Business information Systems Management pgp18

Case Questions

Case: IBM's Decade of Transformation: Turnaround to Growth

Factors which led to IBM’s problemsAs per Exhibit 6, IBM’s internal root cause analysis of the situation resulted in the following eight concerns.

a) The management system rewarded short-term execution, even at the behest of foregoing long-term strategic business building.

b) The IBM employees and managers were preoccupied with selling current products to current markets. Such narrow-minded operational was a direct result from (a).

c) IBM focused on the search of sustainable profit, with a view to defend its leadership position in the market. In doing so, it missed out on opportunities of entering into higher-growth | higher price-to-earnings ratio businesses. In fact, Bill Etherington was quoted as being shocked at the announcement of a loss-making quarter.

d) IBM’s approach towards of utilizing the gathered market insights was inadequate in a dynamic world like what was observed. Newer technologies with a predictive trend deduction was necessary.

e) IBM lacked established disciplines and processes for selecting, experimenting, funding and terminating new business growth.

f) Poor execution of IBM’s prospective high-growth ventures was a huge baggage.g) IBM, over the years, failed to develop its inventions into commercially relevant products.h) Although IBM’s top management team successfully integrated different SBUs, the innovations

were still managed largely within the silos.Actions taken by Gerstner when he assumed the role of CEO in April 1993

Gerstner attempted to integrate the different SBUs in IBM, which he considered as a fatal flaw for IBM. In doing so, he reorganized the top management and pulled divisions into larger business groups and formed a central Corporate Executive Committee. This was termed as the “One IBM” initiative. The network systems across the IT were brought under the common TCP/IP protocol.

He changed the policy to customer-centric rather than employee-centric. As is explained through the examples of the 1993 sales meeting involvement and q later conference attendance with 300 CIOs of North America, Gerstner emphasized on providing customers what they want, even at the behest of singling out IBM executives.

In a measure to prevent “brain drain”, Gerstner sought to “bear hug” key employees. He hired Jerry York as to conduct a benchmarking study of IBM’s cost in each of its businesses

compared to those of its competitors. This led to identification of a $7 billion gap. On a similar note, Rick Thomas was brought into the PC division. Additionally, Abby Kohnstamm was hired as SVP Marketing to market its “e-business” based growth strategy.

Business information Systems Management pgp18

Case Questions

Cost reduction tactics included outsourcing the PC manufacturing operations, since they were recognized as not a part of the core competency, and reduction in IT operational costs, such as integrating 155 data centers into 3 regional “megacenters” and 128 CIOs were reduced to 1. In the course, over 75,000 employees were laid off.

Other actions included change in culture through Gerstner’s message about the 8 operating principles (Exhibit 4), global re-engineering and holding executives “unambiguously accountable”.

Review of Gerstner’s policies and IBM’s turnaroundIn general, IBM’s turnaround was a successful one by the late 1990’s and Gerstner’s policies and suggested strategic realignment were instrumental in the same. Some specific reviews are:

The “One IBM” policy is a long-term, continuous process of integration. While integration of executives has been carried out, the innovation is still confined to SBUs.

The customer-centric approach to business is a welcome move and is showing considerable increases in revenue.

A large number of policies such as “bear hug” of key employees, executive accountability and singling out executives may be viewed as ‘employee-negative’. However, on an objective view, these are the essential steps to be taken.

New executives hired were performing their tasks well. The EBO’s concepts led to more focus on long-term innovation, which is IBM’s core competency. Cost reduction tactics were essential to IBM’s turnaround with an estimated $7 billion worth of

gap to be retrenched.Challenges faced by Gerstner and Palmisano to position IBM for growth and innovation

Organizational Design Changes: Owing to the sheer size of the organization, IBM poses a complex tradeoff between organizational efficiency, which requires standardization of activities, and innovation, which requires flexibility to allow the employees greater scope of thinking on real world problems.

Executive Backlash: A number of IBM’s senior executives are senior employees and reputed businessmen. Any change in the organization design would therefore be marred by conflicts within these different ‘power centers’ within the organization.

Brain Drain: It was widely observed that newer, entrepreneurial ventures allow for the researchers to work at a higher pay with greater freedom and creativity. Firms like IBM, therefore, have a difficult time arresting talent divestiture.

Organizational culture and inertia: Like any other large firm, IBM suffers from organizational inertia and long-term cultural and attitudinal misalignments. While the culture was fit for working during the pre-1990’s era, an update with the changing market environment is necessary which is resisted by the very nature of the organization’s design.

Reasons why large established companies find it difficult to innovate

Business information Systems Management pgp18

Case Questions

Organizational inertia: Over time, large organizations develop a penchant to not tamper with success. A successful model, however flawed, is thus continued until it becomes obsolete.

Strategic gaps and re-alignment: Over time, long-term strategies and business processes need to be updated as the consumers and market environment develops. As was the case of IBM, it needed to constantly be a leader in innovation. Failing to do so in the middle years led to a gap for the following years. The accumulation of these failures is more pronounced for large corporations.

Culture: Over time, employees of a successful firm tend to develop an overconfidence bias towards the business, disregarding a number of key decision variables and losing out on responsiveness.

Flexibility: As an organization increases in size, it tends to standardize its operations and forego the entrepreneurial spirit. By moving over to mechanistic and bureaucratic designs, the organization loses out in flexibility which is key for innovation and in complex environments.

IBM as a “great company” during the 1990s and 1970sOwing to the multitude of accolades that IBM received, its claim to greatness can be justified

3 of IBM’s employees were awarded the coveted Nobel Prize during the period. The success story of the System/360 computer, which was the first family of products based on

semiconductor IC’s and was the largest “privately financed commercial project ever” at $5billion IBM’s reputation for its products – “universally regarded as sound solutions”. The on-time launch of the IBM PC which was the most successful technology introduction of the

time, which with its monthly sales of over 240,000 units exceeded the five-year forecast.Defining greatnessAs per Jim Collins, a company achieves greatness by two factors

1) Performance: When an investment into the company is substantially superior to one in the general market. This is regardless of the dynamics of the industry.

2) Unique impact: If the company’s exit leaves an “unfillable hole”Conclusion over IBM’s prospects of becoming a great company againWhile IBM’s turnaround is indeed a successful one, the company is majorly market dependent and in a developing phase in terms of establishing a stronghold with EBO’s and its revised operating strategies. In its core, the EBO strategy allows for risks to be taken at the behest of short-term growth which may be viewed as ineffective in the eyes of the stakeholders. in the Since the current operating strategies focus more on the customers with a consulting model and service provider operations, the risk IBM faces is directly related to the risks faced by each of the industries. Hence, as per Collins’ definition, IBM is still a long way away from achieving greatness though a sustainably growing future may be predicted for the firm.