How Gerstner Rebuilt IBM
Introduction and Growth History of IBM
IBM stands for International Business Machines and is an information and computer technology corporation which offers services related to computers. The services include infrastructure services, hosting services as well as consulting services. The company is situated in New York, the United State of America. It is the largest technological company across the world that has persistently been able to offer employment to massive populations all over the world. According to the research conducted in 2012, the company is estimated to have over 433, 362 employees (Santoli, 2012).
The history of IBM dates back in the eighteenth century when it began as a Tabulating Machine Company in 1880s located in Washington D.C. That was prior to the development of electronic computers in the 1960s. IBM found its establishment from the merging of three companies. The International Time Recording Company (ITRC) which was founded in 1900, Computing Tabulating Recording Company (CTRC) founded in 1911 and the Tabulating Machine Company (TMC) founded in 1980s. According to the statistics released in 2013, the company’s estimated net worth is $ 112.5 billion. As a result, IBM has been able to secure a position in the top ten categories as one of the world’s richest companies. It appears number nine after companies like Exxon ($ 486.429 billion) and Wal-Mart ($ 446.95 Billion) among others. Exxon and Wal-Mart are the richest companies in position one and two respectively (Santoli, 2012).
IBM’s “Pain” and Performance Prior to Gerstner’s Arrival
Under the leadership of John Akers, the company suffered a critical period of poor performance that seemed to drive the company to the verge of becoming obsolete (Aswad, 2005). Indeed, the company was prevailing in little profits or no profits at all, thus ensuing in massive losses that were leading to the company’s bankruptcy. It aggravated in the approach of the year 1992 that saw the current CEO, John Akers, being evicted and replaced by Gerstner. However, he was to remain in the care-taker role for a period of three months. His era was marked by immense losses that reflected marginal annual revenues. That was in the early 1980s. The company’s annual revenue had plummeted from around $5 billion dollars to $ 3 billion dollars in 1989 (Ross, 2010). Thereafter, there were persistence revenue loss records with the company experiencing massive losses of about $1 billion dollars annually. In 1992, the company posted one of the biggest losses in the history of companies around the United States of America amounting to $8.1 billion dollars. It was a big shame for such a giant company like IBM.
The poor performances could be attributed to Akers’s decision of splitting the industry into small independent sectors of printers, processors, storage, software and services bearing in mind that they were the best strategies to enable the company to compete effectively with its rivals (Aswad, 2005). It was a bad idea because it led to different, separated and little geographical kingdoms within the company that were all run by their leaders. The idea compounded the situation and led to duplication of services. For instance, about 90,000 of its employees were in operation outside the United States itself. Moreover, about 23,000 were in other services like supportive services. Also, the company lacked sufficient faith in the future of the emerging markets for domestic micro-computers that it started incorporating infrastructures (microprocessor) from other companies, Intel. That way, IBM underestimated even preliminary orders for its new personal computer from its domestic market (Simmons, 1988).
Why was IBM not able to respond to the performance issues prior to Gerstner’s arrival?
Akers’s decision can be held responsible for not addressing performance issues at hand during that time. He rushed to establish small independent units within the industry rather than integrating them to achieve one common goal (Rusli, 2012). In fact, allowing other central positions of leadership by upholding different units makes the process and performance of duties within the company uncontrolled. That can be attributed to the fact that different leaders are likely to have different opinions on the same issue hence enhancing decisions conflicts rather than solving the problem at hand (Cornwell, 1993). That is more contrary than when there was a central position of leadership giving out the go ahead on issues that are of much importance at that moment and therefore ought to be implemented first.
The idea of undermining domestic markets in reliance of infrastructures to be incorporated into the computer machines makes IBM irresponsive of performance issues at that time. That is particularly when the criteria involves purchasing those infrastructures. It is not a big wonder that in some events the devices might not meet the requirements of the host device they are to be incorporated into. That would amount to delays while awaiting the production of other devices that would meet those requirements. In that case, the customers were disappointed by this delay caused by the inconveniency and lack of product match, hence losing their trust and reliance on the company. Therefore, it can serve a reason for the escalating losses in the succeeding years as the company persistently continued to pay loyalty to the exterior company rather than entrusting the domestic companies that were not likely to inconvenience it since they were working in close ties.
