IBM Corporation

A Case Study

Suresh HosakoppalVladimir Mazelev

Brett SimmsKareem Sumner

Strategic Planning for Information SystemsJohns Hopkins University – Fall 2002

HistoryHistory

1911 - Merged three companies to form CTR

(Computing-Tabulating-Recording)

1914 - Thomas J. Watson took over as the president

1924 - IBM was formed and expanded internationally

1952 - Thomas Watson, Jr. took over the leadership

1960s - Unsuccessful anti-trust action against IBM by the

justice department

1980s - IBM considered to be “The model” US company

0

50,000

100,000

150,000

200,000

250,000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998

Mill

ions

of d

olla

rs

IBM Market Capitalization

1981 – IBM introduced PC

1984 – IBM captured 70% of worldwide

information industry profits

1985- Akers the new CEO’s comments “successful beyond our wildest expectations”. The same year returns on sales, assets, and

equity begin to weaken

Late 80’s – Several new products flopped and

customer relationships weakened

1988 – Company wide re-organization for better resource allocation and

market trends. Volunteer retirement for 20,000

employees

1993 – Louis Gerstner - First “outsider” hired as the CEO. New leadership

helped to turn the company around

1992/93 - Cost reduction efforts. Large scale layoffs.

Talks to breakup IBM Corporation. Akers Fired

1991 – Weakened demand for

mainframes. End of “No Layoff”

policy.

1995 – Financial stability proved that

recovery was real

TimelineTimeline

Lack of response to a Lack of response to a changing Industrychanging Industry

Situation: Client/server model vs Mainframe. Decentralized computing and moving away from centralized MIS organizations

Strategy: IBM did not want to cannibalize mainframe and fell behind Intel, Microsoft, Cisco and Dell in the client server market.

Early signs of troubleEarly signs of troubleWeakening customer relation

Weakening customer relation

IBM’s proprietary products

IBM’s proprietary products

Parts of the company were still operating in growth model while some were showing

losses

Parts of the company were still operating in growth model while some were showing

losses

Legacy mainframe product did not

interoperate with the emerging technology

Legacy mainframe product did not

interoperate with the emerging technology

Customer demanded

higher quality

Customer demanded

higher quality

Complex organization- 20 separate business units, 5,000 HW

products, 20,000 SW products

- Redundant product designs and processes

- Poor internal IT management (125 data centers, 128 CIOs)

- 31 private and separate networks.

Complex organization- 20 separate business units, 5,000 HW

products, 20,000 SW products

- Redundant product designs and processes

- Poor internal IT management (125 data centers, 128 CIOs)

- 31 private and separate networks.

• Workforce (20,000) reduction in the mainframe areas via volunteer retirements

• Reduction of employee perks• Talks of breaking up the company and

spinning off the PC division• Getting into service business, rather than just

products• Changes resulted in temporary upside but did

not last long

Akers EraAkers Era

• Leadership from outside the company (breaking the IBM tradition)

• Customer focus• Meet and know your customer

• Be on your customer side

• Increase customer relationship

• “Operation Bear Hug”. Develop relationship with customers to maintain their accounts.

• No-nonsense focus on bottom-line business issues

Gerstner EraGerstner Era

• Focused on the company strategy • Formed the Corporate Executive Committee and Worldwide

Management Council

• Input from senior executives to formalize strategies

• Executing strategies is the real issue• Cost reduction

• More layoffs

• Sell non-core businesses (IBM Federal systems)

• Re-engineering and global processes development

Gerstner EraGerstner Era

• Take “One IBM “ to the market. Integrate and deliver as one company

• Think more like a marketing company by connecting research and marketing

• Global sale organization to get the right knowledge to the right sales person• Customer relationship managers and sales specialists

• Advertise to achieve globalization• Change advertising strategy

The New IBM - StrategiesThe New IBM - Strategies

• Regain IBM brand• Initiate product brand names

• Keep only the successful one (Thinkpad)

• New product strategy• Focus on server rather than PC (Drop OS/2)

• Keep the focus on Mainframe

• Distributed computing software (Acquired Lotus)

• Network products, HW products, and Software products.

• Recentralize functions.

The New IBM - StrategiesThe New IBM - Strategies

• Empower line managers and executives and hold them accountable

• New employee performance evaluation system• Acquired Lotus for collaboration• Coined “e-business” and “network-centric

computing” phrases

The New IBM - TacticsThe New IBM - Tactics

Future ?Future ?

IBM should continue its

corporate cohesiveness with the focus remaining on a

“One IBM”

Continue to be the industry’s trend leader

IBM’s strength’s lie in enterprise

and partnering with large companies to deliver

complete solutions

Be wary of its competitors (Microsoft, Compaq, SUN etc.)

acquiring major consulting firms.

Instead of competing against companies such as

Dell and 3Com, build and grow relationships with them

Continue to fill gaps in its portfolio through

acquisitions in the software and consulting

sectors

Q & AQ & A