IBM and Lou

Gerstner
• IBM Had the Best Year in its History Until Then in 1990
(Sales $69 billion, Net Income $ 6 billion)
• In 1992, IBM Suffered its Worst Year Ever, Losing $ 5
billion; Akers Removed as CEO by Board of Directors.
• April 1,1993, Lou Gerstner Hired From Outside
– Services unit was 27 % of revenues and the software unit
didn’t even exist
• In 2001, services and software combinedly represented
58% of total revenues
• In 2005, major restructuring process took place
• More recently, IBM continues to do well with 70% of
revenues from software and services
 The Challenge of
Discontinuous Change
• IBM was initially unable to adapt to the
paradigm shift from mainframe computers
to networked computing; they were aware
of the changes, but could not leave behind
profitable installed base of legacy systems
• Gerstner moved IBM away from a highly
vertically integrated company by divesting
many divisions; then he refocused the
company by concentrating on the
customers;
• It is now a ‘total solutions’ company
and a leader
IBM’s Strategies
 Focus on total and partnered solutions for
complex, heterogeneous enterprise
requirements
 Focus on three primary growth areas:

 Services

 Cross-platform Software

 Unix & Intel-based Servers

SWOT Internal Analysis -
Strengths
• Brand name & Good will
• Penetration in high computer hard-wares, high end
OS, applications, and specialized software
• Valluable intellectual property, software, patents,
ideas….
• Talented work force
• Heavy spending on Research & Development($ 5.7
Billion)
• Solid systems management expertise that can
handle large infrastructure projects
 SWOT Internal Analysis -
Weaknesses
• High Operating costs
• Exodus of talent(they don’t take pain
to retain talent)
• Service desk area not upto the mark
• Time it takes to bring innovation to
market
 SWOT Internal Analysis -
Opportunities
• Less penetration in large consumer Base
economies
• Growth in grid-computing products &
Open Grid Services Architecture(OGSA)
• Reduce cost and IT budgets
• Enormous amount of computing power which will reduce
processing time

• Opportunities in cloud computing

SWOT Internal Analysis -
Threats
• New competitors in service market
especially in low-cost growth regions

• Biggest challenge to IBM is IBM itself

– IBM’s Selling, general and administration
costs are higher than that of small
companies.
 Porter 5 forces
High end jobs  Low

analysis
Low end jobs  moderate Moderate
ly Low

Low

In terms of cost  high

High In terms of service 
Why IBM Failed ???
Inspite of having a pool of smart,
talented people & file drawers full
of WINNING STRATEGIES………
yet the company was frozen in
place ….The fundamental issue

was of EXECUTION
 IBM Moves (2004-2007)
(1)
• 2004
– Sells PC division to Lenovo
– Acquires several software
product companies
– Revenues = $96.5 Billion
 IBM Moves (2004-2007)
(2)
• 2005
– Revenues dip by 5%
– Begins Restructuring to target high
growth conutries
– Replaces the european management
with two integrated teams focused on
clusters of countries, breaking
fiefdoms
– Buys more than 14 companies
 Restructuring Process
IBM before the IBM after Impact of the
restructuring the restructuring restructuring
Top heavy, individual Manpower and hierarchy Productivity gains of 10-
countries were run as in high-cost economies 15 % in delivery and
fiefdoms reduced, 6 regions formed support functions

Every contry had its own Support function were Helped in saving $1 Billion
delivery and support centralized and delivered in support cost, around $2
functions out of low cost centres Billion in delivery cost

Procurement spread Procurement shifted to Improvement in EPS,

across countries and china; 100,000 employees enhanced
managed out of the US in low-cost countries competitiveness against
offshore players
Small presence in low- Market share increase in Supply chain gains were
cost but high-growth high-growth countries; top huge, target in 2006 was
countries player in BRIC countries $3 billion - $5 billion

Though the company was Operations, delivery, Savings were used to

international, it was not supply chains, and even invest in high-growth
 IBM Moves (2004-2007)
(3)
• 2006
– Revenues up by 4%
– Acquired more than 13 companies
in the software arena
– International investor’s conference
in Bangalore  Importance given
to Developing Countries
 IBM Moves (2004-2007)
(4)
• 2007
– Revenues up by 8%
– Bottom line improves  Low-cost operations
became significant
– Workforce in low-cost, high growth countries reaches
100,000
– Acquired more than 9 companies
– Revenues from GTS & Global Business Services – both
of which source much of their talent from India – were
$54.4 billion
– That’s more than the total revenues of the entire Indian
IT services Industry - $47.8 billion
 Differentiating Factor
• Growth engine for IBM  Application of technology, not its
invention
• IBM differs from its peers in that it has also developed the
local market
• IBM looked at BRIC(Brazil, Russia, India and China)
countries as both a market and a low-cost delivery option
• Monopoly in fast-growing sectors in India such as Telecom,
where the three largest companies – Bharti Airtel,
Vodafone and Idea
• IBM is leveraging its global workforce to compete with
younger and more agile rivals
THANK
YOU !!!