Tuesday, November 27, 2012

The many lives of Big Blue

Very few companies of the size and age of IBM have managed to remain successful in the history of business. In the 130 years of its existence, the company’s strategy has seen changes in all of Porter’s forces. The strategy of IBM can be said to be successful at large, before it came to the brink of bankruptcy in 1993 when a major salvaging effort was led by the then CEO Louis Gerstner. The evolution of IBM with time is interesting to observe and could help us understand the need to reinvent strategy when organizations are challenged by changes. 

Founded as the Computing-Tabulating-Recording Company, these changes have caused it to transform several times and adopt different identities though the vision and the core ideology of the company remains the same. Since 1911, the company has been driven by the same 3 values: 
Dedication to every client's success
Innovation that matters, for our company and for the world
Trust and personal responsibility in all relationships

Reinventing the strategy has been key for the ‘Big Blue’ at several instances. In the early days, the company manufactured punched card equipment, coffee grinders and automatic meat slicers. The company’s strategy was to diversify the industry it operates in to minimize risk. Thomas Watson came up with the slogan ‘Think’ which is seen in the company is company’s branding almost a century later.

During the times of Great Depression beginning 1929, the company invested heavily in internal research . The company reaped benefits of these investments for the next couple decades till the invention of the transistors in 1958. The World War II saw IBM manufacture everything from assault rifles to tabulating machines used for the Manhattan Project. The post war years saw the early years of the growth into a giant organization that it came to be known as later. The semiconductor era saw the rise of the mainframes which supported businesses across industries including banking, airlines and telecommunication. IBM was everywhere – from the moon landings to the Sabre System that held the complex airline industry together. 

In 1969, came a big setback in form of the anti-trust litigation which saw the unbundling of Software and Services from hardware sales. Despite this challenge, IBM didn’t lose strategic focus on innovation and introduced many new technologies and products including the Floppy Disk, Relationship databases and office photocopiers through the 1970s. 

The rise of the PC industry and personal computing saw IBM creating strategic alliances with companies like Intel and Microsoft. This shift in industry put IBMs core business of mainframes at risk. This was one of the few incidents where IBMs strategy failed to adapt to the changes in the industry, new entrants and emerging substitutes. By the end of 1980s, IBM was running in losses of the order of billions of dollars. Gerstner’s turnaround of the organization is seen as a rebirth of the company when the research organization was brought closer to the product lines. Business-centric initiatives such as eCommerce and OnDemand played an significant role in the revival of the company at the brink of disaster. In 2002, IBM acquired the consulting division of PricewaterhouseCoopers. Subsequently in 2005, IBM sold its PC Hardware to Lenovo. Close to half of the profits for the company came from Software and Services in 2010.

In spite of such a major strategy shift by the Big Blue, the company stayed true to its vision and belief in Innovation. By 2007, IBM was granted and owned highest number of patents running to the tune of 40,000 patents worldwide. The lives of IBM over the past century is a case in point of the importance of reinvention of strategy with the changes in the industry. Does this story from the past hold some important lessons for strategists of the future? Will timely readjustment of strategy be critical for success of companies, especially in the increasingly dynamic technology industry? 

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