IBM Corporation Turnaround
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IBM (International Business Machines) is the world's largest manufacturer of all kinds of hardware and software. The company was founded in 1911. Corporation is one of the few suppliers of IT solutions that can offer a full range of products and services for projects of any complexity and scale. Quality of products and level of service and technical support of IBM always was a standard for the industry. IBM has the widest network of offices around the world and ecosystem development partners. Range of IBM hardware products covers all sectors of the market: from personal computers for job accommodations to the most powerful supercomputers, which are used for highly compute-intensive and high-performance storage systems. The basis of all resolution of the IBM is striving to implement innovative solutions. IBM is a leader in the United States by the number of patents. These innovations provide the highest level of performance and reliability, as well as simplification of the enterprise infrastructure. IBM is based on a few simple ideas and principles, such as sensitivity, courtesy and honesty.
In the 1980s, IBM became the American model of a company that earned more than $3.5 billion. The company was known to be the best place to work. Sitting astride on one of the most exciting industries, IBM has achieved the status of cultural icon (“IBM's Turnaround and its New Business Model”).
The emergence of the Internet and World Wide Web-based technologies, that were not private property, facilitated easy delivery of additional functions of computer over a network. This ability quickly progressed from static information to dynamic engine, which led to the development of "e-commerce", a new way of doing business with the help of the Internet. Technologically, IBM was better than any other company. Subsequently, companies such as Intel, Microsoft, Cisco and Dell became dominant in the new dimension. However, IBM had 70% of the profits from the global information industry.
Problems similar to those that affect other industries appeared in the company after some years. Foreign competitors are supplying their products to market faster and evaluating them more competitive. New products of IBM Corporation were unsuccessful and led to a weakening of relations with customers. Products of mainframe company do not interact with the new technologies.
A plan aimed at improving the product competitiveness, rebuilding relationships with customers and strengthening structural efficiency was developed to solve these problems. The process of reorganization corrected some shift between resource allocation and market trends, had made managers more accountable for results, and decentralized power. Voluntary retirement programs reduced workforce of more than 20,000 employees. Nineteen plants were closed.
Improvement program seemed to bring results, but success was fleeting. The main problem was in the rapid weakening of demand for mainframes by IBM. Revenues decreased, and costs conversely increased. Some other companies were working in the mode of growth. Costs achieved record height, and customers began to notify problems, that the company tried to overcome (Mellino, “The Turnaround of IBM”).
Bad financial news gave rise to renewed efforts to remove funds from the company’s structure. Some services at IBM were exposed to external competition. A new series of staff reductions, focused on business mainframes was started. For the first time in the history, IBM employees have lost their jobs. People talk about the breaking of the company. Some have argued that the destruction of the company became the only inexpensive way by which flow losses may be removed. Entering the market of IT services in 1991, IBM created the Integrated Systems Solution Corporation. The market of IT services had been extended about the hardware and software business for some time. Several managers in the company saw potential growth of business at the time.
On April 1, 1993, Louis V. Gerstner joined IBM as a new leader. Gerstner quickly approved the amended plan of the company, which allowed senior employees whose options were "under water" to exchange them for a smaller number. New options include conditions designed for the maintenance people in the company. Revaluation of action was interpreted as a signal that the new director was willing to pay for productivity but if collegiality, which protected most of the leaders in the old system, will not proceed. Gerstner was engaged in a number of measures of accelerating effective business. Gerstner actively discussed executive business with the heads of departments. Within these measures, he quickly reached answers on how the company worked in domestic, industrial and consumer sectors (DiCarlo, “How Lou Gerstner Got IBM To Dance”).
Some things troubled Gerstner, especially disconnection between research and the market, as well as lack of sophisticated marketing techniques and PR policies. IBM Corporation had to think as a marketing company. Clients appreciated the contributions that IBM was ready to make for its relations and recognized it as different to other technically-oriented companies.
The ability to integrate and provide global solutions was a memorable IBM quality. This was a significant reason that large companies have turned to IBM. That is why Gerstner averted decay of corporation.
In autumn 1993, eight modernization projects were introduced. Each of them contained specific targets for reducing costs. Their priority was put to reduce costs as quickly as possible, and the process of rebuilding the company for a global use. As a result, the processes were to be globally spread and reach a historical organization framework, combining units covered by IBM. In that time, the IBM Corporation was reorganized in a global company. Attention was also drawn to the sales organization. Often sellers were in lack of knowledge about the product as sales organization was based entirely on geography, sellers were generalists, centered around accounts rather than products. To solve these problems, sales organization was globalized, which was geographically in the center. IBM divided sales organization into two kinds of workers: managers on relationships with customers and product specialists.
Reorganization was not welcomed by all members in IBM. In particular, managers who once opened IBM organization in the country lost control and ability to satisfy the unique needs of specific national markets. Comprehensive managers could make the wrong choice in local markets. IBM initiatives and instructions must be configured for specific countries. Despite some improvements, the company continues to be problematic in 1995. IBM changed a lot, but the PC business with the speed implementation of new products is almost opposite to the high mainframe business. However, the financial results of 1995 set that IBM recovery was real.
Much has changed since IBM had a spectacular success. Decentralization brought serious problems of complexity of the process, which escalated into a crisis. Under Gerstner leadership, a turn for the effective treatment of the company was taken. Restoring former glory of IBM will depend largely on the actions of middle managers. Only line managers can create business models in order to take advantages of scale and integrity of company.