Assignment on Turnaround of IBM PDF

Running head: TURNAROUND OF IBM
TURNAROUND OF IBM
Name of the student:
Name of the university:
Author Note:

1TURNAROUND OF IBM
Table of Contents
1. Introduction............................................................................................................................2
2. Discussion..............................................................................................................................2
2.1. Overview of the Organization.........................................................................................2
2.2. Causes of Failure.............................................................................................................4
2.3. Factors for Turnaround Success......................................................................................6
2.4. Strategy Lessons..............................................................................................................7
3. Conclusion..............................................................................................................................8
References................................................................................................................................10

2TURNAROUND OF IBM
1. Introduction
Success and failures are a part of the business processes of any organization. Large
infrastructures due to their stability in the market encourages creativity, take risks in certain
innovative programs and gain the experience to enhance their operational quality within the
organization. However, it is not necessary that they will succeed in their every experimental
venture and they do incorporate failure sometimes. Although, due to their large business
agenda, they do get the facility of recovering from their failure and gain back their
positioning in the market. They do so by detecting the factors for failure, analysing them, and
implementing various strategies to emerge successfully amongst the other competitors.
The organization of IBM (International Business Machines) is one such renowned
infrastructure in the industry of IT (Information Technology) that incorporated major
downfall in the decade of 1980s to 1990s (Ibm.com, 2020). The company experienced a
decline in the revenue and had to reduce the price of the stock by half leading to immense
employee turnover during the period (Wagner III 2019). Even though the situation was
challenging enough, the mammoth manufacturer of IT systems incorporated revolutionary
strategies within the next two decades to reposition them in the industry and become eminent
in their operations. The report will highlight the failure factors of IBM and identify the
strategies for their success.
2. Discussion
2.1. Overview of the Organization
Founded by Herman Hollerith in 1911, IBM was known as the Tabulating Machine
Company in its initial days. However, Thomas J. Watson in the year of 1924 renamed the
company as International Business Machine after merging with two other associations- the

3TURNAROUND OF IBM
Computing Scale Corporation and the International Time Recording Company (Den Hartigh
et al. 2016). It is under his dictatorship, the company experienced a grand success in the
Information Technology field by manufacturing robust and innovative intelligent business
machines for other organizations in the market.
The corporate headquarters of the company is located at Armonk, a place in the
country of New York. The company is majorly responsible for manufacturing and deploying
computer hardware, software and middleware systems in the market. Furthermore, it offers,
consulting, infrastructure as well as hosting services to its customers regarding the It
solutions ranging from nanotechnology, to mainframes and supercomputers (Sukhwani et al.
2017, October). Being a mammoth sized organization and popular for its use of colour on the
products and logo, the company was nicknamed as ‘Big Blue’ by the security analysts.
Since the establishment of the organization, it has evolved its operations from one
sector to another. From selling the computer peripherals and providing services associated
with these products the company has changed its objectives to something more lucrative.
IBM is now famous for its operations and services in markets of data analysis, security
consultations, cloud computing, business intelligence, virtualization and many more. Due to
its channelization in such lucrative sectors, the company experienced a rapid flow in the
revenues and incorporated immensely huge profit margins.
The operational margin stretch of the organization experienced an increase from 16.8
percent to 24.3 percent in the period of 2004 to 2013. This led to an overall increase in the net
profit margins from 9.0 percent to 16.5 percent in the same period (Ibm.com, 2020). The
company not only engages itself in acquiring businesses but has also expertise in selling
product lines. For instance, the company acquired the data analysis software- SPSS in 2009,
Kenexa in the year 2012 and the consulting of PWC in 2002.

4TURNAROUND OF IBM
The notable developments over which the company possesses copyrights are the
floppy disks, automated teller machines, hard disk drives, universal product codes and many
more. Due to its noticeable contribution in the revolutionary growth of the IT industry
worldwide, the company received five Nobel Prizes; ten National Medals of Technology, 5
National Medals of Science and 6 Turning awards.
2.2. Causes of Failure
The major reason behind the failure of the organization is the numerous operations
run by IBM. The other reason was the tough competition by the competitors in the market
against IBM. The company also suffered a loss due to the shift in their technological
processes. The ultimate effect of all these causes were the decline in returns. The CEO of
IBM, Louis V. Gerstner, Jr. who was appointed in April 1993, found out all these issues and
took measures for bringing success in the organizational activities.
The company during its initial days were responsible for selling IT systems and
provided services based on infrastructure, consulting and hosting from nanotechnology to
supercomputers and mainframes. The company also improved its processes from the
fundamentals of IT services to advance analytical and IT operations like business analytics,
cloud services, virtualization and many more (Choi, Son and Jung 2018). Although the
organization incorporated a huge infrastructure, it did face problems in managing all the
operations effectively with a profit-making vision.
The company incorporated twenty business units that were discrete in its business
operations. There were approximately 125 data centres that were managed by 128 Chief
Information Officers all around the world (Gao, Liu and Ma 2019). The organization itself
incorporated thirty-one separate and virtual private networks, which involved different
methods of customized configuration that were used during the installation process. The data

