Ibm's Decade of Transformation: Turnaround to Growth

IBM’s Decade of Transformation: Turnaround to Growth

In the 60’s and 70’s IBM’s success came from their strategy to release the IBM S/360. There was also the market conditions that assisted this success but IBM had positioned itself well and the launch of S/360 set the foundation. “The launch of the S/360 catalyzed a period of IT-enabled business innovation that created new industries even as it transformed established industries and the organizations that competed with them. During that period IBM was viewed as the greatest company in the world.”  (Lynda M. Applegate, 2009, p. 2). The 360 machines was based on “an integrated semiconductor chip and offering interchangeability of its components” (Lynda M. Applegate, 2009, p. 2). IBMs success also came from its other innovations such as the “English-like computer languages, hard disk, floppy disk, and an early version of the automated teller machine.” (Lynda M. Applegate, 2009, p. 2)

IBMs problems stemmed from their failure to innovate to customer needs. They remained on their mainframe platform instead of moving into the client server arena. “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 IBMs revenues.” (Lynda M. Applegate, 2009, p. 3) Another problem they faced was internal infighting amongst its divisions. The infighting or “turf battles” created too much conflict for them to innovate in a way that would support revenue growth. IBM was also considerably large, it had “20 separate business units, which collectively sold 5,000 hardware products and 20,000 software products.” (Lynda M. Applegate, 2009, p. 4) This kind of expansion had its challenges as IBM found itself often developing products that while “their designs were different, the components served exactly the same purpose.” (Lynda M. Applegate, 2009, p. 4)

The biggest and most pressing problem was their constant loss of revenue.

By 1993, IBM was in turmoil and on the verge of being broken up and sold and Gerstner was hired to turn things around. He faced quite a few challenges such as:

• Changing the culture to a customer focused culture  
• Preventing a “Brain Drain” to competitors: keeping the talent at IBM
• Lack of efficiency with brand management: A number of products were produced that essentially did the same thing

After assuming the CEO role, Gerstner immediately began to work on making IBMs focus more customer centric. Gerstner made this very clear in his first few months in charge. At a sales meeting in 1993, he personally met with customers. “I’m going to the whole conference. I’ll be there the first night. I’ll have dinner with them, I’ll have breakfast with them. I’ll have lunch with them. And any IBM executive who wants to attend must stay for the whole three days.” (Lynda M. Applegate, 2009, p. 5)  He then went on to spend considerable time with the customers, analysts and industry experts. This would give him a feel for what was truly happening. His approach to the problem at hand was very methodical and involved four main areas: Customers, Executives, Employees and Products. Handling crises of this magnitude is no small feat however Gerstner’s approach proved very successful. He immediately started with the top brass. He realized that his executives had become comfortable in doing things the same ‘IBM’ way and that he needed to change this in order for the business to return to profitability. In asking the executives to write a paper on their area of the business, was a brilliant strategy. This gave him an idea on how in touch the executive was with their area of responsibility as well as how they would be able to make the necessary changes to turn things around. His one-on-one meetings then gave him that personal touch, allowing both of them to discuss the issues. It also gave Gerstner the chance to see if the executive was able to discuss the issues without the extra support staff.