IBM Corporation Turnaround


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IBM Corporation Turnaround

  1. 1. IBM Corporation Turnaround Case Analysis Ishpreet Singh – 12P139 Karan Jaidka – 12P141 Kshitij Agrawal – 12P142 Kshitij Ahuja – 12P143 Manav Gupta – 12P146 Vikas Jain – 12P178 Group 1 – Strategic Management – II PGPM 2012-14
  2. 2. History • 1911: Founded by a merge of 3 companies • 1914: Thomas J. Watson joins • 1924: Company re-christened to IBM. Birth of slogan THINC • 1952: Watson Jr. called at the helm, it emerges as a superpower in the next 20 years • 1981: PC launched a $50 billion market • 1984: IBM captured 70% of industry’s profits • 1990: 2nd most profitable in the world; net income of $6 billion on sales of $69 billion • 1991 to 1993: Structural problems emerged leading to aggregate losses of $16billion. Lou Gerstner called at the helm to rescue the situation
  3. 3. IBM under John Akers • Cost cutting and Layoffs • IBM global Services created for the IT service business • Decentralizing the authority • Talks of breaking up of the IBM corporation • Reduced strategic planning cycle time • Streamlining both human and material resources • Company wide reorganization to correct misalignment between resource allocation and market trends • Making managers more accountable for results • Accelerated decision making
  4. 4. Problems faced by Lou Gerstner • Problems in Approach • Lack of sophisticated marketing techniques and PR policies • Disconnect between research and market • Strained relationships with customers • Management Problems • Collegial atmosphere • Executive – customer disconnect • Chances of top members being poached • Low emphasis on marketing • Costs • High overhead costs • More employees than needed
  5. 5. Steps taken by Lou Gerstner • Tweaked ESOPs to retain key employees: the re- pricing wasn’t given to 23 most senior executives to emphasize on performance over collegiality • Cost Reductions • Layoffs numbering 40000 to 50000 • Sold of some non core businesses • Focus on not breaking up the company • Reducing Expenses by 9% and R&D and SG&A by $6.8 billion • Restoring Line Managers’ Accountability and Ownership • Redesigning processes for global use to sustain cost reductions • Make and Execute own decisions • One IBM • Putting a stop to the talks of splitting IBM into many companies • Ability to integrate and deliver global solutions was a special quality of IBM
  6. 6. Steps taken by Lou Gerstner • Remaking the Brand • O&M’s global advertising campaign: solutions for a small planet • Product rationalization and focus on brands (Think-pads) • Change Management • Directive style of management • Executive that resisted the global approach were fired • Organizational Changes • Reorganized into one global organization- CEC & WMC • Attention to Sales Organization; refining cumbersome processes • Reduction in Board Size • To reduce bid preparation time: sales team split into 2- the product specialists and CRMs • Board Restructuring
  7. 7. • A potential deal with Apple fell through in 1994 • IBM’s OS/2 losing share to Microsoft Windows • New Product strategy centered around the advent of internet; client/server coming to an end • “Network-centric Computing” exhibited at COMDEX (biggest tradeshow) • Restrengthening the Mainframe business • Did not compete with Intel in chips manufacturing • Growth came from services as hardware business was primarily stagnant • Software: Hostile Acquisition of Lotus Development Corp. for $3.5 billion
  8. 8. Impact of the Strategies • Securing the core competency of end to end solutions by avoiding company breakup • Providing an outside view to the fledgling company helping it to see the real problems being faced • Dismantled the collegial culture amongst the senior personnel • Standardization in product and processes • Global Positioning • Streamlining processes to reduce cost • Driving financial results and creating value for stakeholders • Loss of key members with immense experience due to highly stringent actions • Better sensitization could have been possible
  9. 9. Thank You!