Emerging

Business
Opportuniti
es at IBM
Presented by: Section 2

Overview of Key Events

1911

Founded in 1911 and a leader in computer companies for many years. Led the
innovations like System/360 family of products, floppy and early versions of ATM

1991

IBM stopped growing after 45 years in a time when the industry was booming

1993

For first time IBM hired outside CEO-Lou Gerstner and managers viewed new business
opportunities as distractions or threat to core business

Mid 1990s

Starting of its service business and a steady improvement was observed but still lagging
the competitors. They were also not able to capture new business opportunities

July 2000

Thompson, a 34 year veteran of IBM, was promoted as Vice Chairman and put in charge

Mid 2002

Revenues of most of EBOs rose sharply but the process remained informal and
corporate strategy group took over the responsibility of EBOs

2003

The EBO system was firmly established

Revenue Across Years

Revenue Across Years
100000
90000
80000
70000
60000

Revenue in $ Milliions

50000
40000
30000
20000
10000
0
1990

1992

1994

1996

1998

Years

2000

2002

2004

External Environment
Raw
Materials
Sector

Industry
Sector

Human
Resource
s Sector

Suppliers

382000
Employe
es

$1 Tn
Industry
$648 Bn IT
Services

Considerabl
e fall from
peak
employee
count of
434000

Financial
Resource
s Sector

Revenue
81.74billio
n USD
(2015)

Net inco
me
:
13.19billio
n USD
(2015)

Market
Cap

Technolo
gy
Sector

Market
Sector

Biggest
Clients
include
American
and Chinese
government
s
Increased
Focus on
Emerging
Markets

Sector
defined by
constant
change and
rapid
innovation

Emerging
technologies
causing
disruption

Setting up of
EBO Division
to keep pace
with sector

Henry Mintzberg framework analysis

Had a large group of

innovative people
Faced a lot of funding and
support issues with their ideas
and ventures

While requirements for

different EBOs were different
same team attended all
Younger members as heads
lacked in experience and
credibility

Administrativ
e
Support

Technical
Core
Technical
Support

Good with upcoming

technologies but not
with finances and
organisation
Had to compete with
business model of

Headed a company with strong

culture and well established market
Decisions difficult if EBOs involved
in new market segment with
sketchy finances

Top
Management
Middle
Management

Focussed mainly on the core

business and concerned about
fitting the EBOs
Considered EBOs as
experimental ventures rather
than potential business

Emerging Business Opportunities

Dont represent business as usual and require lot of care and support for
they would shape future revenue-producing businesses
Has potential growth area for IBM as meets its consumers needs and
investment required to discover and develop a market
Provided room for discovery and development for expanding the business to
newer markets and market segments
Commercialising new concepts and technologies in a untested market not
easy so several inhibitors will have to be countered
Were selected based on

cross-IBM resource needs

maturity of their strategies and business plans
Potential size of their markets
Perceived value to be added from corporate oversight

Keys to Successful Implementation

Engage
directly with
market place
Managed by
experience
since start
start-stage
Focus on
business
opportuniti
es

Innovation
&
Refinement

Innovation Management for

Introducing Innovations
Learning

Signal
Processing

Scanning
Environment for
technological market
and other signals
Collect and filter
signals from
background noises
Scan forward in time
Process signals into
relevant information
for decision making

Strategy

Scanning
Environment for
technological market
and other signals
Collect and filter
signals from
background noises
Scan forward in time
Process signals into
relevant information
for decision making

Implementati
on

Resourcing

Scanning
Environment for
technological market
and other signals
Collect and filter
signals from
background noises
Scan forward in time
Process signals into
relevant information
for decision making

Scanning
Environment for
technological market
and other signals
Collect and filter
signals from
background noises
Scan forward in time
Process signals into
relevant information
for decision making

Three horizons of growths

Horizon 1

Horizon 2

Horizon 3

Mature and well

established

Rapidly growing
business

Emerging business

Account for bulk of

profits and cash flow
Comprised of the
stable and
predictable business
Traditional budgeting
and control systems
Evaluated by
productivity
improvement,
profitability and cost
cutting

Were experiencing
accelerating growth
and profitable in
medium term
Needed disciplined
risk taking and
significant resource
commitments
To be judged on
revenue growth and
market- segment
share gain

Were less well

developed than H1
and H2
Required visionaries
and unconventional
thinkers
Measured in project
based milestones
Markets yet
unrealised and
financial structure
sketchy
Psychological
rewards and career

Horizon growth model

Advantages

Catered better to each businesses

distinctive strategic and
operational requirements
Different business measured on
different dynamic parameters
Assessment diversified to ideas
and innovation other than revenue
Allows space for new business
which cant compete with existing

Disadvantages

Large scale change may face

resistance and gaming the system
Lack of measurable design for
transition from H3 to H2
Pressure on H1 for profitability so
as to fund H2 and H3
Didnt cultivate business-building
skills in the divisions
Biases of operationally oriented
managers

Growth Rate vs Level of Uncertainty

Horizon 1

Horizon 2

Horizon 3

Wireless

On Demand
Workplaces

Growt
h
Rates

Digital
Media

Linux

Learning
Solutions

Life Sciences

Grid
PLM

Core
Business

Growth
Business

Safety and
Security

Flexible Hosting
Services

Level of Uncertainties

BTO

Emerging
Business

Organizational Structure
Functional Structure

IBM had a functional

structure with a strict
distinction between areas
such as marketing and
research and development
until 1988
Allows economies of scale
within functional
departments
Results in less innovation
Caused hierarchical
overload with increased
bureaucracy

