1. IBM Corporation
Turnaround Case Analysis
Ishpreet Singh – 12P139 Karan Jaidka – 12P141
Kshitij Agrawal – 12P142 Kshitij Ahuja – 12P143
Manav Gupta – 12P146 Vikas Jain – 12P178
Group 1 – Strategic Management – II
PGPM 2012-14
2. History
• 1911: Founded by a merge of 3 companies
• 1914: Thomas J. Watson joins
• 1924: Company re-christened to IBM. Birth of slogan THINC
• 1952: Watson Jr. called at the helm, it emerges as a
superpower in the next 20 years
• 1981: PC launched a $50 billion market
• 1984: IBM captured 70% of industry’s profits
• 1990: 2nd most profitable in the world; net income of $6
billion on sales of $69 billion
• 1991 to 1993: Structural problems emerged leading to
aggregate losses of $16billion. Lou Gerstner called at the helm
to rescue the situation
3. IBM under John Akers
• Cost cutting and Layoffs
• IBM global Services created for the IT service
business
• Decentralizing the authority
• Talks of breaking up of the IBM corporation
• Reduced strategic planning cycle time
• Streamlining both human and material resources
• Company wide reorganization to correct
misalignment between resource allocation and
market trends
• Making managers more accountable for results
• Accelerated decision making
4. Problems faced by Lou Gerstner
• Problems in Approach
• Lack of sophisticated marketing techniques and PR policies
• Disconnect between research and market
• Strained relationships with customers
• Management Problems
• Collegial atmosphere
• Executive – customer disconnect
• Chances of top members being poached
• Low emphasis on marketing
• Costs
• High overhead costs
• More employees than needed
5. Steps taken by Lou Gerstner
• Tweaked ESOPs to retain key employees: the re-
pricing wasn’t given to 23 most senior executives to
emphasize on performance over collegiality
• Cost Reductions
• Layoffs numbering 40000 to 50000
• Sold of some non core businesses
• Focus on not breaking up the company
• Reducing Expenses by 9% and R&D and SG&A by $6.8 billion
• Restoring Line Managers’ Accountability and
Ownership
• Redesigning processes for global use to sustain cost reductions
• Make and Execute own decisions
• One IBM
• Putting a stop to the talks of splitting IBM into many companies
• Ability to integrate and deliver global solutions was a special quality of IBM
6. Steps taken by Lou Gerstner
• Remaking the Brand
• O&M’s global advertising campaign: solutions for a small planet
• Product rationalization and focus on brands (Think-pads)
• Change Management
• Directive style of management
• Executive that resisted the global approach were fired
• Organizational Changes
• Reorganized into one global organization- CEC & WMC
• Attention to Sales Organization; refining cumbersome processes
• Reduction in Board Size
• To reduce bid preparation time: sales team split into 2- the
product specialists and CRMs
• Board Restructuring
7. • A potential deal with Apple fell through in 1994
• IBM’s OS/2 losing share to Microsoft Windows
• New Product strategy centered around the advent of internet;
client/server coming to an end
• “Network-centric Computing” exhibited at COMDEX (biggest
tradeshow)
• Restrengthening the Mainframe business
• Did not compete with Intel in chips manufacturing
• Growth came from services as hardware business was primarily
stagnant
• Software: Hostile Acquisition of Lotus Development Corp. for $3.5
billion
8. Impact of the Strategies
• Securing the core competency of end to end solutions by
avoiding company breakup
• Providing an outside view to the fledgling company helping it
to see the real problems being faced
• Dismantled the collegial culture amongst the senior
personnel
• Standardization in product and processes
• Global Positioning
• Streamlining processes to reduce cost
• Driving financial results and creating value for stakeholders
• Loss of key members with immense experience due to highly
stringent actions
• Better sensitization could have been possible
