Business information Systems Management pgp18

Case Questions
Case: IBM's Decade of Transformation: Turnaround to
Growth
Factors which led to IBMs problems
As per Exhibit 6, IBMs 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) IBMs 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 IBMs prospective high-growth ventures was a huge
baggage.
g) IBM, over the years, failed to develop its inventions into commercially
relevant products.
h) Although IBMs 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.

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Case Questions

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 IBMs 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.
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 Gerstners message about
the 8 operating principles (Exhibit 4), global re-engineering and holding
executives unambiguously accountable.
Review of Gerstners policies and IBMs turnaround
In general, IBMs turnaround was a successful one by the late 1990s and Gerstners
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 employeenegative. However, on an objective view, these are the essential steps to be
taken.
New executives hired were performing their tasks well.
The EBOs concepts led to more focus on long-term innovation, which is IBMs
core competency.
Cost reduction tactics were essential to IBMs 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.

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Executive Backlash: A number of IBMs 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-1990s era, an update
with the changing market environment is necessary which is resisted by the
very nature of the organizations design.
Reasons why large established companies find it difficult to innovate
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 1970s
Owing to the multitude of accolades that IBM received, its claim to greatness can be
justified
3 of IBMs 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 ICs and was the largest privately financed
commercial project ever at $5billion
IBMs reputation for its products universally regarded as sound solutions.

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Case Questions

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 greatness
As 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 companys exit leaves an unfillable hole
Conclusion over IBMs prospects of becoming a great company again
While IBMs turnaround is indeed a successful one, the company is majorly market
dependent and in a developing phase in terms of establishing a stronghold with
EBOs 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.