1) IBM faced significant problems in the late 1980s and early 1990s as it failed to adapt to changes in the computing industry. Its outdated business model focused on mainframe computers rather than more practical applications for PCs. 2) In 1993, Louis Gerstner was hired as CEO to turn IBM around. He diagnosed extensive issues requiring radical transformation. 3) Gerstner implemented change using John Kotter's 8-step model, creating urgency, building a team to guide transformation, establishing a new vision, removing obstacles, planning short-term wins, sustaining change through cultural shifts. This successful change management restored IBM's competitiveness.

1. Running head: IBM: SUCCESSFUL CHANGE MANAGEMENT IMPLEMENTATION 1
IBM: Successful Change Management Implementation
Robert Haskins
MGT 435: Organizational Change
Mary Alexander
26 November 2012

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IBM: Successful Change Management Implementation
Introduction
“…there is nothing more difficult to take in hand, more perilous to conduct, or more
uncertain in its success, than to take the lead in the introduction of a new order of things”
Niccoló Machiavelli
Change is a constant and leaders who anticipate change, react to the change quickly and
effectively are successful (Pryor, Taneja, Humphreys, Anderson, & Singelton, 2008, p. 1). The
leaders that anticipate change and moreover those that create the opportunity for change are most
successful. Other organizations follow the lead in change and even others do not survive because
of the inability to change (Pryor, Taneja, Humphreys, Anderson, & Singelton, 2008, p. 1). There
are a number of change models that can be used to implement change but it is the winners that
can respond and adapting quickly to the most difficult and complex change models. If the
organization is unable to recognize the moment change is needed because of the ineptness or
lack of vision in its leaders, it will fail. International Business Machines (IBM) “Had the
arrogance to believe they could continue to dominate [the industry] with bulky hierarchies,
unrealistic overhead costs, and outdated operations” (Weiss, 2012, p. 140).
This report will illustrate the transformation IBM had to experience to become leaner in
its business model and retain their dominance in an ever growing global theater where the actors
were increasing and improving on the model IBM created. An overview of IBM will show how
they became the dominate force in computing solutions and where they stand today. This report
will diagnose the problems IBM were facing in the late 1980’s and the early 1990’s and give a
solution to how they could have used Dr. John Kotter’s eight-step process for leading change. A
planned organizational change is described as a progressive state in which the organization

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currently resides to a state the organization desires to become more effective (Weiss, 2012, p. 3).
This report will demonstrate the effectiveness of John Kotter’s eight-step process for lead change
on the IBM transformation from an ineffective and unprofitable computer company to a leader in
global business solutions.
Company Overview
In 1914, Thomas Watson, left National Cash Register (NCR) to rescue a failing company
called Computing-Tabulating-Recording Company (C-T-R), the company that pioneered the
punch card processing industry in 1911. After supplying the U.S. government with C-T-R
tabulators during WWI, revenues tripled by 1920. The company became International Business
Machines (IBM) in 1924 and within twenty years dominated the global market for tabulators,
time clocks, and electric typewriters (Cella, 2012).
With the development of the Harvard Mark I, in 1944, IBM introduced to the world the
first machine to perform electromechanical calculations, even though they dismissed the
potential for computers. Competition dictated that IBM respond to the market for computers and
in 1952 developed its first computer. During the 1960’s and 1970’s, IBM experienced
exponential growth and 80 percent market share. As an innovative company, IBM developed
new technologies including the STRETCH system, which eliminated vacuum tubes (1960), the
floppy disk (1971), the first laser printers (1975), and the first IBM personal computer in 1981
sparked the PC industry (Cella, 2012).
During the 1980’s, IBM made a decision to continue with what had worked for them in
the past, the sale of mainframe computers to business’s rather than streamlining and responding
to the market demands of cheaper PC’s and practical business applications. This decision began

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the slow decline of IBM into the early 1990’s when the first outsider to become the CEO of IBM
in 1993, Louis Gerstner, was designated to turn the antiquated company around (Cella, 2012).
Louis Gerstner envisioned IBM as a company that offered business solution services as
well as its traditional hardware and software product line. Gerstner proceeded to cut costs and
workforce, shaking up entrenched management, and downsize a bloated research & development
division to focus the operation around quick turnaround than lengthy research. By 1994, IBM
began making its own computer chips, eliminating the need for suppliers. The latter half of the
1990’s demonstrated the effects of the downsizing with making a profit and increasing that profit
throughout the decade. In addition, expansion into network management with the acquisition of
Lotus Development in 1995 and Tivoli in 1996, re-established IBM as a leader in server
operating system software. When IBM bought Sequent, an internet communications server
maker, in 1999, IBM decided to focus on web applications for small businesses. That same year,
IBM exited the network hardware market and sold its property to Cisco Systems (Cella, 2012).
Throughout the first decade of the new millennium, IBM was becoming a global
powerhouse in database software, disk drive manufacturing, microchips, and servers and storage
systems. In 2002, IBM purchased PricewaterhouseCoopers’ consulting and IT services because
of IBM’s interest in outsourcing, maintenance, and integration services along with moving the
company in the direction of management consulting. As the decade came to a close, the future of
IBM is bright as it has experienced change throughout its history from a failing tabulator
company to a multibillion dollar conglomerate while strengthening its influence in the
information age.
Diagnosis

