Description
Book review of IBM Redux by Doug Garr. In 1993 IBM, under the leadership of CEO John Akers, was on the verge of bankruptcy having reported losses of close to $16 billion over the past 3 years. In early 1993, Lou Gertner took over as the new CEO of IBM. The book “IBM Redux” tells the story of how Lou Gertner orchestrated a phenomenal turnaround in the business fortunes of IBM in a short span of 3 years.
IBM Redux Doug Garr
Assignment Book Review
IBM Redux Doug Garr Table of Contents
INTRODUCTION ............................................................................................................................................ 3 BOOK REVIEW .............................................................................................................................................. 3 OPINION ........................................................................................................................................................ 5 MAIN PROPOSALS AND IMPORTANT LEARNINGS ...................................................................................... 5 PRACTICAL APPLICATION ........................................................................................................................... 7
Group 7
Page 2
IBM Redux Doug Garr INTRODUCTION
In 1993 IBM, under the leadership of CEO John Akers, was on the verge of bankruptcy having reported losses of close to $16 billion over the past 3 years. In early 1993, Lou Gertner took over as the new CEO of IBM. The book “IBM Redux” tells the story of how Lou Gertner orchestrated a phenomenal turnaround in the business fortunes of IBM in a short span of 3 years.
BOOK REVIEW
IBM, for decades, was renowned as a global leader in innovation in the computing industry and had grown from strength to strength, making it the largest company in the world in its field. However, in the late 1980’s, things started to go terribly wrong for the company. Competition across the board had caught up and for the first time in its history, IBM’s standing as a global leader in the computing industry was threatened. By 1993, the company had raked in losses of close to 16 billion dollars and seemed in total disarray. The CEO, John Akers was forced to resign and after a long and thorough search, Louis (Lou) Gertner was chosen to take his place at the helm of affairs. Lou, though well know from his time as second-in-command at American Express and the CEO of RJR Nobisco, was considered by many to be a surprise choice because of his lack of any prior experience in the computing industry. When Lou took over, IBM was in total disarray. The competition had caught up with IBM and many of its key customers were moving away from the company. Most of IBMs business divisions were running up heavy losses and the company was under increasing pressure to sell of these key divisions. The first priority for Lou was to win back the trust of existing customers and cut-back on costs to enable the company to stay afloat. Lou, as mentioned in the book, identified some of the key reasons that had led to IBMs downfall: 1. Loss of faith by the customers IBM had grown into a company that no longer gave customers the first priority. IBM officials were increasingly alienated from the needs and views of the customers. IBM was being increasingly perceived by its customers to be a company that was no longer interested or capable of meeting their changing needs and requirements. Lou spent a large part of his first few years in charge travelling across the globe meeting with important customers trying to understand their grievances and the same time re-sell brand IBM to them. 2. Increasing Costs Though IBM was able to generate revenues in the range of 60 billion dollars, the costs involved in generating revenues far exceeded the actual revenues. This was not just due to inefficient inventory management systems in its business divisions, but also due to excessive spending in product development (that far exceeded revenues) and improper
Group 7 Page 3
IBM Redux Doug Garr
staffing in their plants and offices around the globe. IBM also wasted too much money in non-revenue generating activities that drove up the total costs that had eventually led to its downfall. 3. Lack of Innovation/Competitors gaining advantage IBM was traditionally known as a market leader and innovator that had always been able to stay a step ahead of the competition. But in the 1980s, the competition had caught up and was not only able to bring new innovations to the customers but at a significantly lower cost than IBM was able to. Competitors like Microsoft, Sun and Oracle were not only able to attract new customers but capture high market shares in areas that were traditionally IBM’s dominance (ex. OS, Database Management, etc). IBM was not able to keep pace with the innovations offered by the competition and by the time IBM was able to come up with similar offerings, the competitions had moved far ahead and were able to offer similar products as IBM but at far lower costs. 4. Arcane hierarchical reporting structure IBM had stuck to the same hierarchal structure over the years that resulted in its rigidity as an organization. Senior executives took too long in decision making and by the time decisions were taken, very often it was too late since the competition had already gained an advantage over the company.