The Approach Gerstner Took to Improve the Performance at IBM
Louis V. Gerstner came on board as the chief executive officer of the IBM Company in 1993 replacing John Akers. One of his greatest goals as the leading Chairman of the company was to develop a vision of the relatively long-future of the company. Three weeks into his new role in IBM, Gerstner convened his first meeting at the company on the topic of strategy as the key factor of achieving the company’s objectives. In the meeting, everyone was actively sharing and contributing ideas on how to make the company better (DiCarlo, 2002). After accepting the course, Gerstner admitted that he was up to a big challenge if he was to bring back the company into its health. He accepted the course with both hands and embarked into delivering his best. Sometimes during interviews he is quoted saying “Sometimes I thought I had bought the ranch” (DiCarlo, 2002). The transformation of the company by Gerstner is attributed to his role in it. Firstly, by accepting that the company was in deep trouble and it needed to do something different in order to survive. His perception in that regard was that the transformation of any enterprise was to entirely begin with a sense of crises or urgency. Secondly, he was able to create an environment of pride and energy among the employees (DiCarlo, 2002). His perception to be an outsider from another company coming to join others (employees) greatly motivated the employees as he always had time and opportunity for them to listen to the ideas and issues they raised.
Thirdly, his great taste for unity outweighed any possible failure during his era as the CEO of the company. Gerstner argued from a point that it was only through unity of the workforce, integration of services to produce a unit product and through involving the stakeholders in the pricing of the products that better performance was possible (Doug, 1999). He particularly watered down Akers’s decision of creating different independent sectors and instead championed integration of the same (Smith, 1999). His tactic to incorporate stakeholders participating in pricing the product played a pivotal role in bringing back a lot of the company’s customers. Lastly, his strategy of moving from proprietary standards to open source standard was an important strategy especially when the IBM’s technology was used to incorporate the technology process. That ensured that customers were offered the best solutions. However, the implementation of that processes called for a significant amount of money. More than $800 million dollars were spent annually in the event of transformation (Santoli, 2012).
Would you have done things differently? If so, what would you have done?
I would have championed integration of small unit with a view of focusing on one goal just like Gerstner did when he abolished independent units that led to decision conflicts. Though Gerstner was in a position to bring back a massive number of customers by involving stake holders in the process of product pricing, I would have also called for intensive advertisement of products. A percentage of the revenue realized within a certain year would be used to make the company’s product be known locally and overseas. For instance, if the company generated revenue of $100 billion dollars in a certain year 1% of this which is $1 billion dollars would have been used to elevate bill boards, make commercial advertisements online as well as in local televisions and radio stations. I am sure it would have speeded the process of regaining customers as well as getting new ones (Lee, 1998).
How has IBM changed (evolved) since Gerstner left the company?
Everyone who is aware of Gerstner and asked to describe him would describe him as one of the most prominent CEOs of his time and who saved IBM from the verge of becoming obsolete. In fact, he was a legend. However, he was not to be in that position forever. In 2003, Gerstner at 61 appointed a successor and retired from the job (Aswad, 2005). Without his existence though, the company has persistently produced admirable results that portrays a promising future (Mathews & Watts, 2008). According to the recent announcement in the fourth-quarter of 2013, the company was able to produce diluted earnings of $5.73 per share as compared to the diluted earnings of $5.13 per share in the fourth quarter of 2012. That was a 12 percent increase in the share sector. Similarly, it was able to realize a 14 percent increase in Operating (non-GAAP); according to the announcement, diluted earnings were at $6.13 in 2013 as compared to diluted earnings of $5.39 in 2012 (Indvik, 2012). It is evident that the company is still doing well under the new management. There is no doubt that Gerstner laid a strong foundation for the current success of IBM.
How should IBM position itself beyond 2019?
The company should entirely focus on maintaining its good reputation as well as enhancing its performance. There are other economic giants like Exxon and Wal-Mart discussed earlier in this paper that are better than IBM. Therefore, as it strives to economically beat them, the sky should be the only limit (Smith, 1999). It can be easily realized if it embarks on sensitizing member countries where their products have not yet received critical attention. That is by carrying out intensive promotions and advertisements in those countries. Since it is not the only potential technological company producing computers and electronics, there are others like Samsung, Apple, Motorola just to mention but a few, it should diligently and persistently strive to produce quality products and meet the customers’ demands.
In conclusion, change is only possible when organizations and companies are able to accept that they are in deep trouble in case they cannot make massive profits as they used to earlier in their history. Unity and integration is an important factor if good performance is to be realized within the company. Employees, on their part, should be given time and opportunity to share ideas within the company; they should also be motivated and encouraged to work as a team to reach a common goal. Lastly, customers must be the priority in whatever decision making by any company and therefore, their demands and needs must always be attended.