Thursday, June 13, 2013

IBM's Historic Turnaround - Driven by Organizational Agility

The story of IBM's historic turnaround in 1993 brought about under the leadership of Louis Gernster Jr. , is a fascinating one captured in the book "Who says elephants can't dance ? ". After going through the article Competing through organizational agility by Donald Sull, its seems pretty evident that it seems a classic case of change in organization strategy to improve the agility that saved IBM.

In 1993, IBM was losing market share ,their cash flows were drained and they were perhaps on the verge of bankruptcy. IBM was still forcing its clients to buy servers (AS400 and others ) as the world was moving towards PC based solutions. Instead of serving the customer needs, they were trying to push iron (mainframes) down the customers' throats. HP, Compaq and others rose in these markets and captured majority of the customers as IBM's market share, profit margins, cash flows started diminishing heavily. IBM was very bureaucratic with a huge emphasis on hierarchy and titles. Due to this managing such a huge organization in such times was proving impossible. They were on the verge of splitting different units hoping that this would resolve the problem. They also took pride in "No layoffs" which pressurized their finances further.

Louis Gernster took over as IBM's CEO at this juncture. He identified these problems with the aid of certain senior executives and brought about a series of changes which attained organizational agility ans saved IBM. 

A new strategy was designed to come out of this situation. It was based on the following pillars : business was driven by the marketplace, using its high-tech background deliver high quality solutions , customer satisfaction was considered of utmost importance.They were probing for new opportunities and found one which changed the future of IBM completely. They realized that to be provide IT services meant to go beyond just support for IBM products and provide end -to-end solutions on the best technologies available. Steps were taken in this regard.

To facilitate this new phase a number of operational and cultural changes were required as well. All unproductive assets were sold of to generate cash. Costs were minimized wherever possible, business re-engineering was undertaken and it was decided that the various units would not be split.IBM's culture that drifted far from what it was originally. The bureaucracy hindered decision making, didn't allow talented employees to contribute effectively resulting in frustration. This was eradicated completely. Anyone with ideas and solutions could contribute effectively. An open culture based on entrepreneurial values was established.

The above graph clearly the shows the growth in revenue as a result of these changes. Thus, we can conclude that through effective implementation of organizational agility IBM could achieve the historic turnaround. 

References : 
Who says elephants can't dance - Louis Gernster Jr.

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