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IBM Corporation Turnaround
IBM was founded in 1911 and emerged as a superpower by the 1950s, but faced structural problems in the early 1990s that led to $16 billion in losses. Lou Gerstner was hired in 1993 to rescue IBM. He took several steps, including layoffs of 40,000-50,000 employees, cost reductions of $6.8 billion through expense cuts and selling non-core businesses. Gerstner also restored line manager accountability, reorganized IBM into one global organization, refined sales processes, and focused on services as hardware stagnated. These strategies secured IBM's core competencies, provided an outside perspective to address real problems, and dismantled a collegial culture, driving financial results. However,
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IBM Corporation Turnaround
- 1. IBM Corporation Turnaround CaseAnalysis 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. History • 1911: Foundedby 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. IBM under JohnAkers • 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. Problems faced byLou 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. Steps taken byLou 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. Steps taken byLou 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. • A potentialdeal 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. Impact of theStrategies • 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
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