Ibm Case

I. Current Situation (1991-1993) 1. History of IBM: IBM is a multinational corporation that started its activities in 1911. But its origins can be traced back to 1890, during the height of the Industrial Revolution. It was first known as the Computing-Recording Company, then in 1924, it took the name of International Business Machines. Nowadays, this multinational company is known as the « Big Blue ». 2. Mission statement IBM main activity is to find solutions to its wide range of clients using advanced information technology. Its clients are individual users, specialised businesses, and institutions such as government, science, defence, spatial and educational organisations. To meet and respond to its customers needs, IBM creates, develops and manufactures many of the world's most advanced technologies, ranging from computer systems and software to networking systems, storage devices and microelectronics. Indeed, IBM has various product lines and services a few of which are: the Personal Computer that was first created in 1981, AS/400 business system, RS/6000 family of workstations and server systems, S/390 enterprise server, groundbreaking ThinkPad notebook computer; the award-winning IBM Netfinity and finally, PC Servers. It is an important supplier of hard disks, random access memories, and liquid crystal monitors. IBM has created the image "Solutions for a Little World". Its products and components in other firm's products are so widespread that people around the world associate the name IBM with computing functions. 3. Organization: IBM is a global information system and computing company. It is organized in 5 worldwide regions, and the following business units: 1. Application Business Systems 2. Application Solutions 3. Enterprise Systems 4. Networking Systems 5. Pennant Systems Company 6. Personal Systems 7. Programming Systems 8. Storage Products 9. Technology Products 4. Past and current performance: For many years, IBM succeeded in holding a very good market position. In fact, the company achieved a very high market share and huge profits. However, this situation did not last forever. In 1990, IBM experienced its first quarterly loss of $2billion due to some unexpected accounting charges. However, revenues increased from $62.7 billion in the previous year to $96 billion. In 1991, the company faced a net loss of $2.83 billion that was mainly due to downsizing and restructuring costs. In addition, total hardware sales were down by 16%. The years 1992 and 1993 knew a slight increase in revenues that reached $13.4 billion and a net loss of $399 million that changed to a net profit of $392 million in the first quarter of 1994. 5. Industry trends: IBM's old belief was that personal computers are a vital part of their overall strategy to link personal computers, minicomputers, and mainframes, their preferred product in this line. It was not quick in adapting this belief to the new reality and importance of the PC potential, so during the 1980s and early 1990s, IBM was thrown into turmoil by back-to-back revolutions in the trends of the computer industry. The PC revolution placed computers directly in the hands of millions of people, and then, the client/server revolution sought to link all of those PCs (the clients) with larger computers that labored in the background (the servers that served data and applications to client machines). Both revolutions transformed the way customers viewed, used and bought technology, and both fundamentally rocked IBM. 6. Tactics at IBM were as follows: Marketing at IBM has often been based on recycling and updating older proprietary systems architectures in which it had a vested interest. It was a product rather than consumer oriented strategy.  IBM has made modest moves towards more industry specific approaches to problem solutions in an effort to better meet customer needs.  1988 attempt to restructure decision making from HQ to 6 group executives failed.  Due to its size, IBM makes sure that when introducing a project, worldwide capacity is available to manufacture it, and those foreign manufacturing requirements are met. 7. 1991-1993 CEO Akers undertook a major overhaul of IBM: he believed the problem was high centralization, so he followed a decentralizing strategy that would greatly reduce employee levels. Layoffs were as follows: 1991 20,000, 1992 20,000. Although a $3 billion charge was made against 4th quarter earnings, IBM expected savings of $1 billion in 1992, followed by $2 billion in later years. Restructuring objectives: a- Accelerate product deliveries. b- To avoid or minimize costly delays and disruptions IBM would have to completely separate its units into distinct independent divisions with greater control over development strategies, including financial independence. IBM HQ would become a holding company with 6 autonomous divisions reporting to senior vice presidents. Divisions are to present annual plans to executive committee, set goals for return on investment, share in profits, issue stocks in some cases. Each individual unit to report its results separately thus allowing managers to gain responsibility for controlling costs and developing competitive product marketing strategies. Emphasis to be placed on return on invested capital. Executive pay to be tied to unit profits c- Encourage 3d party relationships d- Reduce staff. e- Reduce product prices to match competitor prices. For example, IBM's lap top model costs about $2,500 more than Dell or AST models. 8. Gerstner's strategy is to maintain IBM's broadness to take advantage of consumer confusion in the market. Consumers will recognize IBM's name in different products and purchase it. This will keep costs high however because the different units need to stay coordinated. According to him, IBM's challenge is to develop good working relations across the various operating units. It doesn't need an overall vision but a series of tough minded, market driven strategies for each of its businesses. Balancing shareholder needs of higher margins with customer needs of lower margin open system products. Gerstner brought with him a customer-oriented sensibility and the strategic-thinking. He tried to rebuild IBM's product line, to reduce the workforce and to make significant cost reductions. Despite mounting pressure to split IBM into separate, independent companies, Gerstner decided to keep the company together. He recognized that one of IBM's enduring strengths was its ability to provide integrated solutions for customers -- someone to represent more than piece parts or components. Splitting the company would have destroyed a unique IBM advantage. II. SWOT analysis:  External environment: 1.OPPORTUNITIES: 1.1. E-business: the use of the Internet is rapidly becoming an important distribution method for multinational companies, and a source of products