Outline

Research Question : Diversification, good long-term strategy or not?

Title : The Struggle of IBM
Introduction
1. Introduction about IBM, research question, theory that will be
used
Body
2. IBM as multinational company, explanation about M-Form
Theory
3. How they becoming M-Form company? (The diversification)
Theory
4. The process of their diversification. (R&D history) Theory
5. Investing too much in R&D, big mistake because it takes IBM
down
6. The way IBM survive (Prove) from manufacturing to service
Closing
7. Conclusion
Each part max 200 words
Link
http://www-03.ibm.com/ibm/history/history/decade_2000.html
http://www.forbes.com/2001/10/16/1016ibm.html
http://en.wikipedia.org/wiki/IBM
http://www.oregonlive.com/business/index.ssf/2011/06/its_ibms_100th_birthday_
how_it.html
http://www.gsb.stanford.edu/insights/how-did-ibm-avoid-becoming-extinct
http://www.forbes.com/sites/stevedenning/2011/07/10/why-did-ibm-survive/
http://www-01.ibm.com/software/info/television/html/G407740T83700W53.html
http://www.zdnet.com/article/business-diversification-wont-guarantee-success/
http://en.wikipedia.org/wiki/IBM_Personal_Computer
http://www.extremetech.com/computing/175299-ibm-leaves-the-x86-market-atlong-last-signalling-the-end-of-x86s-profitability
https://answers.yahoo.com/question/index?qid=20071204162329AARuRpa
http://www.ibm.com/ibm/us/en/pcannouncement/

http://qz.com/76268/in-selling-server-unit-to-lenovo-ibm-goes-further-down-thesolutions-rabbit-hole/
http://www.theregister.co.uk/2014/10/29/ibm_backing_away_from_hardware/
http://www.ibm.com/products/us/en/
https://www.gartner.com/doc/374563/diversification-helps-ibm-weather-tough
http://www.imd.org/research/challenges/diversification-global-expansionmorrison.cfm
http://www.risksanddecisions.com/learning-from-history-xerox-vs-google-focusvs-diversification

One of the most challenging decisions a company can make is whether to

diversify, in which the outcome can result in extraordinary rewards or risks. IBM
for instance, had to face this situation in order to develop the company better.
IBM was firstly established as Computing-Tabulating-Recording Company in 1911.
IBM manufactures and sells computer hardware and software, but currently
focusing on software as its strategic assets. It also offers infrastructure services,
hosting services and consulting services in areas ranging from mainframe
computers to nanotechnology.
In this essay, we would like to bring several topics regarding IBM. We will
start by talking about important things happened to IBM, about IBMs company
structure which is related to the diversification that IBM did, more details about
the R&D department and proof of the way IBM survived.
One of the most important things to remember regarding IBMs history
was in 1993 when IBM was near its disaster. IBM core business had been
disrupted by the advent of the personal computer and client server. Another
reason was also because the competitor had managed to substitute IBMs
dealers and sales force by selling directly to the consumers. As a result, IBM
recruited a leader from outside for the first time. Gerstner adopted a triage
mindset and took quick, dramatic action. He reverse the move to spin off IBM
business units into separate companies as he recognized that one of IBMs
enduring strengths was its ability to provide integrated solutions for customers.
Then a problem where the company would have destroyed that unique IBM
advantage occurred.
We now discuss about the findings regarding diversification and relate it
with IBM situation. Before diversifying, there are several things that need to be
considered by managers. First managers need to know about what the company
does better than its competitors in its current market. Second, they need to know
the strategic assets that they need in order to succeed in the new market. Then
they also have to know whether they can catch up to or leapfrog in the
competitors game. Fourth, is to know whether diversification will break up
strategic assets that need to be kept together, which is directly related to IBM
situation in 1993. After that they need to figure out whether they will simply a
player in the new market or will they emerge as a winner. And last but not least,
they have to know what can their company learn by diversifying and are they
sufficiently organized to do it.
Akers (previous CEO before Gerstner) had split IBM into autonomous
business units in order to compete more effectively with competitors, which
resulted in worse failure. The new CEOs initial steps worked. But then he had to
come up with a winning strategy, which is shifting the companys management
system into radical management.
IBM did the diversification by separating the companies instead of
business units. The M-form combines the distinct brand and economies of scale
advantages of the large company while maintaining the operational flexibility. Mform system also allows each subsidiary to operate autonomously. While the

division may still be kept under central managements expectation to maximize

profits, each subsidiary can be flexible and act independently.

As IBM diversify in the 1950s, IBM put a lot of investment for research and
development centers. This move, made IBM become one of the first mover in the
computer industry, and it is needed to reaffirm their position in the industry. IBM
got this opportunity since, the Third Industrial Revolution created different
entrepreneurial reaction. This made companies try to adjust themselves to the
competition in the new market. The purpose of this first investment is to
encourage their engineers to improve their hardware product (especially
computer) and software.
Up until now IBM has 13 research centers around the world, which called
as IBM research. This research department has invented a lot of innovative
product that is the source of IBMs diversification. They also become home for 5
Nobel Laureates, 9 US National Medals of Technology, 5 US National Medals of
Science, 6 Turing Award, and 13 Inducees in the National Investors Hall of Fame.
Some of their notabe developments from this research center are data ecryption
standard, fast fourier transform, magnetic disk storage, and one-transistor
dynamic random access memory. But, this move made IBM became one of the
biggest spender in research and technology. Related to their System 360, IBM
spent 7 billions dollar in 1963. This investment made them suffer for a great loss
until the end of 1960s. Investing in big project become one of specific behavior
of IBM.
In 1993, finally IBM came to their lowest point when they suffered from 16
billion dollars over five years. Its stock was drop to 70 percent, and they lost 70
billion dollars on shareholders value. The caused of this turn down the first one
was, they cant compete with smaller competitors that are less diversified than
them. These competitors were able to duplicate their technology, and one of
them was Dell. The second problem was, they found difficulties in integrating
different technologies, and their customer was facing the same difficulty.
It is obvious that the core problem of IBM is because they diversified too
much. IBM was trapped in so called expertise paradox because they trapped in
their own competency. They lose their own focus, and lose their own personality.
In this case IBM need to back to the right track. This is when the
deconglomeration happened. As the purpose of the deconglomeration is to cut
cost and increased profits , their new CEO at that time, Louise V. Gertsner safed
IBM from their nearly death by remade the organization.
Back then, Louie V. Gertsner turnaround the IBM focus and do the
deconglomeration. He tried to fullfil customer needs about technology integrated
system which makes IBM now more focus on services rather than to
manufacturing hardware, while keep trying to cut the cost. As IBM moving from
manufacturing to service it is shown that IBM successfully faced intensified
international competition.

But remade the organization and get the new focus of it, is not enough for
IBM if they want to survive another 100 years. Related as their title as a big
spender in reserch and development and the crisis in 1993, IBM should consider
whether it is a good long term decision or not. Since long-term investment
should be take care by government, as they also got indirect support from US
goverment. As what Louis V. Gertsner did in 1993, to keep survive it is true for
IBM to focus on customer needs.
To conclude, IBM was diversified and becoming a multidivisional company.
But as IBM become more diversified and spent a lot on research and
development, they lost their identity and faced some challenges from its
competitors that were less diversified. Their spending on research and
development also made them suffer from loss and brought them to their lowest
point in 1993. Then Louise V. Gertsner came to the company and safed IBM by
changing the focus of the company as a service company, and cutting cost. But
in order for IBM to survive, they need to consider more about spending a lot of
money on research and development . Instead, they need to be focus more on
customer.