ibm

Running head: IBM: SUCCESSFUL CHANGE MANAGEMENT IMPLEMENTATION 1

IBM: Successful Change Management Implementation

Robert Haskins

MGT 435: Organizational Change

Mary Alexander

26 November 2012

2 IBM: SUCCESSFUL CHANGE MANAGEMENT IMPLEMENTATION

IBM: Successful Change Management Implementation

Introduction

“…there is nothing more difficult to take in hand, more perilous to conduct, or more

uncertain in its success, than to take the lead in the introduction of a new order of things”

Niccoló Machiavelli

Change is a constant and leaders who anticipate change, react to the change quickly and

effectively are successful (Pryor, Taneja, Humphreys, Anderson, & Singelton, 2008, p. 1). The

leaders that anticipate change and moreover those that create the opportunity for change are most

successful. Other organizations follow the lead in change and even others do not survive because

of the inability to change (Pryor, Taneja, Humphreys, Anderson, & Singelton, 2008, p. 1). There

are a number of change models that can be used to implement change but it is the winners that

can respond and adapting quickly to the most difficult and complex change models. If the

organization is unable to recognize the moment change is needed because of the ineptness or

lack of vision in its leaders, it will fail. International Business Machines (IBM) “Had the

arrogance to believe they could continue to dominate [the industry] with bulky hierarchies,

unrealistic overhead costs, and outdated operations” (Weiss, 2012, p. 140).

This report will illustrate the transformation IBM had to experience to become leaner in

its business model and retain their dominance in an ever growing global theater where the actors

were increasing and improving on the model IBM created. An overview of IBM will show how

they became the dominate force in computing solutions and where they stand today. This report

will diagnose the problems IBM were facing in the late 1980’s and the early 1990’s and give a

solution to how they could have used Dr. John Kotter’s eight-step process for leading change. A

planned organizational change is described as a progressive state in which the organization


currently resides to a state the organization desires to become more effective (Weiss, 2012, p. 3).

This report will demonstrate the effectiveness of John Kotter’s eight-step process for lead change

on the IBM transformation from an ineffective and unprofitable computer company to a leader in

global business solutions.

Company Overview

In 1914, Thomas Watson, left National Cash Register (NCR) to rescue a failing company

called Computing-Tabulating-Recording Company (C-T-R), the company that pioneered the

punch card processing industry in 1911. After supplying the U.S. government with C-T-R

tabulators during WWI, revenues tripled by 1920. The company became International Business

Machines (IBM) in 1924 and within twenty years dominated the global market for tabulators,

time clocks, and electric typewriters (Cella, 2012).

With the development of the Harvard Mark I, in 1944, IBM introduced to the world the

first machine to perform electromechanical calculations, even though they dismissed the

potential for computers. Competition dictated that IBM respond to the market for computers and

in 1952 developed its first computer. During the 1960’s and 1970’s, IBM experienced

exponential growth and 80 percent market share. As an innovative company, IBM developed

new technologies including the STRETCH system, which eliminated vacuum tubes (1960), the

floppy disk (1971), the first laser printers (1975), and the first IBM personal computer in 1981

sparked the PC industry (Cella, 2012).

During the 1980’s, IBM made a decision to continue with what had worked for them in

the past, the sale of mainframe computers to business’s rather than streamlining and responding

to the market demands of cheaper PC’s and practical business applications. This decision began


the slow decline of IBM into the early 1990’s when the first outsider to become the CEO of IBM

in 1993, Louis Gerstner, was designated to turn the antiquated company around (Cella, 2012).

Louis Gerstner envisioned IBM as a company that offered business solution services as

well as its traditional hardware and software product line. Gerstner proceeded to cut costs and

workforce, shaking up entrenched management, and downsize a bloated research & development

division to focus the operation around quick turnaround than lengthy research. By 1994, IBM

began making its own computer chips, eliminating the need for suppliers. The latter half of the

1990’s demonstrated the effects of the downsizing with making a profit and increasing that profit

throughout the decade. In addition, expansion into network management with the acquisition of

Lotus Development in 1995 and Tivoli in 1996, re-established IBM as a leader in server

operating system software. When IBM bought Sequent, an internet communications server

maker, in 1999, IBM decided to focus on web applications for small businesses. That same year,

IBM exited the network hardware market and sold its property to Cisco Systems (Cella, 2012).

Throughout the first decade of the new millennium, IBM was becoming a global

powerhouse in database software, disk drive manufacturing, microchips, and servers and storage

systems. In 2002, IBM purchased PricewaterhouseCoopers’ consulting and IT services because

of IBM’s interest in outsourcing, maintenance, and integration services along with moving the

company in the direction of management consulting. As the decade came to a close, the future of

IBM is bright as it has experienced change throughout its history from a failing tabulator

company to a multibillion dollar conglomerate while strengthening its influence in the

information age.

