IBM CASE STUDY – DECADE OF TRANSFORMATION The IBM’s rise to the top and its abrupt fall followed by its decade of transformation, boldly highlights the importance of a solid strategy IBM was the synonym for greatness and profitability during early 1990’s but the lack of company’s ability to foresee into the future & its internal issues cost the company bigtime. It registered its first loss during 1991 mainly due to its inability to adopt to the customer centric PC industry.
Phase 1: Incremental Improvement After registering his first loss, in order to cope up with its large fixed & warranty costs the company had no option but to cut back the employees perks & worse made forced layoffs. Eventhough there were products and process before hand they were not fully exploited. By 1993 about 40,000 employees were terminated Phase 2: Process Reengineering Change in management took place during 1993, Lou Gerstner was appointed as the new CEO. He immediately began the Phase 2 ‘Process Re-engineering’.
He realized rather than break up the company he decided to turn it around by going to market as ‘One IBM’ – a centralized model where individual divisions pulled into as larger business groups . By 1994 the 155 data centers were trimmed to 3 regional megacenters fed by 11 server farms . The systems development process was also reengineered thus enabling the company to focus intensely. The results were positive,by the end of year 1994 the company registered a profit of 5 billion USD on revenue of 64 billion USD.
Gerstner strongly believed in Putting customer first. He made sure that Individual sales group was formed and spearheaded by experienced managers dedicated for supporting the customers Phase 3: Emerging Opportunity Gerstner soon realised that eventhough the company could be recovered from its current state, it may not gain its supremacy as Tech Giant,with its current Business model. He started to focus on ‘Emerging Opportunity’ provided by the Internet. By 1995 he decided that the company would focus on e-business.
E-business was projected as IBM’s strategy vision . Enormous capital were invested in Internet Products and services & many aquistions were done,which helped the company to shift from software applications to middleware. The two major acquistions were Tivoli btought for 700 million USD and Lotus for 3. 5 billion USD Phase 4: Business Transformation By end of 1999 with its current business IBM’s innovation process continued to be focused within silos of existing line.
Gerstner wanted to change this and the concept of ‘Horizon’ was developed where the current and emerging business opportunities was classified among three Horizons H1 – Mature Business H2 – Rapidly growing business H3 – Emerging business Each Horizon had different organizational and leadership model to cater its different needs. Reasons for failure IBM ignored its commitment to customers to provide efficient high quality technical and customer support,moreover they tried to compete in every product category which eventually made them as Jack of all trades and master of none.