In order to take turn things around, hired the services of key executives like Jerry York as CFO. These new recruits were known to Lou and shared the same single-minded approach to change and were as dedicated as him. Lou dedicated himself totally to the task and spent thousands of hours with the employees across offices and listening to customers. He cut jobs across factories and offices in an effort to “downsize” and build a leaner, more efficient company. He also phased out senior executives that had become complacent and tried to shake up the organization by bringing in brought in new, result oriented executives and staff. By the end of the first year, Lou was able to significantly reduce costs and managed to earn a marginal profit. He continued in the same vein, continuously pushing his executives to deliver or face the risk of termination. After coming to grips with the functioning and revenue generating capacities of the various business divisions, Lou began the process of selling off the nonprofitable businesses. At the same time he brought over new companies like Lotus, Tivoli that would enable IBM to grow and stay competitive. Lou also realized the need to project a new brand image for IBM to the world. He enlisted Ogilvy and Mather to work on advertisements and marketing campaigns to project the new image of IBM. Solutions for a Small Planet was chosen as the new tagline for IBM and promotions and advertisements were run across the globe to project the new brand image.
Group 7
Page 4
IBM Redux Doug Garr
IBM gradually started returning back to profitability and its share prices that had been battered on the exchanges gradually returned back to its levels pre-1993. Investor confidence in the company also grew, which was reflected in gains of the company’s share prices, signaling a turnaround from the dark days at the start of the decade. However in spite of the successes, there were a few blemishes in some business divisions that kept bleeding the company. IBMs version of the operating system “OS/2” was never able to keep pace with Microsoft’s Windows offering in spite of the billions of dollars that were spent on it. Similarly the PC-home and corporate segments were unable to cope up with competition from lower priced rivals like Dell, Compaq, Gateway and also Apple. In spite of their best efforts, IBM lost out on a significant market share in these segments that lead to heavy losses for the PC division. IBM was also perceived by many industry analysts to be risk-averse, which was a problem for companies working in the technology domain. IBM lost out on opportunities because it either held back production to “safe” levels or shelved innovative ideas that could have earned the company high revenues. Despite these blemishes, Lou had been able to turnaround the fortunes of IBM. This was reflected in not only the growing revenues and profits but also the confidence of shareholders. IBM had also grown to become no longer just a computer company but as a technology and services company. Lou also predicted the growth of the Internet and e-commerce and guided his company towards assuming a market leadership role in developing new innovations to support the growth of the internet.
OPINION
Though the book often touches upon Lou’s abrasive leadership style, it also provides a good perspective of how, as a total outsider, he was able to change the fortunes of IBM. The book however downplays the importance of some key characters like Jerry York, who played a key role in the turnaround as IBMs CFO and second-in-charge. All-in-all the book was able to delve into the turnaround of IBM without focussing in too much detail on the technical aspects of the problems that the company faced but rather on their business implications. The authors use of a storyline to list the sequence of events, interspersed with quotes from key characters also makes the business problems more life-like rather than making it seem just like a case review on the turnaround.