Diagnosis


A discussion of the problematic operation IBM had grown from decades of being the

superior name in computing must be addressed. A new strategy needed to be taken because of

the outdated and obsolete business model IBM relied upon had become too slow and

unresponsive to a new age ascending on the world that required companies to act and react

quickly to changes. A diagnosis of the problems is the first step in analyzing what went wrong

with IBM. Then, a plan to correct the problem and develop and method of creating a sustainable

“Set of short-term as well as long-term goals and a detailed strategy for how to reach those

goals” (Weiss, 2012, p. 46). A diagnosis and a plan to implement the corrections in the findings

will help to put IBM on the right track towards repairing the damage of not reacting to changes

in the market.

A diagnostic change model is introduced to analyze the current state of IBM (circa 1990)

and “Provide the necessary information for designing change interventions” (Weiss, 2012, p. 47).

However, there is not one best way of diagnosing the problems at IBM, a change model will

“Help to reduce the complexity of thousands of things…into manageable categories” (Weiss,

2012, p. 48). Moreover, a change model helps to point out the flaws that need the most attention

and problems among organizational properties like culture, structure, and strategy (Weiss, 2012,

p. 47). Furthermore, the sequence of actions to follow and the vocabulary of how to manage the

change is emphasized to allow the actors become familiar with the new change that is about to

arrive (Weiss, 2012, p. 47). The severity of the problem at IBM required the organization to

make a second-order change, or a radical, transformational change that would involve every

aspect of the organization (Weiss, 2012, p. 63).

The organizational level of intervention showed how extensive the need for change at

IBM but the decision to use change models on an organizational level only leads to ask which


diagnostic model to use on the organizational level. Using the action research model will give

IBM a systematic approach at diagnosing the problems and “Provide objective information and

analysis that goes beyond the superficial level of presenting issues” (Weiss, 2012, p. 65).

The realization of problems existed began to surface in the first quarter of 1991 when

sales began to tumble for IBM (Applegate, Austin, & Collins, 2009, p. 1). However, executives

had felt things were good and improving but they were not feeling great because they knew

before the first indications of problems, that there was a serious structural problem (Applegate,

Austin, & Collins, 2009, p. 1). In April 1992, John Akers, IBM CEO from 1985 to 1993, vented

his frustrations during a company training program. His comment, “People don’t realize how

much trouble we’re in,” made its way from company bulletin boards to the press, shaking

employee and investor confidence (Applegate, Austin, & Collins, 2009, p. 1).

In April 1993, Louis Gerstner was hired to become the seventh CEO of IBM; many

insiders knew the hiring was to dismantle IBM into smaller parts. However, after speaking with,

and learning more of the potential IBM still retained, the customers, analyst, and employees,

Gerstner decided that IBM had more value as a whole than the sum of its parts (Applegate,

Austin, & Collins, 2009, p. 1). The problems Gerstner faced were breeding for over 15 years,

around the time of IBM’s first personal computer.

In 1981, IBM introduced the personal computer and it quickly became the most

successful technology introduction of its time (Applegate, Austin, & Collins, 2009, p. 3).

Although the PC was a hit for IBM, they still maintained that the real money making machine

was in the mainframe (Applegate, Austin, & Collins, 2009, p. 3). The earliest signs of trouble

began late in 1984 as returns on sales and assets were declining. The reason for this was the

customer dissatisfaction over the decision to converting from a leasing oriented business for


mainframes into a sales oriented business (Applegate, Austin, & Collins, 2009, p. 3).

Furthermore, among IBM’s customers, the need to interconnect mainframe, midrange, and

increasingly mobile personal computers with distributed data sources and applications led to

fewer purchases of mainframes, the source of almost half of IBM’s revenues during the mid to

late 1980s and 70 percent to 80 percent of its profits (Applegate, Austin, & Collins, 2009, p. 4).

The moves by IBM facilitated the idea that they had fallen asleep at the wheel; they

stopped paying attention to competition and the changing environment. As companies had grown

around IBM using its innovative ideas and improving on them, IBM muddled around with the

same product line they felt would keep them in business in an ever changing industry. The

conclusion was obvious, an organizational transformative change was needed and John Kotter’s

eight step process for change is the best model to use for IBM.

John Kotter’s Eight-Step Approach

After careful diagnosis, IBM realized that the problems that existed will only be

remedied by a system wide transformation that included cost cutting measures and employees

being laid off. This report will illustrate the change through John Kotter’s eight-step process for

change. Kotter’s model is formulated to be used at the strategic level of an organization to

change its vision and subsequently transform the organization (Pryor, Taneja, Humphreys,

Anderson, & Singelton, 2008, p. 10). Thus, it will work well with the change that is needed at

IBM.

