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James W. Cortada: The Rise and Fall and Reinvention of a Global Icon

Birth

IBM history can be divided into three periods. 1880 to 1914 from start to merger of three companies. From 1914 to 1956, the years of Thomas Watson Sr. and period after WWII when IBM moved to computers. Two important persons in the start of IBM were Charles R. Flint, the entrepreneur who put together the initial company that eventually became IBM and Herman Hollerith, the inventor of the punch card tabulating technologies. Flint, who was the king of rubber and chewing gum, founded two companies and bought a third, which became the fundamental building blocks of IBM.

In order to build successful companies three things happened: First, inventors developed products that solved old problems or offered new conveniences. Second, entrepreneurs converted their inventions into commercially successful products. Third, to scale up in order to drive down the costs of building and selling and invention required either a creative and often ruthless entrepreneur.

On sales side, NCR company created by John H. Patterson, has set up sales corporate culture and introduce many sales practices embraced by companies in 20th century. IBM was influenced with efforts of Watson Sr., one of Patterson’s proteges.

Three companies Flint set up to form C-T-R was ITR (International Time Recording Company), Computing Scale Company and Tabulating Machine Company, later being Hollerith company. C-T-R began as troubled business and Flint loaded it with debt. Between 1914 and 1924 C-T-R evolved into IBM.

Watson era

Thomas J. Watson was the third founder of IBM. Coming from NCR, where he was actually fined and sentenced with one year in jail for violating Sherman Antitrust Act. He never served sentence since Wilson pardon NCR’s executives. Watson molded out conglomerate of three companies into IBM.

Watson decided to focus on tabulating side of business. Bring more resources to this part, create effective professional sales force and expanded placement of tabulating equipment worldwide. One of his actions was introduction of Sales School. He also brought together all three sales forces now reporting directly to him. He believed that the purpose of a sales force is to bring a company’s value proposition – its “deal” to customer. He was focused on teamwork, and encourage people to “think” and then to “act”. As start of forecasting sales in early 1920s reported about sales calls and their result. He was already introducing territories linked to salesmen. He also encourages use of market segmentation, advertising and education of customer.

Watson did not precisely understand the concept of “corporate culture”, but he appreciated the need for shared values and rituals as mechanisms to impose order in how his company operated and dealt with the world. Watson would have agreed with Chandler that the organization should be professionally run, focused on specific strategies, and operate with sufficient investments in product development, marketing and sales and post-sales services and support of customers.

On 15.2.1924 Wall Street Journal announce that IBM was created. Its business model was based on leasing hardware, selling the cards needed to feed these machines, and offering tailored terms. The sales force designed accounting processes for their customers that used equipment to lower operating costs and improve efficiencies. Card sales become cash cow for IBM. In 1925 IBM establish service department. The business was actually like IT outsourcing or in today’s world cloud computing. In 1920s IBM was expanding its offices, going to Europe, Latin America and Asia. Corporate culture was about informing everybody on IBM intentions, Watson spoke on sales trainings in 1934 IBM published 886-page book. Its innovation culture was based on patents and evolution of its products. Second generation of punch card equipment was built during this time. Usually IBM was a little bit late with innovation, choosing this low-risk strategies. They respond more to customer request for functionality. This process was actually formalized by 1940.

Big customers at that time were facing challenges in how to tackle growth of information and IBMers work with them, first as expert in routine accounting and the machines, but latter becoming consultant about data processing, specialized for different industries. With leasing model, IBM allowed customers entering into information handling without big capital investments. And they use their relationship to upgrade their portfolio with products in office appliances. IBM introduce electric typewriter in 1935.

In order to expand their market, market for their products, a lot of energy and resources went into education of customers on products and their application.

Then Great Depression came. IBM faced force outside its control that can shape its destiny. Watson choose not to lower their business, keeping production capacities and when Roosevelt signed Social Security Act that lead to increase work in Social Security Administration (SSA), need for system to support increased. SSA bid for system and IBM won it. IBM was competitive, worked with agency to develop the system and was able to produce it. With that IBM also get access to market of 20.000 other companies that need to process social security data.

