Although IBM earned a reputation as the second most profitable company in the world in 1990, structural problems started affecting its performance, and IBM reported a loss of $16 billion between 1991 and 1993 (Applegate, Austin, & Collins, 2009). Mainframe purchases dropped because of new trends and emerging competition in new markets (Denning, 2011), so 80 percent of IBM’s revenue was at stake (Applegate et al., 2009). In response to that issue, their CEO John Akers started cutting costs and decided to divide IBM into different autonomous units that would specialize in certain aspects of computer manufacturing.
If Akers’ decision had been implemented, IBM would not have survived because the solution did not focus on dealing with organizational silos and product complexity, which were the central issues. At the time, IBM had 20 business units, and each of those units used different processes to try and achieve a common goal (Applegate et al., 2009). Most importantly, the IT markets were already saturated, and their customers did not require another set of companies producing the same tools as everybody else. Because nothing would have differentiated IBM from the competition after dividing it into several units, Akers’ strategy would have failed.
Long-term thinking is a common characteristic among great leaders, but in most cases, long-term decisions do not fit into the concept of safe and conservative approaches (Denning, 2011). In Akers’ case, a rational and safe strategy would have resulted in something IBM’s existing consumers did not need. Fortunately, Lou Gerstner took over as CEO in 1993, and his ability to understand the importance of listening to customers and solving their problems saved the company. In addition to resolving internal IT management issues, Gerstner focused on the current customers, their problems, and solving those problems, so the company managed to recover shortly after his arrival to the company.
References
Applegate, L., Austin, R., & Collins, E. (2009). IBM’s decade of transformation: Turnaround to growth. Harvard Business School Case 805-130. Boston, MA: Harvard Business School Publishing.
Denning, S. (2011, July 10). Why did IBM survive? Forbes. Retrieved from http://www.forbes.com/sites/stevedenning/2011/07/10/why-did-ibm-survive/
