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Name: Sanjoy Mondal


Sec: D


IBMs Decade of Transformation: Turnaround to

1. What factors led to IBMs problems?
The most important factor that led to IBMs downfall was its failure to
adapt to change. The companys arrogance of not changing played its role
along with presence of deep structural problems. IBMs business policy
change from leasing mainframes to selling them, coupled with
departmental feuds also played their role. IBM disregard towards
changing customer requirements and the need of interconnecting
mainframes, midrange and mobile personal computer also reduced IBMs
sales volume. Moreover multiplication of fixed costs due to expansion of
IBMs other departments and lack of integration among the departments
and the products they produced also proved to be a serious threat.
Duplication of products performing same function, and processes, quality
issues and poor internal IT management also took its toll. Moreover
increasing product complexity, data processing costs and deep
hierarchical organisational structure coupled with huge dependency y on
corporate staff also had its effect. Moreover flawed SBUs and more focus
on selling current products, serving current customers rather than
developing new customers and sustaining them was another wrong
strategic decision, that led to IBMs downfall.
2. What actions did Gerstner take when he assumed the role of CEO
in April 1993?
Gerstner focussed on restructuring and reorganizing the flawed SBUs by
adopting the One IBM strategy. He started giving customers satisfaction
the highest priority and he got directly involved in sales meetings. He remodified the the hierarchy by reducing the number of CIOs to one for
each department who would directly report to CEO. In house applications
were reduced along with integration of technologies based on customer
demand. He started re-organising the organisation culture by making
executives responsible for their assigned customer accounts &
accountable for future problems. He started strict measures like
performance based pay, approved layoffs, sold or closed underperforming
business parts and also outsourced PC manufacturing. Moreover he
implemented dear colleague notes to pass on key information to
employees, fired senior executives who edited notes in their favour and
developed standardized event driven product development process.
Standardisation of procurement, logistics and fulfilment processes and
reduction of product development expense, outsourcing minor activities to
3rd party vendors also goes to his credit. Partnership and horizontal
relationships with companies like SAP, Peoplesoft helped IBM on the longer
run. During his tenure IBM adopted e-business strategy making enormous

investments in internet products and services and shifted IBMs focus from
software applications to middleware. He developed an open technology
model of work in IBM and organized EBOs to ensure corporate guidance
and oversight.

3. How well did he perform as a turnaround manager?

Gerstner as a turnaround manager performed really well. The changes he
brought in IT operations resulted in a reduction of 50% in costs at data
canter. Direct cost savings in internal expenses increased and ROI also
increased between the years 1994-96.Changes in Enterprise Support
processes also resulted in direct savings, cost avoidance and increased
cash generation. Also costs related to different departments like HR,
Finance reduced and purchasing expense also improved over the years.
Abandoned project expenses, warranty expenses, product development
expense and new product development time also became less. E-learning
helped in developing employee competency and partnerships with Siebel
helped IBM to launch BPO service offering. All in all increase in server
revenues, software revenues and revenues from EBOs helped IBM to
regain its lost glory.
4. What challenges did Gerstner and his successor, Sam Palmisano,
face as they attempted to position IBM for growth and
The challenges faced by Gerstner and his successor were to mould IBMs
processes and organisational culture that was prevalent. Focus on short
term rewards rather than long term and lack of importance on strategic
business building were the major hurdles. Moreover reluctance to any
change, more specifically to high growth/high price to earnings ratio
business, also was a challenge. Lack of discipline, and poor processes for
selection, funding, experimentation resulted in termination of businesses.
Poor track record for commercialization, poor execution of new IBM
ventures and operations, innovations still managed within silos were also
detrimental challenges in the hands of Gerstner and his successors.

5. Why do large established companies like IBM find out it so difficult

to innovate?
Large companies like IBM find it difficult to innovate because of the
reluctance of organisation to change. Reluctance to change in processes,
culture is not only harmful but also leads to the development of a huge
hierarchical organisational structure where very department strives for its
own benefits rather than good of the entire organisation. It results in
organisational silos where information is not passed across barriers and
the entire organisations energy gets involved in solving internal feuds
rather than focussing on competitors.

6. What made IBM a great company during the 1990s and 1970s?
During 1970s IBM flourished as an organization because of its
organization culture & core values. IBM emphasized on Dark suited
salespeople, strong culture of corporate pride & loyalty, Lifetime
employment & Work ethics. These factors were motivating for the
organisation. During Watson Jr. time IBM made $5bn investment in
development of system 360 computer, development of FORTRAN
language, invention of Hard disk / floppy disk technology, installation of
Supermarket checkout station & Automated Teller Machines (ATM).All
these turned out to be positive for IBM.
During the early 1990s the then CEO, John Akers realized the need
of the hour & implemented cost cutting measures like cutting employee
perks, Voluntary Retirement Schemes (VRS) schemes & forced layoffs to
reduce the workforce. These measures were the needed during those
critical times and helped IBM to survive. Moreover Gerstners strategic
moves helped IBM to leverage upon its IT operations, enterprise support
processes, revenue generating capabilities, business analytics; IT enabled
product / service offerings & created new options in terms of Life Sciences,
Business Transformation Services. All these increase IBMs revenues and
helped it to maintain its market position.

7. Can the company became a great company again, and what is

your definition or greatness?
Yes, a great company can regain its lost glory if it focuses its efforts on its
core competencies, which it had developed over the years. Moreover it
should be open to changes, have a dynamic leadership, and be fearless to
take challenges, focus on innovation and customer service. Moreover it
should focus on excellence and be a good corporate citizen.
Greatness of an organisation, according to me does not only lie in
the amount of profit it generates, but also in how much it is returning to
the society. A great company should be one whose goals should focus on
development of the community or environment around it.