Case: IBM Corporation Turnaround

Presented by: Group 8

Ashish Gupta 14P190
Debayan Roy 14P196
Jithin George 14P203
R Karthik 14P204
Ritwik Mishra 14P219
Ankur Dewan 14 P235

IBM: Timeline (1911 1995)

1911

Computer Industry Developments

IBM introduced Personal Computer in 1981
PC volumes purchased expanded at 74% CAGR from 1984-89
creating a market of $50 billion at the end of 1980s
Client Server model was preferred over proprietary technology
based mainframe model
Mid-1990s saw emergence of Internet and Worldwide Web
IBM was in a better position to participate in client/server and
internet revolutions
But, managers at IBM were reluctant to cannibalize mainframe
sales by pushing replacement technologies
The margins on mainframe sales were exceptional (gross
margins in excess of 50%) which primarily led for managers
reluctance towards developing Mainframe alternatives

Early signs of trouble in IBM

In 1985, newly appointed CEO of IBM, John Akers said, IBM was
successful beyond our wildest expectations
IBM had captured 70% of worldwide information industry profits in
1984
But, returns on sales, assets and equity weakened after 1984 peaks
A change in business model from leasing to sales oriented led to
realising net revenue gains at the expense of ongoing lease income

John Akers
Problems Found

IBMs core business hit

Demand for IBMs core mainframes weakened rapidly
IBM kept denying client-server model which was being approved
widely
IBMs products developed to combat with smaller machines failed
eg. VAX-killer
Revenues decreased but costs reached record levels:
Warranty costs reached record levels and customers started
reporting quality problems
Data processing costs were 3 times the industry average
Complexity in IBMs operations proved to be the major cause for its
problems
Commonality existed in products and processes
IBM performed poorly in internal IT management

Early Recovery Efforts

Employee perks (eg. Fitness centre membership) were cut back
In May 1991, Integrated Systems Solution Corporation (now
IBM Global Services) was created to enter IT services market
which was in an expansion mode
IBM won a major outsourcing deal with Kodak
IBM discontinued its no-layoffs policy
Targets were set to reduce workforce in mainframe business
Voluntary retirements and for the first time involuntary
retirements with less generous terms were used to meet layoff
targets
Jobs eliminated through early 1993 exceeded 40,000 mark

Louis V. Gerstner
With dismal performance in 4Q, 1992 search for new CEO began
On April 1, 1993 Louis V. Gerstner joined IBM as the first CEO not
rising from the company ranks

Lou Gerstners strategy (1/2)

Lou Gerstners Strategy (2/2)

Analysis of the Restructuring done at

IBM
Alternative
s

Short Term
Outcomes

Long Term
Outcomes

Stabilizing IBM: 1995

New Product Strategy

Impact of the Strategies

The core competency of end to end solutions was secured
An outside view to the fledgling company was provided
The collegial culture amongst the senior personnel was
dismantled
Standardization in product and processes became the norm
IBM was positioned as a Global company
Processes became streamlined
Financial results were driven and creating value for
stakeholders
Key members with immense experience were removed due to
highly stringent actions

Thank You