to increase the number of customers; also they can shop online w/o being near the

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business location. Business can use internet offer services online for convenience, a lot of people will

pay for convenience, and an example would be Netflix, offer customers not needed to worry about

late fees and can watch customers favorable movies. This e-business strategy freed the company

from having to compete in every product category. Instead of funnelling resources and energy into

competing in categories in which its offerings were weak.

IBMs businesses were categorized as Mature, high growth and emerging business opportunities to

motivate innovations and to generate future products so that the growth can be made sustainable in

the long run.

Conclusion

Case illustrated the history of a successful organization, the steps it took for this company to be one

of the largest company in the world and having large amount of revenue with all the competitors.

The innovation the company had, the creation of EBOs and different strategy the company used. The

approach that the company took for the customers, to bear hug them, provide excellent

service to gain customerstrust. Solution to the above problem was going into the market as OneIBM and Gerstner layoff over 75,000 employees in the company because they were

underperforming inthe company. Also, the products should be eliminating into one and still serve

the same purpose. The downside of eliminate into one product is the lack of variety for customer to

choose, since most customers like to have a selection of different products and does not want to be

force to buy that specific product.

Submitted by:

Vikas Tiwari

PGP/18/333

Section- F