The Decline and Rise of IBM

IBM is making a comeback. Although many observers had counted the company out — “It’s a dinosaur, an implosion, a wreck,” various commentators said — its revival was probable, even predictable, because cycles of decline and revitalization have been the company’s pattern through many decades.

Part of the pattern has been its slow confrontation of new technological approaches. Successful in its established ways, IBM finds innumerable reasons to deceive itself about the need to change. In times of major technological transition, it has had to jettison its top leadership to bring in people who are willing to break with the past.

Again, the pattern has repeated itself. A new chairman and a new top management team are redirecting the company. IBM is embracing an innovative approach to computing — networks — and bringing out products and services that fit into the new model. As Lou Gerstner, IBM’s chief executive officer, recently commented, “We are completely transforming the business to address the market for networked computer systems.”

But, significantly, Gerstner has not taken IBM on a new course as much as he is returning it to its roots. For decades, IBM had a strategy of supplying one-stop shopping for information services to large firms — a strategy I call “singleness.” The company strayed from that strategy in the 1980s, confused and angered its customers, and has now returned to it. G. Richard Thoman, IBM’s chief financial officer, talks of a strategy of breadth, of being a full-service provider for customers, and managing technological integration for them. This is the singleness strategy revised for today’s IS environment.

To say that IBM’s recovery was predictable and that it has followed traditional paths is not to belittle the achievement of its managers. The IBM that existed when Lou Gerstner became CEO was bloated with excess bureaucracy and cost, and its people were demoralized. Initially, Gerstner’s top management team cut costs and downsized. Profitability returned, but not growth. How much of the company’s muscle was cut with the fat? How much of the company’s future was mortgaged to squeeze out short-term profits? Could Gerstner return the company to growth? If not, IBM would become a shell of its former self, destined to decline slowly and die.

But growth has returned in virtually all segments of the company. In 1995, IBM’s sales reached almost $72 billion, up more than 12 percent from 1994.

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References

1. More about IBM can be found in:

D.Q. Mills and G.B. Friesen, Broken Promises (Boston: Harvard Business School Press, 1996).

Acknowledgments

This article is based on extensive interviews with IBM executives and personnel and access to some of the firm’s files. In particular, the historical perspective is derived from months of on-site research at IBM’s headquarters in Armonk, New York. I wish to give special thanks to John Akers, Walton E. Burdick, Ned C. Lautenbach, George Conrades, Jack Riley, and dozens of other IBM employees who generously shared their knowledge.