Watson was also investing into relationships with governments to improve IBM position. In 1932 Justice Department filed a suit against IBM, for limiting potential competition. Watson having experience from NCR take it seriously, but still fighting with idea why company should not be successful and dominate the market.

In 1930s expanding business was name of the game. IBM was expanding as a global business. One country where this led to problems was Germany, where local partner Willy Heidinger, act as an agent to sell Hollerith machines in 1910. Later he had ties with Nazi people. And Nazi regime used IBM machines in some war facilities. Even Watson made some mistakes there. He misjudged power of commerce, misread Nazis and missed an opportunity to make a difference. As head of ICC (International Chamber of Commerce) he visited Germany in 1937 and meet with Hitler, that accepted medal from Nazi regime. He believed that he could influence them, writing them not to persecute minorities. Later he returned medal, but issue of IBM involvement with Nazi regime latter caused quite some concerns.

IBM revenue grow from 38 million to 138 from 1939 to 1945. Business during the war was superb. But not only business, due to demand of war, advances in electronics was huge and IBM engineers acquired experiences that helped make it possible for IBM to enter the computer business. One cooperation was very important. The one with Harvard. Howard Aiken from Harvard and John Phillips on IBM side were responsible for moving project of building machine that could use electronic parts to improve calculating abilities. Aiken was responsible for design; IBM build it in 1943. ASCC/Mark I. Due to some misunderstanding, Harvard launch was not success and Watson order IBM engineers to build new, better machine. IBM got into electronics as an act of vengeance. Another push for IBM was contract with an army and their quest for machine that could help break codes.

Watson had two daughter and two sons. Older Thomas Jr. was next IBM leader and Arthur was important part of WTC development – IBM arm for business outside of America. Both served in army during the war and come out strong.

After the war, new generation of IBM management, one of them was James W. Birkenstock lead IBM into computer era and the one of global expansion. In only one year, branch number grow from 85 to 135. But moving from one technology to another is a hard management task. Transition started around 1950. Watson Sr. forbade use of word of computer, since he feared that it will be connected with replacement of humans. First machines had calculator in their names.

Engineers in IBM develop machine, but they also work on software, introducing things like FORTRAN (John Backhus), relationship database management software (Edgar F. Codd). Main competition was Remington Rand’s – UNIVAC. They won business with Census, that was actually first C-T-R customer. In order to have development of new machines as smooth as possible, they were developed in Poughkeepsie, and development of old tabulating machines was left in Endicott.

IBM shipped the first 604 Electronic Calculating Punch machine in late 1948. In 1949 they introduced CPC and until mid-1950 they shipped almost 700 of them, only 14 UNIVAC shipped in this period. Government was at that time the biggest potential payer for such systems and IBM was very good in those relationships and use that money for development. Thomas Jr. successfully carried out his campaign to convert IBM into computer vendor. Many opportunities helped including new war – Korean. Not to mention cold war, where IBM was chosen to provide SAGE system to help operate cohesive radar system that would help defend America. SAGE system brought IBM profit, but also in cooperation with MIT access to knowledge of new technologies, like one of random-access storage. IBM SABRE airline reservation system was a descendant of SAGE. In June 1956 IBM made available 305 RAMACs with IBM 350 Disk Storage Unit – new storage device. That changed computing.

For commercial customers IBM introduced 702 Electronic Data Processing Machine. IBM 702 users represented an impressive collection of companies and agencies in the “military-industrial complex” Eisenhower was talking about. IBM inserted domination at high end computing.

Inside IBM need for new business departments arise. One being planning and assessing potential of new markets. Looking at qualities that make IBM great at that period, we could identify great sales force, able to connect customers need with IBM technology, great distribution model, knowledge of electronic technology, experience with data-processing installations. Two main sources of success are IBM ability as organization because of their structure and skills and great sales and corporate culture.

On June 19, 1956 IBM stopped for a moment. Watson Sr. died. In his time (1914-1956) IBM grew from 4 million company to 892 million.