5TURNAROUND OF IBM
processing expenses of the company were three-times higher compared to the other
competitors in the market, during that time leading to financial stress for the management.
Thus, the company faced major issues in achieving success in all the operational processes
and failed in managing a steady corporate culture in its administration.
The competitors in the market proved to be quite heavy for the organization of IBM.
The competitors of the organization were Oracle, Microsoft and Cisco (Pourmajidi et al.
2019). Oracle had its proficiency in database related operations. Microsoft specialized in
selling innovative desktop products in the market. The networking giant, Cisco grabbed its
market by providing efficient cloud computing services. IBM incorporated all these activities
but failed to achieve accuracy in the mentioned sectors. However, the competitors excelled
themselves separately in each of the sectors making IBM lie much behind in competition in
achieving customer satisfaction.
In addition, the shift in technological applications in the business processes were also
a reason for failure in the IBM processes. Previously, the technologies were applicable in
desktop operations and automating office processes. However, with advancements in
technology, the businesspersons welcomed the application of IT services in business
operations (Russo-Spena, Mele and Marzullo 2019). The other IT service-providing
companies like Dell, Compaq, and Microsoft and so on focused on inventing new
applications and providing post-launch services to attain customer satisfaction (Cortada
2019). However, IBM stayed away from this experimental attitude and failed in gaining
competitive advantage in the market.
Before the 90’s, IBM specialised in constructing mainframe computers and collected
half of its revenue from this sector. However, it failed to realise the customer’s needs of
personal and portable computers for their regular use. Companies like Dell and Compaq

6TURNAROUND OF IBM
identified the increasing rage amongst the customers to acquire personal computer and gave
tough competition (Newman 2017). The mammoth organization lost its position in the market
due to decline in the sale of mainframes. Hence, the company due to its excessive number of
business units failed to stand against its competitors and suffered a decline in the revenue.
2.3. Factors for Turnaround Success
The organization of IBM was not successful throughout a decade due to its
inefficiency in its corporate culture and effective maintenance of business operations.
However, the company succeeded in repositioning themselves in the market due to the
contributions made by the influential CEO of the company, Mr Louis V. Gerstner, Jr. He had
an expertise experience of dealing with customers in his previous company of McKinsey and
Co. and had an extremely efficient strategic thinking capability that he implemented in the
IBM to gain back the stability of the organization (Mutwa 2016). He was successful in radical
surgery in the operational processes and brought cost-effective changes to the company.
Gerstner started with dedicating minimal funds in the manufacturing of the
mainframes that hardly had demands in the IT market. Instead, he tied up with the Lotus
Development Corporation in the year 1995 to develop software products to gain customer
satisfaction and popularize themselves in the market. It stopped production of OS/2 software
solutions and gained immense popularity in launching their first ThinkPad laptop computer in
the year 1992 (Ibm.com, 2020). With its strikingly advance features like 4MB memory, 10.4
inch display, 25 MB hard disk drive (removable), 25 MHz 80486 processor and sleek design
the laptop was a rage amongst the customers in that era.
Although the new CEO did not show much interest in developing the mainframes, he
did not completely abolish the processes from the organization. The mainframes came back
to applicability when deep computing and Internet applications proved to be the key priorities

7TURNAROUND OF IBM
in business technology surpassing client-server computing (Wang, Kung and Byrd 2018).
Grabbing this as a major opportunity, the organization of IBM strengthened its mainframe
products with CMOS (Common Metal Exide Semiconductor) that proved to be robust in its
functionality and were reasonably cost-effective (Chatzoglou et al. 2016, September). The
company also showed its keen interest in manufacturing in specialised chip products and
gained its position back in the market by manufacturing high-end computers on parallel
processor technology.
The company also made an extra effort in convincing the customers that they were
trying to redefine their processes according to the demands of the customers in the market.
Gerstner made sure that they not only recover their position in the business technology but
also regain their financial condition by investing in the lucrative sectors. Taking advantage of
the Internet age, the company strengthened its mainframe business and formed open-source
initiatives along with initiating joint ventures with the competitors (Dabirian, Kietzmann and
Diba 2017). The company also channelized its branding component from 70 advertising
agencies into a single one leading to decrease in chaos and effective decision-making.
2.4. Strategy Lessons
Louis Gerstner incorporated two major revolutionary strategies after being appointed
as the CEO of the organization to bring in success and gain the competitive advantage
amongst the competitors. His strategies were meant for long-term in every aspect to
implement in the organizational processes. He believed that the company need not divide
itself in discrete business units and reorganized them effectively to achieve success in each of
the sectors. He also found that service-leaning approach was effective enough because it
focused in assisting the clients while implementing technology.