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A discussion of the problematic operation IBM had grown from decades of being the
superior name in computing must be addressed. A new strategy needed to be taken because of
the outdated and obsolete business model IBM relied upon had become too slow and
unresponsive to a new age ascending on the world that required companies to act and react
quickly to changes. A diagnosis of the problems is the first step in analyzing what went wrong
with IBM. Then, a plan to correct the problem and develop and method of creating a sustainable
“Set of short-term as well as long-term goals and a detailed strategy for how to reach those
goals” (Weiss, 2012, p. 46). A diagnosis and a plan to implement the corrections in the findings
will help to put IBM on the right track towards repairing the damage of not reacting to changes
in the market.
A diagnostic change model is introduced to analyze the current state of IBM (circa 1990)
and “Provide the necessary information for designing change interventions” (Weiss, 2012, p. 47).
However, there is not one best way of diagnosing the problems at IBM, a change model will
“Help to reduce the complexity of thousands of things…into manageable categories” (Weiss,
2012, p. 48). Moreover, a change model helps to point out the flaws that need the most attention
and problems among organizational properties like culture, structure, and strategy (Weiss, 2012,
p. 47). Furthermore, the sequence of actions to follow and the vocabulary of how to manage the
change is emphasized to allow the actors become familiar with the new change that is about to
arrive (Weiss, 2012, p. 47). The severity of the problem at IBM required the organization to
make a second-order change, or a radical, transformational change that would involve every
aspect of the organization (Weiss, 2012, p. 63).
The organizational level of intervention showed how extensive the need for change at
IBM but the decision to use change models on an organizational level only leads to ask which

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diagnostic model to use on the organizational level. Using the action research model will give
IBM a systematic approach at diagnosing the problems and “Provide objective information and
analysis that goes beyond the superficial level of presenting issues” (Weiss, 2012, p. 65).
The realization of problems existed began to surface in the first quarter of 1991 when
sales began to tumble for IBM (Applegate, Austin, & Collins, 2009, p. 1). However, executives
had felt things were good and improving but they were not feeling great because they knew
before the first indications of problems, that there was a serious structural problem (Applegate,
Austin, & Collins, 2009, p. 1). In April 1992, John Akers, IBM CEO from 1985 to 1993, vented
his frustrations during a company training program. His comment, “People don’t realize how
much trouble we’re in,” made its way from company bulletin boards to the press, shaking
employee and investor confidence (Applegate, Austin, & Collins, 2009, p. 1).
In April 1993, Louis Gerstner was hired to become the seventh CEO of IBM; many
insiders knew the hiring was to dismantle IBM into smaller parts. However, after speaking with,
and learning more of the potential IBM still retained, the customers, analyst, and employees,
Gerstner decided that IBM had more value as a whole than the sum of its parts (Applegate,
Austin, & Collins, 2009, p. 1). The problems Gerstner faced were breeding for over 15 years,
around the time of IBM’s first personal computer.
In 1981, IBM introduced the personal computer and it quickly became the most
successful technology introduction of its time (Applegate, Austin, & Collins, 2009, p. 3).
Although the PC was a hit for IBM, they still maintained that the real money making machine
was in the mainframe (Applegate, Austin, & Collins, 2009, p. 3). The earliest signs of trouble
began late in 1984 as returns on sales and assets were declining. The reason for this was the
customer dissatisfaction over the decision to converting from a leasing oriented business for

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mainframes into a sales oriented business (Applegate, Austin, & Collins, 2009, p. 3).
Furthermore, among IBM’s customers, the need to interconnect mainframe, midrange, and
increasingly mobile personal computers with distributed data sources and applications led to
fewer purchases of mainframes, the source of almost half of IBM’s revenues during the mid to
late 1980s and 70 percent to 80 percent of its profits (Applegate, Austin, & Collins, 2009, p. 4).
The moves by IBM facilitated the idea that they had fallen asleep at the wheel; they
stopped paying attention to competition and the changing environment. As companies had grown
around IBM using its innovative ideas and improving on them, IBM muddled around with the
same product line they felt would keep them in business in an ever changing industry. The
conclusion was obvious, an organizational transformative change was needed and John Kotter’s
eight step process for change is the best model to use for IBM.
John Kotter’s Eight-Step Approach
After careful diagnosis, IBM realized that the problems that existed will only be
remedied by a system wide transformation that included cost cutting measures and employees
being laid off. This report will illustrate the change through John Kotter’s eight-step process for
change. Kotter’s model is formulated to be used at the strategic level of an organization to
change its vision and subsequently transform the organization (Pryor, Taneja, Humphreys,
Anderson, & Singelton, 2008, p. 10). Thus, it will work well with the change that is needed at
IBM.
The first step in Kotter’s model is to create the sense of urgency because “People are
encouraged to assist with the change” (Pryor, Taneja, Humphreys, Anderson, & Singelton, 2008,
p. 10). This step is important because if people do not feel the same urgency from the leaders of
the organization, they will resist the change. However, “Close to 50 percent of the companies fail