Divisional Structure

IBM has now split up its

product range into divisions,
each with their own
production, marketing etc.
staff.
Suited to fast changes in
unstable environment
Led to increased interdivisitional rivalries
Loss of long term strategic
vision

Matrix Structure

IBM is now moving towards

a matrix structure
Structure tailored for
maximum and fast
innovation by giving more
authority to employees
Flat structure of its different
units which is best for fast
innovation and research

Organisation Design
IBM had a mechanistic design due to its long legacy of
success

Well-placed centralised structure

Specialisation of tasks
Formalised rules and strong cultural norms
Strict hierarchy of authority
Vertical channelized communication

It had worked prior to 1990s as

Large market size

Efficient strategy
Stable environment
Majorly committed to manufacturing

Organisation Design change

Typical contingency factors faced currently

Small size of EBOs

Innovation strategy
Dynamic and expanding industry
Shift towards service technology

Required a shift to organic design to

Decentralised decision making authority

Collaborative team work
Informal rules and flexible norms
More interactive and interdependent roles

Organizational Strategy
Porters Competitive Strategy:
Differentiation
Learning Orientation

Miles and Snow Typology:

Prospector
Focused on learning

Flexible and Loosely

knit

Decentralised
Structure

Strong Capability in
research

Fluid and Flexible

Customer centric
Approach

Suited for dynamic

growing environment

Reward employee risk

taking and innovation

Increasingly used by
technology companies

IBMs traditional business also follows analyser typology,

balancing stability with innovation

Organisational culture: Adaptability

Organisation characterised by mission culture as was serving
specific customers in the external environment
With stable business environment there wasnt need for rapid
change
More emphasis on clear vison and achievement of goals like sales
growth, profitability or market share
adaptability culture with strategic focus on external environment
through flexibility and change to meet consumers need most suited
Encourages entrepreneurial values, norms and beliefs to translate
external signals to responses

Key Areas of Analysis

Barriers for large companies like IBM to create new businesses?
Evaluations of horizon growth model and distinguishing
features of emerging business , H3
Evolution and accomplishments of EBO over time

Key elements of present EBO system and their evaluation

Future of busineeses reaching H2 phase and plans to increase
EBOs

Primary barriers to new businesses

At organisational level
Comfort and confidence in the present structure
People get adjusted to culture and find unlearning difficult
Department and staff changes requires strategy remake

At the functional level

New ideas require lot of time and resources which are usually scarce
Balance of Power change and conflict due to change in authority

At group level
Group cohesiveness and informal expectations disrupted
Alters task and role relationships so new norms needed

Distinguishing features of H3
Each stage unique, therefore allowed unique strategies to
go through
Still in advancement stage so slow growth allowed so that
creative ideas get proper incubation
Determining the stage would enable handling the
challenges well with the needed strategies
Flexibility to change situations in rapidly changing market
makes it abler to deal with the emerging opportunities

Evolution of EBO
It moved from traditional to modern method by creating
a common place of control and balancing various levels
of investments
In the Thompson era activities were being consolidated
and people assigned clear role in the organisation
Monthly reviews and self-evaluation assessments tool
place
These helped define the new ways of doing business
Corporate strategy era began the use of EBO plans
The stages of organisation development were
recognised as plans became well know

Key elements of EBO management

system
Key elements include leadership, coming up with strategies, resources and
monitoring systems

These development strategies to enable the organisation to carry out its core
objects in future

Review meetings to help restructure them into achievable strategies

Key human resources inside and outside to provide necessary support

Monitoring ensures that funds used in economic manner to get the output

Analysis of these makes compliance to established std. measureable

EBOs and Companies in Horizon 2

Status
A important decision would be how to reach H2 status
while increasing the number of EBO
Business units reaching H2 could be shifted to different
locations to allow adjustments that will cover for risks
Combine its business activities with the rest of the
organisation to achieve coordination of activities
More and experienced employees to be hired to run and
manage the system and adopt strategic management
process to identify opportunities
Time management required for setting its strategic goals

Alternative Design ideas

Open system
With rising number of competitors and transition to service industry couldnt
stay sealed off
Had to find and obtain needed resources
Interpret and act on environmental threats and opportunities
Control and coordinate internal activities in sync with outside changes and
insecurities

Chaos theory
Managers cant measure, predict or control the surprise and rapid changes
These randomness and disorder occurs within certain larger pattern of order
Organisation be viewed as natural system than precise, predictable machines

Matrix structure
A simplified and effective matrix structure required as both technical
expertise and product innovation and change needed to meet goals
Functional, divisional and geographic structures combined with horizontal
linkages do not work
Most suitable to present challenges faced
Condition 1 : share scarce people and equipment across product lines
Condition 2 : critical outputs pressure- technical knowledge and new products
Condition 3 : frequent external changes and high interdependence internally

So vertical and horizontal authority lines require equal recognition, thus dual
authority needed for balance of power
Product matrix more suitable as project managers have primary authority
and functional managers simply assign personnel & give advisory expertise

Thank You !!