8TURNAROUND OF IBM
The CEO focused on renovating the existing business processes rather than
implementing new ones to save costs as well as time. Under his supervision, the company
sold some of its business units and purchased some lucrative ones, thus balancing the overall
business processes to bring success in its operations (Spechler 2017). Being tangled in
various operations, the company failed to gain efficiency especially in the Internet-related
services. Hence, this strategy focused on capitalizing the commercial services by
incorporating different IT solutions in the business process to enhance their functionality.
Another successful strategy implemented by Louis Gerstner was to reduce the
unnecessary task force and deal with only the ones that will be effective for the business
operations of the organization. The major taskforce involved expert personnel in the Internet
division. This Internet division did not focus on product growth, participate in competitions
and make profit in the business (Radujković and Sjekavica 2017). Rather, it detected the
areas where the company failed in the Internet related services and developed suitable
solutions based on it.
Thus, the turnaround strategies can be summarized in three major sections:
 Developing future prototypes that will attain customer satisfaction by providing
effective delivery of newly incorporated services.
 Dedication of the employees in the existing business processes that will help to
achieve success in all the sectors (Russo and Cesarani 2017).
 Preference for Internet and web-based technologies that will incorporate open
standards to support them.
3. Conclusion
The organization of IBM in spite of delivering efficient services after its
establishment, suffered major loss due to its lack in innovations. Technology incorporates

9TURNAROUND OF IBM
advancements and the company failed to upgrade themselves according to the demand of the
customers. Hence, this report specifically discusses the factors that were responsible for the
decline in the profitability of the company and how the organization emerged out
successfully under the CEO Louis Gerstner. In conclusion, the report discusses the strategies
that helped the organization to gain their position in the market and stand victorious amongst
its competitors.

10TURNAROUND OF IBM
References
Chatzoglou, P., Fragidis, L., Chatzoudes, D. and Symeonidis, S., 2016, September. Critical
success factors for ERP implementation in SMEs. In 2016 Federated Conference on
Computer Science and Information Systems (FedCSIS) (pp. 1243-1252). IEEE.
Choi, Y., Son, Y. and Jung, J., 2018. A method to enhance informatized caption from IBM
Watson API using speaker pronunciation time-DB. Int. J. Nat. Lang. Comput.(IJNLC), 7(1),
pp.1-11.
Cortada, J.W., 2019. Longevity and corporate ecosystems: how did IBM exist for over a
century?. Entreprises et histoire, (1), pp.104-127.
Dabirian, A., Kietzmann, J. and Diba, H., 2017. A great place to work!? Understanding
crowdsourced employer branding. Business horizons, 60(2), pp.197-205.
Den Hartigh, E., Ortt, J.R., Van de Kaa, G. and Stolwijk, C.C., 2016. Platform control during
battles for market dominance: The case of Apple versus IBM in the early personal computer
industry. Technovation, 48, pp.4-12.
Gao, Y., Liu, X. and Ma, X., 2019. How do firms meet the challenge of technological change
by redesigning innovation ecosystem? A case study of IBM. International Journal of
Technology Management, 80(3-4), pp.241-265.
Ibm.com. (2020). IBM - United States. [online] Available at: https://www.ibm.com/us-en/
[Accessed 11 Feb. 2020].
Mutwa, A.M., 2016. Strategic responses to investment shocks by selected multinational
corporations (MNCs) in Kenya.

11TURNAROUND OF IBM
Newman, M.W., 2017. IBM and the LCMS: Walking the Reformation Pathway. Save the
Date: January 30, 2018, p.266.
Pourmajidi, W., Miranskyy, A., Steinbacher, J., Erwin, T. and Godwin, D., 2019.
Dogfooding: use IBM Cloud services to monitor IBM Cloud infrastructure. arXiv preprint
arXiv:1907.06094.
Radujković, M. and Sjekavica, M., 2017. Project management success factors. Procedia
engineering, 196, pp.607-615.
Russo, M. and Cesarani, M., 2017. Strategic alliance success factors: A literature review on
alliance lifecycle.
Russo-Spena, T., Mele, C. and Marzullo, M., 2019. Practising value innovation through
artificial intelligence: The IBM watson case. Journal of Creating Value, 5(1), pp.11-24.
Spechler, J., 2017. Reasonable accommodation: Profitable compliance with the Americans
with disabilities act. Routledge.
Sukhwani, H., Matias, R., Trivedi, K.S. and Rindos, A., 2017, October. Monitoring and
mitigating software aging on IBM cloud controller system. In 2017 IEEE International
Symposium on Software Reliability Engineering Workshops (ISSREW) (pp. 266-272). IEEE.
Wagner III, W.E., 2019. Using IBM® SPSS® statistics for research methods and social
science statistics. Sage Publications.
Wang, Y., Kung, L. and Byrd, T.A., 2018. Big data analytics: Understanding its capabilities
and potential benefits for healthcare organizations. Technological Forecasting and Social
Change, 126, pp.3-13.