MAIN PROPOSALS AND IMPORTANT LEARNINGS
IBM Redux is an illustration of how a business can be rejuvenated by following the basic needs and trends of the market. It illustrates the importance of the following aspects ? Listening to the Customer and Quality of Market Research - In any organization which is customer driven it is important to not only understand the current demands of the customer but also understand the unstated demands of the customer. It is the latent
Page 5
Group 7
IBM Redux Doug Garr
demand of the customer which is satisfied by innovative products. It is important for any organization to continuously think out of the box and create products which don’t merely bring a larger market share but create a completely new market. ? Time from Concept to Market - Organization with very short product life cycle need to reduce the time it takes to bring a product from concept to market as this is the only way to ensure that competition is kept at bay. It is also necessary to correctly assess the demand for the product so as to ensure that the demand is always met. Quality of Competition – An organization needs to understand the strengths and weaknesses of its competitors. As mentioned in the book IBM tried to create awareness in the education sector where Apple had dominance by being the sole technology giant at the Education Summit. This strategy was not met with much success owing to the fact that the Education Summit relegated the real customers the educators to the secondary position behind the politicians. Apple with a small but focussed presence was able to communicate to the consumer that they care about the consumer. Importance of Networks – In the book it is repetitively mentioned that the relations between IBM and Microsoft were strained though Microsoft was one of the most important software suppliers for IBM products. It is important for an organization to understand its suppliers so that the most cost effective technology can be brought to the consumer. Marketing Campaigns –In the book it is mentioned that though there was a huge impact on the sales of IBM machines on the successful launch of the advertising campaign designed by Ogilvy & Mather. It highlights the importance of the marketing campaigns and the need for these campaigns to not only create a buzz in the market but also embody the spirit of the product and help the consumer connect with the product. Competitive Pricing – In the book the Aptiva Series of IBM PC Company lost out to its competition not because of lack of features or product quality but because of expensive pricing. It is important for an organization to restructure its cost of production by utilizing its networks so that it is competitive in the market. Mergers & Acquisitions – In the book it is mentioned that the merger with Lotus was one of the most successful highlights of Lou Gerstner’s career with IBM. It is important for an organization to look at growth options other than in house investment in order to recapture market share.
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?
?
?
?
Group 7
Page 6
IBM Redux Doug Garr PRACTICAL APPLICATION
IBM Redux illustrates a very classic example of a business turnaround. In the current economy when there is threat of recession the need for change leaders is very urgent. The book is not only an illustration of how one can employ various cost cutting measures in order to boost sales. It also brings to the reader’s notice the importance of reorganization and productivity driven planning to recapture market share. One company that can be compared with IBM of 1992 is Revlon. With consecutive 27 quarter losses and a focus on selling Non Performing Assets rather than making them productive again, the learning of IBM can be applied to it. The importance of understanding customers, competition and innovation is central to the success of any organization. Any organization is dependent on its customers for its success but it is important to understand that most of the successful organizations concentrate on delivering customer satisfaction with the help of its entire delivery structure including suppliers and employees. For an organization to deliver operational excellence it is important to leverage all its resources so that they continuously strive to fulfil the customer’s needs. An organization which is not the market leader needs to understand the importance of innovation to achieve success. The importance of innovative products is not aimed at recapturing existing market share but creating entirely new markets. An organization needs to promote the feeling of entrepreneurship in order to successfully develop innovative products. An organization which is operating in a highly competitive market should concentrate on delivering the most high quality products at the lowest prices. This can be made possible by understanding the strengths of the competitors as well as continuously assessing methods of reducing the cost.
Group 7
Page 7
doc_554371601.pdf
Book review of IBM Redux by Doug Garr. In 1993 IBM, under the leadership of CEO John Akers, was on the verge of bankruptcy having reported losses of close to $16 billion over the past 3 years. In early 1993, Lou Gertner took over as the new CEO of IBM. The book “IBM Redux” tells the story of how Lou Gertner orchestrated a phenomenal turnaround in the business fortunes of IBM in a short span of 3 years.
IBM Redux Doug Garr
Assignment Book Review
IBM Redux Doug Garr Table of Contents
INTRODUCTION ............................................................................................................................................ 3 BOOK REVIEW .............................................................................................................................................. 3 OPINION ........................................................................................................................................................ 5 MAIN PROPOSALS AND IMPORTANT LEARNINGS ...................................................................................... 5 PRACTICAL APPLICATION ........................................................................................................................... 7
Group 7
Page 2
IBM Redux Doug Garr INTRODUCTION
In 1993 IBM, under the leadership of CEO John Akers, was on the verge of bankruptcy having reported losses of close to $16 billion over the past 3 years. In early 1993, Lou Gertner took over as the new CEO of IBM. The book “IBM Redux” tells the story of how Lou Gertner orchestrated a phenomenal turnaround in the business fortunes of IBM in a short span of 3 years.
