#ChangeStory: IBM

1st Feb, 21

Did you know the behemoth that is IBM lost $16B at one point in its history?

 

In the early 90s, IBM was struggling,  their stock price had dropped from $43 in 1987 to $13 in the 90s and they were expected to fail. 

That's a lot of money to lose!  What happened?

Mainframe computers were the cornerstone of IBM until the 90s and brought in almost half of IBM’s revenues.

According to analysis carried out by A&M University for Scholar Works*:

  • “At the time other companies such as Compaq and Dell gave priorities to interconnect mainframe, midrange and increasingly mobile personal computers with distributed data sources and applications that led to fewer sales of IBM’s mainframe computers.”

  • They faced further competition from new tech companies, such as Microsoft and Intel

  • IBM also struggled with its size and culture, with “20 separate business units, 125 data centres and 128 CIOs”

  • It had “31 private and separate networks and hundreds of different configurations techniques were used for installation processes”

  • IBM was also “experiencing 3 x higher data processing costs than the market average”

  • Had “difficulties offering continuous streams of new products or services”

  • And “its asset structure of $77.7B was too big”

 

The assumption was that they were too big to succeed and were not able to move fast enough to compete in the ever changing tech market conditions.

I know IBM is still operating today, so what did they do?

 

IBM had started on plans to break up IBM into smaller businesses but in 1993, a year that IBM posted an $8B loss, Louis V. Gerstner Jr. took over as IBM CEO. 

 

He had initially turned down the role as he felt he didn’t have enough technical knowledge, but it turned out the technology wasn’t the problem and breaking up IBM was certainly not the answer.

OK, so what changes did Gerstner make?

 

In summary:

 

  • Change of Management

  • Restructuring and reorganising the company

  • Reducing price to enable them to compete with competitors and

  • Changing the company culture

What did the restructure look like?

Gerstner took the 20 separate business units and reorganised them into three logical groups:

  • H1 for short term mature business

  • H2 for rapidly growing business

  • H3 for long term emerging businesses

And the rest of it?

 

  • He reduced the 155 data centres to 3 regional data centres

  • Reduced the 128 CIOs to one CIO

  • Reengineered the system development process

  • Decreased the number of in-house applications from 16,000 to 5,200

  • Integrated new technologies to meet client demands

  • Invested in software based products

  • Reduced cost through budget reduction for R&D and cut the workforce from 215,000 to 86,000

How about the company culture?

Well, Gerstner has written a book about his time at IBM and talks mostly about the change of culture.   “Culture isn’t just one aspect of the game,” he writes. “It is the game. What does the culture reward and punish – individual achievement or team play, risk taking or consensus building?”

 

He tells of how “Units competed with each other, hid things from each other. Huge staffs spent countless hours debating and managing transfer pricing terms between IBM units instead of facilitating a seamless transfer of products to customers.”

 

One of my favourite examples of the toxic culture he walked into was the story of how his European employees were not receiving his e-mails – because the Head of IBM-Europe deemed the messages “inappropriate for his employees” and would intercept them!

Wow.  That sounds tough!

You’re not wrong.  “Changing the attitude and behaviour of thousands of people is very, very hard to accomplish,” Gerstner writes. “You can’t simply give a couple of speeches or write a new credo for the company and declare that a new culture has taken hold. You can’t mandate it, can’t engineer it. What you can do is create the conditions for transformation, provide incentives.”

What exactly did he do?

Oh not much really!  Where IBM had previously been very product orientated, Gerstner moved them to a more successful strategy and model that focused on offering solutions to customers. 

 

BUT he stated that these solutions COULD include hardware and software manufactured by competitors – not just IBM products as had been the case. This meant committing IBM to open standards so competitors could easily use their products and vice versa.

OK, but how did he change the culture?

The centrepiece of the organisational change approach was a booklet called “One Voice”, which was issued in 1996.  It explained the business strategy to employees stating, 'This is the mark of opportunity; this is what we have to do.”

 

"IBM’s salespeople were giving it to clients. HR used it for recruiting and it became must reading for managers. "'One Voice' did not change IBM. But it reoriented the strategy and changed their culture" (Gazis, 2010).

 

  • Regular employee comms – sending out an organised stream of emails to keep IBM employees updated

  • “Creation of a personalised news service on the intranet called ‘My News’, where each employee could create a profile of work-related interests and based on that profile, “My News” would filter news feeds from both inside and outside the company.  Several times a day, it created a news page for the employee.”*

  • Created an intranet based model called “The Matrix” to help employees communicate information easily and quickly

  • Designed “How To” series as Intranet tutorials

  • Changing the compensation system so rewards were based on total corporate performance rather than division or unit performance

  • Making Senior Execs actually do work as opposed to just managing and reviewing work

Give the man a holiday! 

Well, 10 years later, in January 2003, Gerstner retired from IBM, after transforming it from a company that primarly manufactured mainframes to one that offered end to end IT solutions.

And then he wrote a book about it, which you can find on Amazon -  https://amzn.to/2Miviod.

Bibliography

* Gesmin, Sabina; Henderson, Bernard; Irtiza, Syed; and Mahfouz, Ahmed Y. (2011) "An Analysis of Historical Transformation of an IT Giant Based on Sound Strategic Vision," Communications of the IIMA: Vol. 11: Iss. 3, Article 2.

Available at: http://scholarworks.lib.csusb.edu/ciima/vol11/iss3/2

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