IBM's Turnaround and its New Business Model
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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
Excerpts
IBM's Turnaround
Gerstner's immediate task was to make IBM profitable. He spent the initial period at the company learning about the prevalent situation. Gerstner visited different IBM facilities all over the world and met customers, competitors, senior executives, financial analysts and consultants to get a first hand account of the actual state of affairs. During these interactions, he learned that customers still appreciated IBM since it offered solutions for a host of their computer- related needs under one roof. However, having seen the facilities himself, Gerstner realized that the quality of IBM products had to be significantly improved. Gerstner felt that different business units of IBM had to be integrated in order to produce products of better quality within a specified time period. This led him to take a crucial decision to reverse Akers' plans to split IBM into eleven entities. The plan did not made any sense to him as he felt that customers would find it inconvenient to select from thousands of suppliers to develop a working system. He argued that customers wanted IBM to remain a single entity...
IBM - on the Growth Track
After achieving his first objective of turning around IBM, Gerstner faced the challenge of increasing the company's revenues, which had been stagnant for several years. In the mid-1990s, Gerstner visualized that information technology's (IT) role was more significant than just being a productivity tool for a company. IT had become fundamental to how a company operated and the prime source of a company's competitive advantage. Clients wanted to integrate different computing platforms and applications in networks and they turned to specialist computer service companies like EDS, and the consulting arms of big accounting firms. Gerstner felt that given IBM's size and scope, it could provide 'complete solutions' to its customers. Gerstner also felt that IBM was moving in the direction of using the same computing architecture for different product lines. This required tight integration of different businesses. He visualized that the PC era would come to an end and would be replaced by network computing...
Customer-Centric E-Business Strategy
In 1997, IBM's network centered computing strategy evolved into a full-fledged e-business strategy. The e-business strategy sought to leverage on IBM's strengths in big servers, huge storage capability, bullet-proof databases, massive processing power and expert systems integration. IBM provided the complete package for e-business i.e. hardware, software, training, security, networking and services. Lotus Notes Groupware added another powerful feature to IBM's e-business solutions. Notes ensured that various forms of communication including e-mail were made available to all persons in an organization to whom they were relevant. Each Notes server periodically checked the status of other servers in the network and copied the updated contents of its database to others. Hence, users were able to access the latest information in real time. During the period 1995-1998, the number of Notes users increased from 3 mn to 22 mn. IBM also launched a web-server program called 'Go', which made the company's hardware products suitable for e-commerce transactions. Among IBM's various e-business technology components, the most important was network computers (NCs)...
Issues that Remain to be Solved
A few critics said that IBM's turnaround was more of hype created by the company. They said that a part of the company's increase in revenues was because of a controversial switch in the IBM's pension plan. Moreover, some observers argued that there was a clear sign that IBM's share price had been fueled by stock buybacks and not by strong earnings. Since 1995, IBM had spent $20 bn on stock buybacks. The company also failed miserably in some of its new initiatives like education software. Notwithstanding IBM's improved performance, analysts opined that several issues that still needed to be addressed. They felt that IBM had to shore up its ranks for its e-business strategy. In an Information Week survey of 200 managers conducted in 1997-98, Microsoft was cited by 33 percent of the respondents as the most trusted vendor for e-business solutions. Only 15 percent cited IBM. Of the surveyed companies that were already IBM customers, only 61 percent said IBM would appear again on their shortlisted candidates for providing e-business solutions...
Challenges for the New CEO
On March 01, 2002, Palmisano became the eighth CEO of IBM. Though he took-over the company in a much better financial condition compared to Gerstner, several challenges lay ahead for him. The IT industry was facing a tough time due to the economic slowdown that had reduced corporate spending on IT products & services drastically. Analysts pointed out that though Palmisano had a three decades working experience in IBM, he was perceived as more of an operations expert rather than a strategic thinker like Gerstner...
Exhibits
Exhibit I: IBM's Consolidated Statement of Earnings
Exhibit II: IBM's Consolidated Statement of Financial Position
Exhibit III: IBM's Stock Prices Chart (1994-2003)
Exhibit IV: IBM's Consolidated Statement of Earnings (1994-96)
Exhibit V: IBM's Subsidiaries and Divisions
Exhibit VI: IBM's Vision of the Networked World (1998-99)
Exhibit VII: IBM's Product Segments (1999)
Exhibit VIII: IBM's Consolidated Statement of Earnings (1997-99)
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