IBM's Turnaround and its New Business Model
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Case Details:
Case Code : BSTR107
Case Length : 22 Pages
Period : 1993 - 2004
Organization : IBM Inc.
Pub Date : 2004
Teaching Note :Not Available
Countries : USA
Industry : Information Industry
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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
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EXCERPTS Contd...
Customer-Centric E-Business Strategy
In 1997, IBM's network centered computing strategy evolved into a full-fledged e-business strategy. The e-business strategy sought to leverage on IBM's strengths in big servers, huge storage capability, bullet-proof databases, massive processing power and expert systems integration. IBM provided the complete package for e-business i.e. hardware, software, training, security, networking and services.
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Lotus Notes Groupware added another powerful feature to IBM's e-business solutions. Notes ensured that various forms of communication including e-mail were made available to all persons in an organization to whom they were relevant. Each Notes server periodically checked the status of other servers in the network and copied the updated contents of its database to others. Hence, users were able to access the latest information in real time. During the period 1995-1998, the number of Notes users increased from 3 mn to 22 mn. IBM also launched a web-server program called 'Go', which made the company's hardware products suitable for e-commerce transactions. Among IBM's various e-business technology components, the most important was network computers (NCs)...
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Issues That Remain to be Solved
A few critics said that IBM's turnaround was more of hype created by the company. They said that a part of the company's increase in revenues was because of a controversial switch in the IBM's pension plan. Moreover, some observers argued that there was a clear sign that IBM's share price had been fueled by stock buybacks and not by strong earnings.
Since 1995, IBM had spent $20 bn on stock buybacks. The company also failed miserably in some of its new initiatives like education software. Notwithstanding IBM's improved performance, analysts opined that several issues that still needed to be addressed. They felt that IBM had to shore up its ranks for its e-business strategy.
In an Information Week survey of 200 managers conducted in 1997-98, Microsoft was cited by 33 percent of the respondents as the most trusted vendor for e-business solutions. Only 15 percent cited IBM. Of the surveyed companies that were already IBM customers, only 61 percent said IBM would appear again on their shortlisted candidates for providing e-business solutions...
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Challenges for the New CEO
On March 01, 2002, Palmisano became the eighth CEO of IBM. Though he took-over the company in a much better financial condition compared to Gerstner, several challenges lay ahead for him. The IT industry was facing a tough time due to the economic slowdown that had reduced corporate spending on IT products & services drastically. Analysts pointed out that though Palmisano had a three decades working experience in IBM, he was perceived as more of an operations expert rather than a strategic thinker like Gerstner...
Exhibits
Exhibit I: IBM's Consolidated Statement of Earnings
Exhibit II: IBM's Consolidated Statement of Financial Position
Exhibit III: IBM's Stock Prices Chart (1994-2003)
Exhibit IV: IBM's Consolidated Statement of Earnings (1994-96)
Exhibit V: IBM's Subsidiaries and Divisions
Exhibit VI: IBM's Vision of the Networked World (1998-99)
Exhibit VII: IBM's Product Segments (1999)
Exhibit VIII: IBM's Consolidated Statement of Earnings (1997-99)
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