BOOK REVIEW
IBM, for decades, was renowned as a global leader in innovation in the computing industry and had grown from strength to strength, making it the largest company in the world in its field. However, in the late 1980’s, things started to go terribly wrong for the company. Competition across the board had caught up and for the first time in its history, IBM’s standing as a global leader in the computing industry was threatened. By 1993, the company had raked in losses of close to 16 billion dollars and seemed in total disarray. The CEO, John Akers was forced to resign and after a long and thorough search, Louis (Lou) Gertner was chosen to take his place at the helm of affairs. Lou, though well know from his time as second-in-command at American Express and the CEO of RJR Nobisco, was considered by many to be a surprise choice because of his lack of any prior experience in the computing industry. When Lou took over, IBM was in total disarray. The competition had caught up with IBM and many of its key customers were moving away from the company. Most of IBMs business divisions were running up heavy losses and the company was under increasing pressure to sell of these key divisions. The first priority for Lou was to win back the trust of existing customers and cut-back on costs to enable the company to stay afloat. Lou, as mentioned in the book, identified some of the key reasons that had led to IBMs downfall: 1. Loss of faith by the customers IBM had grown into a company that no longer gave customers the first priority. IBM officials were increasingly alienated from the needs and views of the customers. IBM was being increasingly perceived by its customers to be a company that was no longer interested or capable of meeting their changing needs and requirements. Lou spent a large part of his first few years in charge travelling across the globe meeting with important customers trying to understand their grievances and the same time re-sell brand IBM to them. 2. Increasing Costs Though IBM was able to generate revenues in the range of 60 billion dollars, the costs involved in generating revenues far exceeded the actual revenues. This was not just due to inefficient inventory management systems in its business divisions, but also due to excessive spending in product development (that far exceeded revenues) and improper
Group 7 Page 3
IBM Redux Doug Garr
staffing in their plants and offices around the globe. IBM also wasted too much money in non-revenue generating activities that drove up the total costs that had eventually led to its downfall. 3. Lack of Innovation/Competitors gaining advantage IBM was traditionally known as a market leader and innovator that had always been able to stay a step ahead of the competition. But in the 1980s, the competition had caught up and was not only able to bring new innovations to the customers but at a significantly lower cost than IBM was able to. Competitors like Microsoft, Sun and Oracle were not only able to attract new customers but capture high market shares in areas that were traditionally IBM’s dominance (ex. OS, Database Management, etc). IBM was not able to keep pace with the innovations offered by the competition and by the time IBM was able to come up with similar offerings, the competitions had moved far ahead and were able to offer similar products as IBM but at far lower costs. 4. Arcane hierarchical reporting structure IBM had stuck to the same hierarchal structure over the years that resulted in its rigidity as an organization. Senior executives took too long in decision making and by the time decisions were taken, very often it was too late since the competition had already gained an advantage over the company.
In order to take turn things around, hired the services of key executives like Jerry York as CFO. These new recruits were known to Lou and shared the same single-minded approach to change and were as dedicated as him. Lou dedicated himself totally to the task and spent thousands of hours with the employees across offices and listening to customers. He cut jobs across factories and offices in an effort to “downsize” and build a leaner, more efficient company. He also phased out senior executives that had become complacent and tried to shake up the organization by bringing in brought in new, result oriented executives and staff. By the end of the first year, Lou was able to significantly reduce costs and managed to earn a marginal profit. He continued in the same vein, continuously pushing his executives to deliver or face the risk of termination. After coming to grips with the functioning and revenue generating capacities of the various business divisions, Lou began the process of selling off the nonprofitable businesses. At the same time he brought over new companies like Lotus, Tivoli that would enable IBM to grow and stay competitive. Lou also realized the need to project a new brand image for IBM to the world. He enlisted Ogilvy and Mather to work on advertisements and marketing campaigns to project the new image of IBM. Solutions for a Small Planet was chosen as the new tagline for IBM and promotions and advertisements were run across the globe to project the new brand image.
