Group Assignment

Case:

IBM CORPORATION TURNAROUND

BUSINESS STRATEGY

MM5012

Iman Haryanto (29109308)

Lenny Setiadi (29109302)

Lidyasari (29109356)

Meiqo Arifta Yudha (29109373)

Prima Satria Utama (29109363)

William Adriano (29109381)

IBM was the second most profitable company in the World in 1990, with net income of
$56 billion on sales of $69 billion. Although they were feeling pretty good because
things seemed to be getting better in that year, they weren’t feeling great because they
knew there were deep structural problems. Beginning in the first quarter of 1991, the
company began posting substantial losses. IBM founded in 1911 as the Computing-
Tabulating-Recording Company with Thomas.J.Watson as a president.

Historically IBM known: dark-suited sales people, an emphasis in corporate pride and
loyalty, implied lifetime employment, and the work ethic express in the slogan THINK.
IBM emerged as the world’s dominant computer company. The company produced a
series of innovations in automatic calculation and information storage (FORTRAN), the
floppy disk, the hard disk, the IBM supermarket checkout station, and an early version
of the ATM. The company was also known as the best place to work.

1. IBM-SWOT in April 1993 (before Gerstner become a CEO)

2. In “New Leadership and Recovery Stage (1993-1994), what kind of policy and
strategy that chosen by Grestner?
Based on situation that happened at IBM, which was the strength is lower than
weakness and opportunities is lower than thread, IBM position was placed on
retrenchment and did Turn Around Strategy.

Early actions that Grestner did at the first time

 he very quickly went to the board for approval of changes to company’s stock
plan. The changes allowed senior employees (under water) to exchange them
for a smaller number that were not.

 Spent a day with each executive talking about the business, using the papers
as a starting point. At the same time, he was visiting industry leaders and
customers → quickly achieved internal, industry, and customer views on how
the company was doing.

Corporate strategy: Turn Around Strategy

Business policy: Going to Market as One IBM

Functional Strategy:

 Restoring Line managers’ Accountability and Ownership

• to get cost out as quickly as possible

 • to “clean sheet” the process and redesign it for global use.

• Changes in the company’s style of management (executives were

to write their own papers and give their own presentations in
meetings and not to rely on staff members)

• Projectors were physically removed from office furniture

• “Operation Bear Hug” programs → each senior executive to go out

to a group of customers and “bear hug” them. The concern was that
customers noticing IBM’s travails might begin to leave before the
company could be turn around.

• “Partnership Executives” programs → executives were personally

responsible for the care and feeding of particular customer
accounts.

 Cost Reduction (hired Jerry York to lead the cost cutting charge)

• Made an ascerbic splash amid the civilized culture of IBM’s

financial staff

• Launched a benchmarking study to determine how IBM’s costs in

each businesses compared with other companies in those business
→ company was too expensive (ratio of expense to revenue
reduced by 9%, combination of SG&A and R&D reduced from
$26.8 billion to $20 billion)

• Layoffs employee

• Sold off some non-core business, including the Federal Systems

Company

 Organizational Changes

• In 1993
  Reorganized the company into one global organization

 Pulled divisions together into groups and formed the

Corporate Executive Committee (CEC) → to focus on strategy
(meet every two weeks) and Worldwide Management Council
(WMC)

 Introduced new performance evaluation system that

emphasized execution and relied on a forced curve.

• In 1994

 Turned the attention to the sales organization

 Globalized the sales organization that had been geography

centric.

 Split the sales organization into two kinds of workforce:

customer relationship managers and product specialist

 Change the old IBM organizational matrix (products,

industries, and geographies) → the new IBM organizational matrix
(products, industries, and global processes)

 Restructuring the board of directors

 Managing Reactions to Change

• Fired the senior executives who had been running European

operations.

 Remaking the Brand

• Early 1993 → the brand had been severely eroded as customer

disaffection and was reinforced by perceptions of the company’s
business difficulties
 • In 1994 → Abby Kohnstamm reallocated all of the spending on
advertising (40 different agencies) to Ogilvy and Mather Worldwide
and resulted in the “Solutions for a Small Planet” campaign by the
end of 1994.

• Killed all of the PC Company’s brands and saving only “ThinkPad”

brand for the laptop computer business.

3. There are significant changes in IBM’s performance in 1994 after doing the Turn
Around strategy compared with the year before. See the table below:

4. Grestner as CEO of IBM think that he should do the stabilization in 1995 because
of

 It had to demonstrate that recovery was for real; what had seemed like
recovery in 1990 had turned out to be the quiet before a fierce storm

 Although the company had been very effective at removing cost, many
were waiting to see how deep problems with the company’s product
offerings would be solved.
Because of the problems above, Grestner did the PAUS strategy. This strategy
consists of:

 New Product Strategy

• Presented a new server- and network-based vision, calling “Network-

centric Computing”

• Rescued the mainframe as a source of revenues and growth

• Not rescued OS/2

• No to reinvest in competing with Intel in chips

 Sources of Growth

• Services were the only segment of the company’s business that was
growing aggressively and hardware business was relatively stagnant

• Consistent with the company’s new network-centric orientation →

server software emerged as another potential high growth business,
Grestner believed the company could grow the business in distributed
computing software and in “middleware” (mainframes or large servers)
 • Do the acquisition for filling the uncompetitive areas (collaborative
messaging and software management) → IBM acquisitions Lotus
Development Corporation (obvious potential target in collaborative
messaging space which had two major product categories, desktop
application software and most importantly “Lotus Notes”, and
advanced technology for computer supported work collaboration)

Financial Results in 1995

 Profits increased to $4.2 billion on revenues of about $72 billion

 Services business growing fast

 IBM’s software revenue growth continued to substantially lag the industry

average

5.

6. Issues that Grestner should be pay attention in taking IBM to the success after
stabilization phase in 1995 until the beginning 2000 are

 Recovering IBM’s depend on the actions of line managers → only line

mangers could create business models that would take advantage of the
company’s scale and line managers could make multi-year re-engineering
projects that were still underway successful.

 Could the line managers make the right decisions and make the Turn Around
gains sustainable

 “we are a single company” idea that has been the challenge:

 From a strategic point of view

 From a process point of view

 From a culture point of view

 From a systems point of view