On 1952 government again moved on IBM. They were aggressive and competitive in every deal, they collected patents, maintaining leasing and card practices and in 1956 they agree with DoJ on consent.

IBM was getting to big to be handle by one person, so Thomas Jr. started reorganization and moved to distributed decision making and responsibility for results. He took 110 executives on a meeting in Williamsburg in 1956 and in three days transformed IBM, creating organization where each department was responsible for their results. At the top of management, he establishes corporate management committee. They also created Corporate Staff – operational support department for business.  In 1959 another reorganization created two departments, one of small businesses (General Products Division – GPD) and one for big customers (Data System Division – DSD).

By the mid-1950s IBM dominated the four existing market segments: large commercial systems; large scientific and engineering installations, systems that did real-time processing (SAGE) and small companies just getting into data processing. Later were especially happy with IBM ability to deliver full package – product, training, sales and services. That helped them with uncertainty of implementing new system.

In 1964 IBM introduced System 360.  It was the most important product introduced by U.S corporation in the twentieth century, and it nearly broke IBM. It was IBM response to customer demands. They wanted system that was upgradeable and compatible. They look for upgradable software and peripheral equipment when they would move to bigger machines. Development of this product was a story of internal fight of two engineer’s department. Thomas Jr. to solve those issues used “abrasive interaction” techniques and swap managements. Inside the project IBM introduced microcode to help with simulation of work of earlier IBM computers and that lead to latter development of emulators. Another challenge was own manufacturing of integrated circuits – computer chips. On April 7, 1964 IBM introduced a combination of six computers, dozens of peripheral equipment, such as tape drives, disk drives, printers and control units, among others and a promise to provide software necessary to make everything work together. In a single stroke IBM had wiped out all demand for its current product line and ultimately that of most of the rivals. In the first month customers ordered 100.000 of those systems. But software development was a problem. Thomas Jr. took his brother out of the project and assign Learson to it. They were able to work on those problems, but still almost every customer faced some problems. Development of S/360 cost 5.3 Billion. It was a “bet your company” project.

All vendors combined in 1960s and 1970s were often called Snow White and the Seven Dwarfs (Burroghts, Control Data, GE, Honeywell, NCR, RCA and Sperry Rand.

After Watsons

Thomas Jr. suffered a serious heart attack in November 1970, leading him to step down as CEO in June 1971. Learson stepped in as interim CEO until Frank T. Carry took over in 1974. During Thomas Jr. time IBM grew from 892 million company to 8.7 Billion.

IBM culture was based on IBM Basic Beliefs, called also The IBM Way. They were respecting the individual, offering the best customer services and working in a “superior fashion.” They underpinned IBM’s culture through its Golden Age. Thomas Jr. believed that if you hire good people and treat them well, they will try to do a good job. This culture was fabulously expensive, requiring sustained financial success. Finance proved crucial to the effectiveness of IBM’s culture and operations. In the cash-starved Watson Sr. Years, the company developed financial management into a fine art. IBM controlled growth, curtailing it to what could be delivered. Around 12-15 percent of yearly growth. IBM complex organization was built on matrix design. Watson Sr. Developed the system. In his office he had a sign: Businesses are built on net profit. Every organization inside IBM was given budget and year-end headcount. Until 1980s IBM also used fixed point measurement in order not to deal with currency movement. Organization in those years was based on branches that had branch managers. Sales school was still alive. IBMers were maniacal competitors, but they had their limits, delimited by corporate ethics. Marketing Guidelines was a document, everyone needed to read it every year to understand what they can and cannot do. Sales persons were the higher cast in IBM. Managers were threatening harshly, they were expected to perform and when they didn’t, they were pulled out of the job. Managing employees was a hard task, since they should treat them carefully and if they want to manage them out, they should have everything documented.

In Golden Age IBM become known as computer company. But to stop an impending antitrust suit by the DoJ in 1968 IBM unbundled software and hardware. While IBM was still focusing on mainframes, new market developed for minicomputers. IBM in 1970s faced Innovator dilemma, where to invest, how to transition in their product line. They introduced System/3 in 1970, that was followed by AS/400 in 1988. Senior management decided to concentrate its software initiatives on operating systems and tried to leverage their communication tools like CICS (Custom Information Control System).

