IBM – The Epidome of Success
During the 60s, IBM invested $5 billion to build the IBM System/360 – a series of main-frame computers. The 360 computer series were perfect examples of disruptive technology. They worked on a broad range of industrial and scientific computer applications. They were exceptionally successful in the marketplace. On account of the 360s, from the 1960s to 1985, The company’s sales grew 14% annually. IBM was the marketplace leader in the computer sector. During the 80s, IBM captured 70% of the earnings and 40% of the revenue of the marketplace.
And Then, the Marketplace Changed
The UNIX operating-system was developed by a team of AT&T staff members at Bell Labs. UNIX was based on a client server design. It was coded in C code, a high level software programming language, which meant that this could be set up on any computer system that had a C-compiler. IBM was no longer the only one setting all the rules.
By the late 1980s it found themselves within the low profit margin zones of the industry. With 400,000 staff, it became a large, burcratic, international enterprise that could not compete with smaller and much more agile firms. The company had become content and arrogant.
Is it Possible To Turn The Company Around?
John Akers, the Chief Executive Officer, started taking extreme measures. Low margin portions within the business were sold or dropped, and plans to break up the core business into smaller sized independent units were being undertaken. Nonetheless, these initiatives were not adequate. In 1991, IBM reported corporate losses. In January of 93, IBM reported a $8.1 billion dollar loss. Up until then, this became the greatest corporate loss in history. The marketplace pounded on IBM. Countless people were let go.
In 1993 Lou Gerstner was approached about the job. He was a Harvard MBA, had worked at McKinsey & Company, had run the American Express Travel Related Services Group, and had experience as CEO at RJR Nabisco.
To deal with IBM’s severe cash problem, Gerstner sold off the company’s unproductive businesses.
Service Vs. Simply Hardware
Gerstner understood IBM’s business model couldn’t work. After expending time with numerous clients, Gerstner grew to be certain that customers were anxious to turn over their technology operations to top support providers who could visualize, design and create end-to-end solutions. Gerstner was clear that the future of the future of the computer industry would be services-led instead of computer hardware-driven. Therefore, the mainframe computing mindset needed to adjust.
Didn’t Split IBM Up
Rather than breaking the company up, Gerstner went against the grain and made the decision to keep the corporation together.
Gerstner chartered 60 reengineering projects centered on core and support processes, and various IBM sections initiated 100s more. The re-engineering saved IBM $14 billion and reduced its computer hardware development cycle-time by over 400%.
Gerstner combined IBM’s marketing efforts from seventy various media agencies to just one. The new agency developed the well-liked “Solutions for a Small Planet” advertising promotion, that introduced IBM as the world-wide technology firm and a world-class solutions integrator.
By the middle of the 90s, IBM’s services business was far less important to the firm than its hardware business. IBM became the most successful solutions business in the industry. By 2001, IBM services resulted in $30 billion in income.