Ibm's Transformation Under Gerstner

The problems surrounding IBM during the early 1990's is best summarized by a critic: "the company was blinded by hubris, out of touch with its customers, and distracted by internal turf battles." First, IBM product developers were using a "mainframe-based thought," which they would apply to markets that were not suitable. For example, IBM could have gained an upper hand for PC market, but this mainframe thinking blinded them and took them to a slower path. This is also why IBM was out of touch with its customers, such as taking longer and less efficiently than competitors when marketing a new product. IBM also operated in very complicated, often times chaotic, structure that it was ripping the company apart from the inside. When IBM was going downhill, some parts of the company were still operating in growth mode. There were 20 separate business units, selling multiple products that essentially served the same function. On top of that, there were multiple different business processes within the company that served the same function. Finally, deep levels of hierarchy prevented executives from exposing to the real problems. Often times their corporate staff did all the work and decisions took a long time to be made.

Gerstner came into the office in 1993. This marks the beginning of the dramatic transformation under his leadership. First, since IBM was out of touch with its customers, Gerstner made sure that customers come first from then on. He would meet with key customers himself and he also required senior executives to "bear hug" their key customers. Second, IBM was not cost-efficient at all. In order to cut expenses, Gerstner agreed to restructure the company by laying off over 75,000 employees. Parts of the business that were underperforming would either need to be fixed, closed, or sold. As with the PC market mentioned previously, Gerstner eliminated all the brands except ThinkPad. This allowed the company to be more focused on one product and cut out any extra weight. The manufacturing for PC was also outsourced to cut cost.

Perhaps the most important aspect of the transformation is the concept of "One IBM." Gerstner tried to eliminate some of the complexity of the corporate structure by implementing common processes across the business. Key brands would no longer have their own procurement, logistics, or fulfillment; everyone would be standardized. Finally, Gerstner also was a visionary, who foresaw the importance of Internet in 1995. His growth strategy "e-business" successfully led IBM back to one of the technology companies in the world. Gerstner did a splendid job in turning around the company because he knew that IBM would have more value operating as one piece. Indeed, for a company like IBM with many product developments going on, nothing could work out unless people in the corporate structure work as one.

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