Transformation of the IBM Management

Transformationof the IBM Management

Theimportance of management cannot be gainsaid as far as safeguardingthe profitability and sustainability of a business entity ororganization in both the long-term and short-term is concerned.Indeed, the management has everything to do with the determination ofthe goals and objectives of a business entity at a particular timeperiod, as well as the determination of the resources that are to bechanneled towards the attainment of those goals. More often than not,the success of a business entity in enhancing its sustainability istied to its capacity to take advantage of the opportunities thatexist within and beyond its existing markets so as to improve itscompetitiveness. Unfortunately, there have been instances where themanagement of a company has failed to chart the appropriate wayforward for the company, leading to immense losses and threateningthe survival and mere existence of the business entity. This was thecase for IBM, a world renowned computer technology consultantcompany. The company was fortunate enough to have a dedicate group ofindividuals to turn around its fortunes when its survival wasthreatened by the complacency of its management.

Itis noted that despite the fact that IBM was holding a top spot in the80s Fortune’s list, the image had largely been brought down by theearly 90s, with the company requiring quick salvation. Not only wasit facing immense competition from its rivals such as Microsoft,Compaq, Digital Equipment and Fujitsu, but the company was alsoeating into its own popularity and reputation as a result of thearrogance of its managers. Within a few years, the company’s imagehad become downgraded from that of a master in computer world to aflipping representation of corporate arrogance. Researchers havenoted that as much as IBM had played a key role in the creation ofthe computer industry and increased the popularity of personalcomputers, it had failed to adapt to the changes of the marketleading to an immense fall in its earnings. There was a widespreadfeeling that the arrogance of the company had played a key role inthe fall of the company from grace. This decline started as a resultof the exchanging of business that leased mainframes to one that soldthem, which ultimately resulted to less mainframe purchases. Ofparticular note is the fact that the mainframes formed almost halfthe sources of the company’s revenues (Lindquist et al 425). On thesame note, identical thinking may have stood in the way of thecompany’s capability to adapt to the speedy course of the personalcomputer market. In essence, the company’s advertising efforts forthe personal computer went down, with other retailers accomplishingmuch more than the company in PC marketing. Irrespective of the highquality of IBM PCs, the company was simply not dedicating sufficientefforts in their sale (Lindquist et als 432). There were departmentalfights between the autonomous sections of the company, which seemedto take up a large proportion of the company’s time compared to itscampaigning in the industry.

Itis noted that by the end of 1994, the company was experiencing a3-years cumulative loss of $15 billion while its marketcapitalization had dropped from $105 billion to around $32 billion(Hamel 138). Nevertheless, the company managed to turn its dwindlingfortunes around and become one of the most successful companies bythe turn of the century, with its Global Services unit experiencingphenomenal growth to become a $30 billion business that employed over135,000 employees (Hamel 138). It became a business that attractedcorporations and business entities in hordes, coming for consultancyservices to the company, which would assist them in thecapitalization of the internet. It is noted that the company hadreinvented itself to the extent that it managed to complete 18,000e-business consulting engagements, while approximately a quarter ofits revenues related to the Net (Hamel 138).

However,its re-invention revolved around determining the areas in which thecompany was missing its revenues or rather the loopholes that existedin the company’s framework. It is noteworthy that, despite thecompany’s stature as a technology giant, it had failed to take intoaccount the changes in technology particularly with regard to thegrowth of the internet. Nevertheless, it had to reinvent itsmanagement organization, organizational culture, implementation andexecution among other things.

Thesolutions and business approaches for the company were aimed atstopping losses and regaining its status and the profitability thatit at one time had as a key player in the technology industry.

Oneof the key changes that it effected was in its management. It isnoted that the company’s previous management that was headed by Mr.Ackers had been incapable of charting the right course so as toreverse the decline or downward trend of the company’sprofitability. This made the investors increasingly impatient withthe declining performance of the company, which resulted in theappointment of Lou Gerstner as the new chairman and CEO by the Boardof Directors so as to oversee the change activities of the company(UhlandLars46).

Inaddition, there was the organizational restructuring that the new CEOundertook in the company. Indeed, upon the assumption of theleadership position in the company, Gerstner set his sight on therestructuring and reorganization of the company. The businesses ofthe company were grouped into three fundamental categories. The H1category was for the short-term mature business, while H2 took careof rapidly growing the business and H3 for the emerging businesses inthe long-term. H1 had 155 data centers, which were reduced into 3regional data centers. In addition, Gerstner lowered the number ofCIOs to only one who was charged with the responsibility of making adirect report to the CEO. Further, the CEO reengineered the systemdevelopment process, with the number of in-house applications beingcut down from 16000 to around 5200 (UhlandLars57). This was complemented by the integration of new technologiesthat were aimed at meeting the demands of the client. On the samenote, the reengineering process involved the reduction of the coststhat the company had to incur in the short-term and long-term. It isnoteworthy that a large proportion of its expenses were going to thebloated workforce, in which case the company cut it to 86,000 from215,000 (UhlandLars58). The cost reduction was, in this case, complemented by thereduced budget for the company’s research and developmentactivities.

