IBM's Decade of Transformation: Turnaround to Growth

Case Study

Prepared by: Muhammad Asif Raza (ID: 9966) Jahangir Ali Nasir (ID: 9967) Evening Batch

Submitted to Dr. Munir El Khatib

Table of Contents
Executive Summary ........................................................................................................................3 Organizational Structure and Culture ..............................................................................................3 Recommendations .........................................................................................................................4 What went wrong? .....................................................................................................................4 Key Issues...................................................................................................................................4 What went right? .......................................................................................................................5 Cost saving .................................................................................................................................5 Revenue Growth.........................................................................................................................5 Drive asset efficiency ..................................................................................................................5 Conclusion..................................................................................................................................6

IBM's Decade of Transformation: Turnaround to Growth

Executive Summary
Since we are in a technology dependent era, we should take a look into the growth of International Business Machines Corporation, or IBM. IBM was founded in 1911 through the merging of three companies and this is where IBM is known as the dark suited sales people, an image of corporate pride and loyalty. IBM started out with Thomas J. Watson being the first leader of the company. In 1991, IBM was faced with a revenue decline, the companys earnings dropped to negative $2.8 billion. Between 1991 to 1993, IBMs total lost was $16billion. John Aker, IBMs CEO from 1985 -1993, start some actions to try to save the company from going out of business and telling the public that IBM is in very deep trouble. The next CEO took charge, Louis V.Gerstner, the public doubt him to recuse the company because he has little to no experience in the technology industry but the insiders knew that Gerstner was just going to break IBM apart for sale, not to recuse IBM. However Gerstner took approach towards the customers and establish a slogan for the company, We put customers first. Under Gerstner leadership, IBM was back on solid grounds by 1995, with the internet boom, IBM start growing as a company again but at a slower rate than the information technology industry as a whole. Sam Palmisano, a 31 year company veteran, took over IBM in 2002 after Gerstner. Palmisano wanted to bring IBM back to greatness, he focus on collaborative innovation and ad hoc solution teams.

Organizational Structure and Culture

The organizational structure in 1993 is very different than the one most corporation use in the 21st century, the structure includes board of directors, one chairman of the board, two vice chairmen and three Senior Vice presidents. Below them, there are different divisions of the company such as Science & Tech, General Counsel, networking systems, programming systems. However, each division report to a specific person in the management committee. This structure stay the same until 1995, the structure of IBM change when Gerstner took over. The new structure is the same as most corporation in the modern world. The new Structure includes Board of Directors, CEO, CFO, Human Resources Department, General Council, and Strategy & Development. The Culture of the company had a dramatic change in the 1990s, because Gerstner took

Bear hug key customer approach. Also, JB Harreld, the Senior VP of strategy & Development under Gerstner leadership, proposed a new approach for IBM. As we can see from above, we notice the changes in strategy that IBM uses and how they evolve as a company using different products and targeting difference groups in the market to increase their revenue and become a better company. We are in the 21st century and we always talk about customer is always right and customer comes first, all of these slogans, IBM was already doing that in the 1990s. They Bear hug key customers to prevent them leaving IBM, respect them and provide the best service to customers. Some of these beliefs were developed by Thomas J. Watson Jr. (1969 to 1993)

Recommendations
With the executives does not have any ideas of the direction that the company should be going to, it is pointless to have those executives, they are just extra cost for the company which is hurting the company in a lot of ways. The company is paying the executives to sit in their office to do nothing while the company is in deep trouble which firing 75,000 employees is reducing expense and helping the company. The solution approach that Gerstner took was having each senior executive to bear hug customers and key employees too. This way, we are keeping the key customers as our revenue and key employees helping the growth of the company. Also, the creation of Emerging Business Opportunities (EBOs) helps the growth of IBM. EBOs created new technology productions and it was predict that has a potential of generating $1billion in three to five years.

What went wrong?

There are some issues which are actually hurting the company which includes the following:

Key Issues
During the 1990s, IBM had different designs for components that were served exactly the same purpose in different products which was a very big issue; because this require hiring a lot more people (employees) to understand the different products that were serving the same purpose in order to provide services. Also, the company had 125 separate data centers worldwide and 128 CIOs. There were 31 private and separate

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.

What went right?

IBM's ability to create new businesses, new business development have a system, made from entrepreneurship, how to manage creative, evaluate new career reached a milestone, there are different categories of new management skills in different stages of career development, organizational procedures.

Cost saving
IT can be used to drive up business value through cost saving by knowing where we can cut off a certain department that is not necessary since all the calculation can be done on the computer and easily to be understanding cost-reports. Also, internet makes it possible to sell products and services outside the companys location and an easier way of contacting oversea division companies.

Revenue Growth
Internet can be used as advertisement to increase the number of our customers; also they can shop online w/o being near the 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.

Drive asset efficiency

In the case study, IBM shifted to an E-business strategy which freed the company from having to compete in every product category. Instead of funneling resources and energy into competing in categories in which its offerings were weak.

Conclusion
After reading this IBM case study, I learned more about the history of a successful company, 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 customers trust. Solution to the above problem was going into the market as One IBM and Gerstner layoff over 75,000 employees in the company because they were underperforming in the 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.