IBM management was one of the keys of success. Gideon Gartner founder of Gartner Associates worked for IBM. IBM was constantly analyzed; books were written about them. In 1973 IBM passed 10 Billion, in 1981 when they introduced PC, they were on 29 Billion and in 1990, last year of continuous growth, they reach 68.9 Billion. IBM focused on their role as integrated provider, they were collecting money, thinking about investment into new areas, but problem came in 1990s, when their performance started to decline. In 1970s and 80s IBM spend money on SGA – little more than half of IT, depreciation consumed 12-15 percent. Retained earnings were around 8-10 percent, tax rate was around 13-14 percent and R&D around 6-7 percent, dividends cost around 6%.

In 1980s turbulence roiled the computer industry. The traditional vertical model, where single company could design, produced and put together all components of a product, was shifting to horizontal model in which different companies produced specific components at sharply reduced price. Another problem IBM faced was overcontrol from HQ – Armonk.

WTO

IBM operations outside America were mainly focused on Western Europe and Japan, later developing into other areas. IBM organizations were EMEA (Europe, Middle East and Africa) and AFE – (Americas and Far East).

IBM dominated Western Europe market because of well-executed business practices that valued speed of execution, effectiveness, good salesmanship, and creative and knowledgeable pricing, contractual terms and conditions, marketing and advertising. IBM run into strong competition in France, where it was perceived as too strong and locally, they try to support Bull, local company, that was controlled later by GE.

In Japan IBM need to agree on patent licensing its patents and they were not able to produce locally. So strong local competitors Hitachi, NEC, Toshiba and especially Fujitsu emerge. Organization to handle this local development was MITI Japan Ministry of International Trade and Industry.

In central and south America IBM was present in CUBA and left after Castro took over, with local management being active in helping people migrate to USA. Since 1920s they tried to maintain and create new businesses also in south America countries. HQ for them was Montevideo.

India was an example where IBM went in, but because of their push to nationalization and local manufacturing. But IBM also learned that country was too poor for their products and they got out in 1978. In 1990 IBM came back and in early 2010s more than 100.000 Indian employees work for IBM, more than 25% of all.

IBM relationship with communist Soviet Empire is an interesting one. Khrushchev visited IBM during his visit of America in 1959. Market in Soviet Republic was mainly populated by IBM clones, illegally copied using stolen machines, software and user manuals. Russian informatics lag West from 6-15 years, mainly because new technologies was hard to get, so customers tend to stay on older versions for longer time. If Soviets were to obtain IBM’s products legally, IBM could have bigger market share. IBM find it difficult to work in Soviet Union, other competitors were more aggressive. They had HQ in Moscow for this region until 1970s, when they move it to Vienna. When in 1998 17 computers produced in PC plant in Russia were find in Russian Nuclear plant, IBM was fined of braking federal import/export law. They cleaned Moscow operation.

WTC was always a combination of local IBM organization and partner organization, that sometimes lead to challenges. Another development that influence IBM performance and moved focus from the customer was growth of marketing department with responsibility for pricing, lawyers taking care of conditions and finance and planning that control expenditures. All those departments were perceived from sales perspective as obstacles.

During Carry’s tenure, IBM really expand globally. He was dealing with increased competition with careful sales tactics, increasing prices of upgrades and keeping lower prices for mainframes and disks, being able to do that because of IBM own production of those components. Industry enters first depression in 1970-71.  Carry time was difficult: pricing, litigations, competitive pressures, international economic recession and pressure from customer. Carry retired in 1983, with IBM being 40 Billion revenue company. Carry reorganization tried to bring IBM closer to market. He put specialized business units into self-sufficient product division. This brough some speed into replies and more accountability but it splitted IBM power of integrated approach. IBM competitors in Carry times were: manufacturers of plug-compatible mainframes, seller of plug-compatible peripheral equipment, leasing companies, minicomputer suppliers and coming but not there yet – PC compatibles.