Inaddition, there was the reorganization of the organizational cultureof IBM. The new CEO was perfectly aware of the necessity formodifying the organizational culture of the company so as tofacilitate the smooth transformation. A document referred to as “OneVoice” became the centerpiece for the organizational culture’snew e-business strategy. The booklet communicated the goals of thecompany to the employees thereby assisting them in comprehending thegoals and objectives of the company. As much as this booklet did notalter IBM, it resulted in the reorientation of its strategy andalteration of its culture.

Giventhat the company was recognized as technology giant, it wasimperative that the new CEO pay attention to the role of technologyin the company. An analysis of the company’s performances resultedin the conclusion of the fact that the mainframe computer businesshad a likelihood for offering diminishing returns (UhlandLars64). He believed that the mainframes would be increasingly replacedby client-server networks that used desktop computer technology. Asmuch as financial performance of the company had risen, it was stillstruggling to enhance its competitiveness in market segments thatwere experiencing high growth such as personal computers. It wasnoted that the company was considerably slow in getting newtechnologies into the market. This is the case that Grossman hadnoticed during the Winter Olympics, when he acknowledged that a rogueOlympics Website that was under Sun Microsystem’s operation hadbeen taking the raw data feed of the company and presenting it underits banner (UhlandLars65). Upon closer examination, Grossman realized that the problem randeeper than simple stealing and misrepresentation of information anddata and acknowledged that few people had knowledge about theprospects of the Internet. The numerous opportunities that theinternet presented would have revolutionized the company and itsprospects (UhlandLars67). Gerstner, on the other hand, reduced the expenditure onmainframe development, as well as the manufacturing capacity byaround 40%. On the same note, the new CEO made a heavy investment onsoftware based products and complemented it by the acquisition ofvaried high profile companies/. The acquisition of Lotus Softwareassisted the company in the attraction of clients interested inreliable and user friendly desktop publishing software. It is notedthat the heightened sales of software allowed the company toeliminate the effects of the reduced demand for mainframe computers.


Thereare varied key lessons that are to be learnt from the successfultransformation of the IBM. First, a company must always invest notonly in new technology but also transformative technology. It isnoted that new technology in itself would never fix a wrong or flawedprocess or create a transformation. It may, nevertheless, increasethe speed for progress and support individuals as they operate in newways (Applegateet al 45). It is imperative that the company first concentrates intackling the problems before it can engage in the appropriateapplication of the technology. In the 1990s, the company realizedthat it was missing immense opportunities in its failure to invest inthe internet, which was bound to be one of the major developments ofthe century (GroverandMarkus59). Nevertheless, apart from taking up the technology, it had tochange its internal organization structures so as to support thetransformation. Over the years, IBM has managed to implement cloudtechnologies internally so as to allow for the provision of betterbusiness outcomes at lesser costs (Applegateet al 64). On the same note, it has deployed cloud solutions forcollaboration, analytics, storage, development and testing, with alarge number of operations exploring, as well as moving to cloud. TheIBM CIO Development/Test cloud provides its developers a dynamiccomputing capacity and self-service environment. Over 80% of thecompany’s internal development activity is currently supported inthe cloud environment, which has been a fundamental enabler for thecompany’s internal development transformation.

Onthe same note, it is imperative that the company’s transformationis based on a discussion that is based on data. It is fortunate thatthere is a continuous exponential compounding of the amount of datainformation, which is coupled with the increasing improvement of thecapacity of analytics software to comprehend the data. Scholars notethat savvy business entities use clever analytics software to obtainfaster insight pertaining to the information, as well as delivertransformative performance (Applegateet al 57). It is noteworthy that as much as IBM managed to turnaround its fortunes for the better, it is on a continuous path oftransformation. Today, the company is reliant on new analytics thatwould allow it to become a smatter business entity. Researchers notethat the Research Analytics Hub has enabled the company’s servicebusiness to match demand and supply in a better way, acceleraterevenue capture and reduce bench, as well as increase utilization,all on the basis of data and analytics (UhlandLars45).

Lastly,it is imperative that clear transformation governance is established.Currently, the company has had more than 30 consecutive earninggrowth quarters thereby earning a reputation for consistent deliveryand improvement of five –year profit plans. The consistency in thecompany’s performance is a reflection of the governance model ormanagement model that the company has established as a guideline forthe continuing transformation.


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Hamel,Gary. Waking Up IBM: How a Gang of Unlikely Rebels Transformed BigBlue. HarvardBusiness Review,2000, Print

Lindquist,D., Madduri, H., Paul, C. J., and Rajaraman, B.. IBM servicemanagement architecture. IBMSystems Journal,46(3), 423-440. 2007, Print

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