IBM Corporation A Case Study Suresh Hosakoppal Vladimir Mazelev Brett Simms Kareem Sumner Strategic Planning for Information Systems Johns Hopkins University – Fall 2002

History Merged three companies to form CTR (Computing-Tabulating-Recording) Thomas J. Watson took over as the president IBM was formed and expanded internationally 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

IBM Market Capitalization 1981 – IBM introduced PC 1984 – IBM captured 70% of worldwide information industry profits 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 – Financial stability proved that recovery was realTimeline

Lack of response to a changing 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 trouble Weakening customer relation IBM’s proprietar y products 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 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 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 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 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 - 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 - 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 - Tactics

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 & A