Antitrust

Antitrust case that run almost 15 years, influenced IBM a lot. Carry spend most of his time in 70s on court. IBM was not the only company to face DoJ, years latter Microsoft was charged even ordered to split into two companies, but ruling was later reversed. AT&T was forced to split into 32 operating companies. IBM spend time and money on legal actions, they affected operational business. But this case also led smaller companies to fight IBM in court, like CDC, Telex. Competitors was keen to help DoJ to fight IBM. In Telex case a lot of documents were produced that show IBM workings and they became public. Case lasted so long, that market changed so much, that circumstances that led to it in 60s weren’t there anymore. DoJ dismissed a case on January 8, 1982. Business Conduct Guidelines were introduced to explain IBMers what they can or can’t do.

PC era

After Carry retired John Opel was named CEO. Opel consolidate operations to drive down costs and increase focus. The antitrust suit finished in 1982. IBM tried to increase revenue by switching from leasing to outright purchase. With that IBM lost predictability of cashflows and their strong continual relationships with customers, IBM already started to suffer under Opel.

PC era changed a lot for IBM. IBM senior executives coming from different environment made some mistakes and even if IBM capture beginning of this era, they were eventually hit by its growth. IBM didn’t invent first desktop computers, already between 1969 and 71 there were some microprocessor developed by Intel. But hardware needed software to make it functional and by 1980s-word processor, spreadsheets and data management tools were identified as potential killer apps. Bill Lowe was a name behind IBM PC creation. But when machine was produced, they started looking for software, IBMers were not impressed with Gates but at the end of the day, they were left with him. They left Gates with responsibility for software and rights for it. So, when Microsoft converted QDOS into DOS and set standard for market, IBM was only a buyer. In order to cover application side, they acquire Lotus Development.

Opel never understand PC, he didn’t have e-mail, used terminal or have a PC. IBM constantly underestimated development of PC market and so competitors moved into this business and sell quicker for less price. Another stroke to this business was plane crash that take out main PC management of IBM in 1985. IBM had chance to buy part of Microsoft, when Gates (around 1986) needed money to develop new operating system, but Lowe refuse it. IBM could not develop their OS/2 to catch the market. Lowe resigned in 1988. IBM actually developed RS/6000 as byproduct of search for better chip technology in PC. UNIX was developed as operating system and RISC technology wasn’t lunch fast enough, since competitors like Sun, HP and other introduce their powerful workstation quicker for less price and with better performances. RS/6000 stand in IBM portfolio and developed into p-Series Servers. IBM PC business story finished with Palmisano selling department to Lenovo in 2005.

IBM in PC industry, got the timing right, establish standards, but lost the footrace. They failed to realize that PC business domination will be decided on software level not hardware and by doing that offer Microsoft a chance. Explaining IBM problems Clayton Christensen explains: »Good managers consistently made wrong decisions when faced with disruptive technological changes, because they played the game the way it was supposed to be played. «[1]

John Akers replaced Opel in 1986. Beginning in the late 1980s and extended over two decades, IBM dismissed or retired some 200.000 employees. A generation of executives and middle managers left, too, including John Akers, the first chairman to be terminated in IBM’s history. He was retired in 1993, full year early as planned. When IBM announce loses in 1991, everybody was shocked, that they are really in trouble. IBM’s story reminds us that strategy is about making choices, mitigating risks and giving employees a direction, a purpose. Loses were result of big restructuring cost from 1991 to 1993. They reach 24 billion, mainly due to cost of severance. When IBM first hit the wall in 1993, their margin was 30% and operating expenses at 29%, leaving only 1% of profit. IBM was losing market share, especially in mainframes. Revenue of mainframes drop from 17 to 15 billion in five years. As mentioned, IBM problems started already with Opel. He announced IBM strategy for the first time in 1980s. Aiming to be low-cost provider. Expecting almost linear growth, that nobody was buying it and in this new strategy he talks almost entirely what IBM desired, nothing about what customers wanted. Moving from leasing meant that IBM steady flow of revenue from leasing dropped from 85 to 12 percent, coming to 4 % in early 1990s. That meant that IBM had to fight year over year for 96% of their revenue. IBM was more and more focused on selling customers products instead of solutions that they want. After Akers step down IBM also cut down dividend payments for the first time in their history.