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to make needed change…at the very beginning” (Kotter International, 2012). In late 1993,
Gerstner held a meeting with all 300 of IBM’s CIO’s to declare that he was not going to break-
up the company but rebuild it with the recommendations of its key customers that earlier in the
year Gerstner visited (Applegate, Austin, & Collins, 2009, p. 5). He laid the ground work for the
transformation with his announcement and the leaders of IBM became encouraged rather than
fearing the worst for the company.
The next step is creating the coalition of the right people to lead a change initiative to its
success (Kotter International, 2012). The teams of leaders and managers must be able to
implement the intended change by trusting each other and contributing to a shared goal.
Furthermore, “To counteract resistance, [forming a] powerful coalition of managers to work with
the most resistant people” (Applegate, Austin, & Collins, 2009, p. 10) is an effective strategy.
IBM could use its massive executive level to help convey the message of cohesiveness and
compatibility among the associates gaining momentum for the change that is need.
The third and fourth steps are processes to establish a clear vision the change can build on
and effectively communicate the vision, thus, others can share the vision. A clear vision serves
three important purposes; simplifying the many options that may exist, motivate the organization
as a whole towards a common goal, and it coordinates the actions of people in a fast and efficient
way (Kotter International, 2012). A vision must still be strategically feasible and “Take into
account the current realities of the enterprise, but also set forth goals that are truly ambitious”
(Kotter International, 2012). IBM’s CEO, Louis Gerstner, had developed a vision for the
company that first detailed breaking up the company. However, after speaking with stakeholders
and analyzing the feasibility to rebuild the company, Gerstner decided to create a vision of IBM

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that will move the company towards sustainability and competitive advantage in the new
century.
The next step is to “Get rid of obstacles to change by changing systems or structures that
seriously undermine the vision and to thereby encourage risk-taking and nontraditional ideas,
activities, and actions by personnel” (Weiss, 2012, p. 74). To do this, the leaders will need to
overcome the internal barriers those that oppose the vision. Realigning the incentives and
performance appraisals to reflect the change vision can have a profound effect on the ability to
accomplish the change vision (Kotter International, 2012). Holding honest dialog with leaders
and associates will often resolve issues with disagreements over the path of the change and/or
company’s vision. However, it may come down to having to remove those that absolutely are
defiant in changing.
The sixth step in Kotter’s model is to generate short-term wins that will give attention to
short-term performance and reward those that have participated in the completion of these goals
(Kotter International, 2012). People need to be rewarded when they break away from old
behaviors and do something that is new and desirable. Basically it is positive reinforcement. This
is the step where you plan for, create and reward short-term wins that move the organization
toward the new vision change (Pryor, Taneja, Humphreys, Anderson, & Singelton, 2008, p. 10).
IBM recognized the valuable tool of a reward system for those that promote the effectiveness of
the new vision by “Rewarding short-term execution aimed at current markets” (Harreld, O'Reilly
III, & Tushman, 2006, p. 25).
The last two steps are processes that help the organization maintain the success the
change has brought. However, complacency can set in and replace the successes with failure.
“The consequences of letting up can be very dangerous. Whenever you let up before the job is

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done, critical momentum can be lost and regression may soon follow” (Kotter International,
2012). The seventh step will ask the leaders to stay the course and instead of declaring victory,
push for more projects to propagate the transformation (Pryor, Taneja, Humphreys, Anderson, &
Singelton, 2008, p. 10). The eighth and final step in Kotter’s approach to the process of change
forces the company to cultivate the new change into the cultural fiber of the organization. By
creating a knowledge sharing culture as IBM has with its implementation of the “Innovation
Jam”, “Would give people a sense of participation and of being listened to, as well as generate
valuable new ideas” (Bjelland & Wood, 2008, p. 32).
Thirty years of research has proven that 70 percent of all major change efforts in
organizations fail because they often do not take the holistic approach required to see the change
through (Kotter International, 2012). However, by following the eight-step process organizations
can avoid failure and become adept at change. By improving their ability to change, IBM has
increased their chances of success, both today and in the future.
Conclusion
This report has demonstrated the effectiveness of John Kotter’s eight-step process for
lead change on the IBM transformation from an ineffective and unprofitable computer company
to a leader in global business solutions. A look into the past illustrates how IBM became a leader
in innovation and technology. History also showed the resilience of the company through a
difficult period in the early 1990’s. This report is in response to that difficulty by demonstrating
the diagnosis IBM used to find the problems it was facing. The change model that represents a
sound approach to the change that IBM required is John Kotter’s eight-step process for change.
IBM’s transformation and revival from the brink of extinction is viable proof that companies that

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have become egocentric and “too big” for change can become leaner, more profitable, and add
intangible value to its name.

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