The first step in Kotter’s model is to create the sense of urgency because “People are

encouraged to assist with the change” (Pryor, Taneja, Humphreys, Anderson, & Singelton, 2008,

p. 10). This step is important because if people do not feel the same urgency from the leaders of

the organization, they will resist the change. However, “Close to 50 percent of the companies fail


to make needed change…at the very beginning” (Kotter International, 2012). In late 1993,

Gerstner held a meeting with all 300 of IBM’s CIO’s to declare that he was not going to break-

up the company but rebuild it with the recommendations of its key customers that earlier in the

year Gerstner visited (Applegate, Austin, & Collins, 2009, p. 5). He laid the ground work for the

transformation with his announcement and the leaders of IBM became encouraged rather than

fearing the worst for the company.

The next step is creating the coalition of the right people to lead a change initiative to its

success (Kotter International, 2012). The teams of leaders and managers must be able to

implement the intended change by trusting each other and contributing to a shared goal.

Furthermore, “To counteract resistance, [forming a] powerful coalition of managers to work with

the most resistant people” (Applegate, Austin, & Collins, 2009, p. 10) is an effective strategy.

IBM could use its massive executive level to help convey the message of cohesiveness and

compatibility among the associates gaining momentum for the change that is need.

The third and fourth steps are processes to establish a clear vision the change can build on

and effectively communicate the vision, thus, others can share the vision. A clear vision serves

three important purposes; simplifying the many options that may exist, motivate the organiza tion

as a whole towards a common goal, and it coordinates the actions of people in a fast and efficient

way (Kotter International, 2012). A vision must still be strategically feasible and “Take into

account the current realities of the enterprise, but also set forth goals that are truly ambitious”

(Kotter International, 2012). IBM’s CEO, Louis Gerstner, had developed a vision for the

company that first detailed breaking up the company. However, after speaking with stakeholders

and analyzing the feasibility to rebuild the company, Gerstner decided to create a vision of IBM


that will move the company towards sustainability and competitive advantage in the new

century.

The next step is to “Get rid of obstacles to change by changing systems or structures that

seriously undermine the vision and to thereby encourage risk-taking and nontraditional ideas,

activities, and actions by personnel” (Weiss, 2012, p. 74). To do this, the leaders will need to

overcome the internal barriers those that oppose the vision. Realigning the incentives and

performance appraisals to reflect the change vision can have a profound effect on the ability to

accomplish the change vision (Kotter International, 2012). Holding honest dialog with leaders

and associates will often resolve issues with disagreements over the path of the change and/or

company’s vision. However, it may come down to having to remove those that absolutely are

defiant in changing.

The sixth step in Kotter’s model is to generate short-term wins that will give attention to

short-term performance and reward those that have participated in the completion of these goals

(Kotter International, 2012). People need to be rewarded when they break away from old

behaviors and do something that is new and desirable. Basically it is positive reinforcement. This

is the step where you plan for, create and reward short-term wins that move the organization

toward the new vision change (Pryor, Taneja, Humphreys, Anderson, & Singelton, 2008, p. 10).

IBM recognized the valuable tool of a reward system for those that promote the effectiveness of

the new vision by “Rewarding short-term execution aimed at current markets” (Harreld, O'Reilly

III, & Tushman, 2006, p. 25).

The last two steps are processes that help the organization maintain the success the

change has brought. However, complacency can set in and replace the successes with failure.

“The consequences of letting up can be very dangerous. Whenever you let up before the job is


done, critical momentum can be lost and regression may soon follow” (Kotter International,

2012). The seventh step will ask the leaders to stay the course and instead of declaring victory,

push for more projects to propagate the transformation (Pryor, Taneja, Humphreys, Anderson, &

Singelton, 2008, p. 10). The eighth and final step in Kotter’s approach to the process of change

forces the company to cultivate the new change into the cultural fiber of the organization. By

creating a knowledge sharing culture as IBM has with its implementation of the “Innovation

Jam”, “Would give people a sense of participation and of being listened to, as well as generate

valuable new ideas” (Bjelland & Wood, 2008, p. 32).

Thirty years of research has proven that 70 percent of all major change efforts in

organizations fail because they often do not take the holistic approach required to see the change

through (Kotter International, 2012). However, by following the eight-step process organizations

can avoid failure and become adept at change. By improving their ability to change, IBM has

increased their chances of success, both today and in the future.

Conclusion

This report has demonstrated the effectiveness of John Kotter’s eight-step process for

lead change on the IBM transformation from an ineffective and unprofitable computer company

to a leader in global business solutions. A look into the past illustrates how IBM became a leader

in innovation and technology. History also showed the resilience of the company through a

difficult period in the early 1990’s. This report is in response to that difficulty by demonstrating

the diagnosis IBM used to find the problems it was facing. The change model that represents a

sound approach to the change that IBM required is John Kotter’s eight-step process for change.

IBM’s transformation and revival from the brink of extinction is viable proof that companies that


have become egocentric and “too big” for change can become leaner, more profitable, and add

intangible value to its name.


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