Akers try to handle problems by dismantling Opel’s growth strategy and focus on cost reduction. Laying of people, reducing salaries, reducing training costs, introducing employee ranking as part of assessments, that helped with setting up norms for layoffs. Akers tried to transform culture. With new management theories like the one of TQM influenced also IBM management, introducing MQM – market-driven quality. That lead to shift of power from executives down to employees. Customer saw that IBM spend more and more time focusing on their internal issues. Akers tried to tackle this by shaking thigs up. Selling printer business in 1991, that later evolved into Lexmark. Akers and his management were introducing reorganization after reorganization and that only led to confusion.

IBM crisis was in a part crisis of management, with strong management culture, IBM failed to recognize changes in technology market. With move from leasing model, they moved too far from the customers, focusing on transaction-business instead of service and solution oriented. Customers often complained that IBM didn’t defend mainframe model enough, letting PC mantra dominate technological debate. Akers left IBM with distraught customers and demoralized workforce.

Another problem of IBM was also a role of the board, usually this were people handpicked by CEO. They didn’t react quickly with Akers and they faced a problem, that Akers drove away all potential successors, which is something IBM was not used. Akers was not only CEO and the chairman of the board, but he also operationally led a company. So, at IBM all these positions were consolidated into one. At the end of his tenure, Akers did not exercise constancy of purpose. He replaced reorganizations with strategy and he failed.

Elephants can dance

It was time for Akers to go and IBM brought CEO from outside to get things done. Louis V. Gerstner Jr.. With Akers almost all the other senior management left. Task for Gerstner was not easy. Transforming company of that size is like turning course of an oil tanker. Gerstner lower the price of mainframes and started public campaign for mainframe revival. He also brought in new management from outside, especially for customer facing roles and CFO to control financial part. Some of the changes like moving to services and outsourcing started already under Akers. But Gerstner with his no-nonsense approach implement changes quickly. His experiences as McKinsey consultant helped him ask the right questions and listen carefully, in American Express he learned about value of good technology supporting business processes and in RJR Nabisco he learned how to communicate with customers. He was autocratic and he moved IBM back to centralized management style from before 1956.

Gerstner thought that odds to save IBM were 1 to 5. One of the managers he brought first and he was crucial for the turnaround was Jerome B. York – CFO. One of the main decisions Gerstner took was to keep the company together, reversing Akers strategy of breaking up the company. He realized that IBM was really slow in delivering distributed computing. But industry still lack technical standards and compatibility was an issue, so that is the reason customers still needed system integrators and that is why decision to keep company together was important. York was working on cost reduction, having a goal of 8.6 Billion reduction. But he wanted not only to cut the one time, he wanted process reengineering and he run at one time more than 60 projects on this subject, leading to more than 10 Billion cost reduction.

Gerstner communicated to employees what they will do. He had four messages: to restore company profitability, improve services to customers, IBM would lead client-service market and they will be full-service provider. Turnaround showed signs of success in late 1994 and by 1996 IBM was on a right track.

In order to create turnaround CEO according to Kotter should:

  • establish a sense of urgency
  • form a powerful coalition of senior executives to lead the execution of change
  • create a vision
  • communicate a vision
  • empower others to execute the plan
  • implement short-term wins
  • consolidate improvements and continue making changes
  • institutionalize new approaches

IBM moved from defense to offense in 1995. Gerstner realized that market is changing with Internet influence and rise of distributed computing. IBM revenue mix changed and services overwhelmed hardware revenue in 2005. Gerstner created GSD – Global Service Division in 1995. In 2002 IBM bought PwC consulting part. That acquisition was led by Gini Rometty.  IBM changed from components to infrastructure to business value. PwC helped IBM transition from IT-centric services into industry specific services. Outsourcing was becoming more and more a driver of growth in services business.

