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Case Introduction
IBM’s Decade of Transformation, Turnaround to Growth is a fascinating case study from HBR. The Case Specifically describes the role of Gerstner in the transformation of a large corporation like IBM. IBM has historically been an organization that has been pivotal in creating disruptive products in the market. Eventually, due to internal silos and lack of focus. From one of the biggest corporations in the modern-day world to losing sight and direction in 1990, the case is a fascinating example of how core leadership steers the organization in times of crisis. Even famous Hollywood movies like “Space Oddessey” paid tribute to the IBM
IBM Journey and its Growth timelines: IBM’s Decade of Transformation
1911
IBM was founded by the merger of three companies. Was far ahead of its time and created many disruptive products
1914
Thomas J Watson Joined the IBM. He became an icon who drove the development of new products and innovation culture at IBM
IBM’s Decade of Transformation: Growing Beyond Watson Era
1952
Watson Jr led the company for the better and through its strategic vision to the height of success. IBM sales team became a force to reckon with, powering nearly two-thirds of businesses worldwide. As one of the early technology companies, IBM invested heavily in technology and innovation
1981
IBM PC market grew up to $50 Billion market. IBM became a dominant player in the market. Also came up with mainframes and mid-range products to support and grow smaller businesses
1984
IBM became the leader of the IT market and was able to capture the 70% profits of the industry through the mainframe. The Personal PC space was heating up significantly and IBM emerged as a major technology giant in the field.
1990
IBM became world second most profitable company with net income of $6 billion while with the revenues of $69 billion. It was also one of the most valued organizations of the world
IBM’s Decade of Transformation: 1991-1993
By 1991 IBM earnings dropped to negative $2.8 billion. During this period, IBM was facing the structural problem that results in aggregate losses of $16 billion. It was also facing major challenges in cultural issues and innovation. The core strengths of IBM – Innovation and new products were getting overshadowed by organizational hierarchy and slow decision-making, Faced immense pressure from disruptors like Dell and Compaq which made significant inroads in the PC industry.
IBM’s Decade of Transformation: Gerstner’s Era
Gerstner joined as the CEO and initially thought of divesting the company. However, he focussed on many core areas to enhance and advance the competitive edge. He transformed the organization with a strong focus on technology and fostering an innovation culture. He also started his focus on customers and took time to meet and email them personally thereby re-initiating the customer focussed culture for which IBM was known. He also made executives accountable for their jobs and made them deliver results.
Why do large established companies, like IBM, find it difficult to build a successful and sustainable new business?
We will analyze the case from IBM’s Decade of Transformation HBR Case Study.
Change in Business Landscapes: Without visionary leadership, companies lose focus on
upcoming changes. Eventually, they become too rigid and lose agility to switch to other emerging
technologies. In IBM’s case, their focus was not on small and mid-range mainframes and PC.
They also did not invest heavily in upcoming trends like client servers and networks computers
Too Much Focus on One Function: Larger Organizations become too focussed on one or few core
departments. In IBM’s case, it was largely becoming a sales-focused organization moving its focus and customer orientation
Development of Inbuilt Silos: In IBM’s case, data processing costs were significantly higher (up to 3X)
even though they were pioneers in the field. Even except Thinkpad the dedicated models had very
high fixed costs
Strategy Incoherence and Miscommunication of Strategic Priorities: Due to Organizational silos, the
top management often get detached from managerial grade people. It results in poor
communication of strategic interests and priorities which eventually leads to poor execution
Cultural Inertia: Giant Organizations like IBM often get contended with the status quo and eventually
get poor in innovating products and processes. IBM had some great products but could not
commercialize them due to poor execution or operational capabilities
Not leveraging Economies of Scale/Scope or Experience: IBM could not develop commonality
across various platforms. As a result, they could not command cost efficiencies. Commonality across
5000 Approx. models were not exercised.
Successive Product Failures: IBM few products have bombed the market. IBM 9370 platform in
the mid-market range had failed
Emerging Competition or Disruptive: Products: Companies like Dell and Compaq came up with
disruptive services. Dell offered full customization and great service. IBM was feeling significant
pressure from these competitors
Managerial In-Efficiencies resulting in slow decision making: Managerial decision was significantly
slow resulting in a loss of competitive advantage in the market
Lack of Entrepreneurial Gap: Employees are not challenged enough to develop significant, new and
innovative business lines. As a result, they cannot focus completely on competitive advantages like
differentiation and innovation
Complacency: Though not mentioned explicitly in the case, bigger companies become complacent,
hence resulting in poor customer service and losing of competitive edge. Similar things happened in
the case of IBMs case in pre Gerstner’s Era
Deviating away from Customer: Due to this complacency and in-house silos, they lose out from the
strong customer connect which made them a significant player in the segment
Evaluate IBM’s approach to leading mature, high-growth, and emerging business
opportunities?
| Measuring Guidelines | EBO | High Growth | Mature |
| Goal / Defining Parameter | Develop Future business opportunities Create Disruptions | Significant Scaling Operational Efficiency Introduce new products Exploit synergies and economies of scale and scope | Defend the Core business Delay the decline of fall |
| Risk Management | Not Well Defined Manage Alternatives in case of Failures Disruptive thinking | Enable Positioning and Business growth Stability Managing Alternatives through platform | Incremental Mindset |
| Investment | Invest Heavily so that it become a huge success | Invest in operational efficiency Invest for operational excellence Customer orientation for alternatives | |
| Leadership Merit | Top Executives | Business Leaders | Business Leaders |
| Skills | Risk Taking and Entrepreneurship Focus Erratic and innovative flair | High Degree of Focus on Product Line Strong People Management | Motivate People |
| Culture in the organization | Learning Fail and Fail Early Innovation | Planning and Execution | Operational Excellence |
| Process Orientation | Randomized and Agile to change course if required | High Orientation in developing process to manage robustness | Lesser process orientation to reduce costs |
| Financial Prudence | Not Much – Not a huge impact financially even if it fails | Very Strong Control and management of resources Navigating financial resources and proper distribution | Have Very Strong control Manage pilferages |
| Focus on Brand Building | Not Much – Product Viability focus in more | Very Strong to develop Brand Recall and knocking alternatives | Retain the brand image |
| Customer Understanding | Evolving and Changing | Strong understanding of core customers | Pursuit of finding new customers |
Samrat is a Delhi-based MBA from the Indian Institute of Management. He is a Strategy, AI, and Marketing Enthusiast and passionately writes about core and emerging topics in Management studies. Reach out to his LinkedIn for a discussion or follow his Quora Page