IBM's Turnaround and its New Business Model

Case Code: BSTR107 Case Length: 22 Pages Period: 1993 - 2004 Pub Date: 2004 Teaching Note: Not Available

Price: Rs.500 Organization: IBM Inc. Industry: Information Industry Countries : USA Themes: Turnaround Strategy

Abstract Case Intro 1 Case Intro 2 Excerpts

Background Note

In 1914, Thomas J Watson Sr. (regarded as the father of modern IBM) joined Computing, Tabulating and Recording Company (CTR) as its general manager. When CTR's chairman, George W Fairchild died, Watson took over control of the company. Watson renamed the company 'International Business Machines' in 1924. Till the outbreak of the Second World War, IBM concentrated mainly on punched cards for the tabulating business.3By this time, IBM had already established a reputation for making custom-built equipment and offering excellent customer service. During the War, IBM systems were used to maintain statistical details of logistics. Revenues increased from $34.8 mn in 1939 to $143.3 mn in 1944. In the mid 1960s, IBM came under the purview of anti-trust legislation. This was the third antitrust suit since the company's inception. The suit dragged through the 1970s and cost IBM several hundred million (mn) dollars in legal fees. In view of the suit, Frank T Cary, the then CEO, adopted a cautious strategy. IBM did not reduce prices, fearing complaints from competitors and did not raise prices to avoid being accused of profiteering.

Every strategic move the company took was evaluated for its effect on the anti-trust suit. In the 1960s, IBM's competitive position strengthened further with the launch of System/360 mainframe in April 1964. The product revolutionized computing and propelled the company to global commercial leadership for the next two decades. Between 1981 and mid-1983, IBM established 14 global business units to tap a wide variety of opportunities, including biomedical systems, industrial robots, educational materials, directory assistance equipment, analytical instruments and scientific work stations. By 1984, IBM had recorded revenues of $46 bn. However, in the mid-1980s, IBM's competitive position changed dramatically. The shift to smaller, open systems, along with greater competition in all of IBM's segments, gradually weakened IBM's competitive position. After posting a net profit of $6.6 bn in 1984, IBM's financial performance began to slide...

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