On software side IBM acquire Lotus Development in 1995. Another acquisition was Tivoli Systems. By 2001 IBM had its software organization well structures. But what IBM realize that it was hard to integrated acquired companies into firms’ operations. IBM made a decision to get out of application business and offer their customers solutions on their general digital plumbing.

20th Century

When it was time for Gerstner to retire, Sam Palmisano took over in 2002. He sold disk business to Hitachi and PC business to Lenovo. He decided that IBM is not good at finding profit in commodity business. Palmisano launched a corporate make-over as IBM publicist called it in mid-2005, named Roadmap 2010. Because of constant buybacks of share and strong dividend payment, share price was growing. To operate globally, IBM created transnational processes, metric of performance and improved profits. They were chasing high-profit opportunities. It expanded into 170 countries. It began investing in software and services that specialized in analytics in business, health, government. They paid attention to cloud computing, but their move to the market was slower than some of its competitions. Palmisano also introduced redesigned values: innovation that matters, to every client’s success and trust and personal responsibility in all relationships. In IBM everything comes down to its basic beliefs about quality of work, listening to customers and their needs and relations between corporation and its employees. Last one was under strong pressure once full employment concept was gone. Last IBM CEO’s Gerstner, Palmisano and Rometty pushed that even further. Rometty was known inside an IBM as a person who will focus on achieving her targets even on the expense of people.

With Palmisano and Roadmap 2010, that was so successful, that they introduce another one until 2015, IBM focus on improving financial results, money going into dividends and share buyback. Customers and employees were hardly mentioned.

Rometty faced a challenge of where value of business really lies when she took over from Palmisano. She faced nineteen consecutive quarter of revenue shrank. But IBM was still big and in order to kill one giant dinosaur, you need an army of dragon slayers. Trying to keep with second roadmap and chasing 20-dollar EPS goal, was having hard impact on operational performance of the company. It did not help that she used world I a lot instead of we. She saw people as resources and that bring down moral even more. When IBM lost bid for cloud computing of CIA, even if Amazon bid was higher, but customer simply didn’t trust IBM to deliver. And in 2014 it was really visible that IBM has problem and even stock market was starting to question IBM shrinking revenue.

Rometty decided to drop roadmap in 2014, setting strategic areas like cloud, Big Data analytics, social, mobile and security and started to push on execution. Even if those imperatives were still growing slower than legacy business was shrinking, but mix become better and better, new revenue accounting for almost 40% of company revenue in 2016.

Analytics, cloud computing, cybersecurity, social networking and mobile technologies. That was main field of IBM development. Buying companies like SoftLayer, working with Apple on mobile technologies, focusing its analytical and AI department on Watson capabilities lead to development of new field called cognitive computing and also help IBM build cloud offerings. IBM was investing into commercializing these technologies, developing products, services and software out of them. Rometty established IBM Cognitive Business Group, betting on AI technology. She claimed that group can do 10 Billion revenue in a decade.

IBM generated more than trillion dollars in its lifetime. The longer the company survives more chance it has to live a decade more. IBM has challenges. A lot of its value lays in a goodwill based on companies that they were buying. With push to performance many people left company, looking for different challenges, decline in sales culture and in respect to individuals detoriate also global moral of employees. But IBM still is home of five Nobel Prize winners, its role in business is more than technology company. In 2016 ranking system was discarded. Parts of IBM culture are still there. IBM is now company in transition, with heavy burden of company legacy business and margin model of new business still under revision. IBM went through three technological platforms, protocols and environments. Each required different skills, knowledge and activities. IT industry is behaving more and more as old industries, but majority of IT players today didn’t go through platform transitions. Microsoft is now in the phase of transition to internet orientation from PC business mode. IBM was always successful when it worked together with the customers giving and receiving ideas and building infrastructure that supported customer business initiatives.

Over million people worked for IBM, a lot of them give their children peace of IBM culture and a lot of those children are successful today. Ask employees what company gave to the world and they will say IBMers.


[1] In the book on page 417

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