Group 7
Page 4
IBM Redux Doug Garr
IBM gradually started returning back to profitability and its share prices that had been battered on the exchanges gradually returned back to its levels pre-1993. Investor confidence in the company also grew, which was reflected in gains of the company’s share prices, signaling a turnaround from the dark days at the start of the decade. However in spite of the successes, there were a few blemishes in some business divisions that kept bleeding the company. IBMs version of the operating system “OS/2” was never able to keep pace with Microsoft’s Windows offering in spite of the billions of dollars that were spent on it. Similarly the PC-home and corporate segments were unable to cope up with competition from lower priced rivals like Dell, Compaq, Gateway and also Apple. In spite of their best efforts, IBM lost out on a significant market share in these segments that lead to heavy losses for the PC division. IBM was also perceived by many industry analysts to be risk-averse, which was a problem for companies working in the technology domain. IBM lost out on opportunities because it either held back production to “safe” levels or shelved innovative ideas that could have earned the company high revenues. Despite these blemishes, Lou had been able to turnaround the fortunes of IBM. This was reflected in not only the growing revenues and profits but also the confidence of shareholders. IBM had also grown to become no longer just a computer company but as a technology and services company. Lou also predicted the growth of the Internet and e-commerce and guided his company towards assuming a market leadership role in developing new innovations to support the growth of the internet.
OPINION
Though the book often touches upon Lou’s abrasive leadership style, it also provides a good perspective of how, as a total outsider, he was able to change the fortunes of IBM. The book however downplays the importance of some key characters like Jerry York, who played a key role in the turnaround as IBMs CFO and second-in-charge. All-in-all the book was able to delve into the turnaround of IBM without focussing in too much detail on the technical aspects of the problems that the company faced but rather on their business implications. The authors use of a storyline to list the sequence of events, interspersed with quotes from key characters also makes the business problems more life-like rather than making it seem just like a case review on the turnaround.
MAIN PROPOSALS AND IMPORTANT LEARNINGS
IBM Redux is an illustration of how a business can be rejuvenated by following the basic needs and trends of the market. It illustrates the importance of the following aspects ? Listening to the Customer and Quality of Market Research - In any organization which is customer driven it is important to not only understand the current demands of the customer but also understand the unstated demands of the customer. It is the latent
Page 5
Group 7
IBM Redux Doug Garr
demand of the customer which is satisfied by innovative products. It is important for any organization to continuously think out of the box and create products which don’t merely bring a larger market share but create a completely new market. ? Time from Concept to Market - Organization with very short product life cycle need to reduce the time it takes to bring a product from concept to market as this is the only way to ensure that competition is kept at bay. It is also necessary to correctly assess the demand for the product so as to ensure that the demand is always met. Quality of Competition – An organization needs to understand the strengths and weaknesses of its competitors. As mentioned in the book IBM tried to create awareness in the education sector where Apple had dominance by being the sole technology giant at the Education Summit. This strategy was not met with much success owing to the fact that the Education Summit relegated the real customers the educators to the secondary position behind the politicians. Apple with a small but focussed presence was able to communicate to the consumer that they care about the consumer. Importance of Networks – In the book it is repetitively mentioned that the relations between IBM and Microsoft were strained though Microsoft was one of the most important software suppliers for IBM products. It is important for an organization to understand its suppliers so that the most cost effective technology can be brought to the consumer. Marketing Campaigns –In the book it is mentioned that though there was a huge impact on the sales of IBM machines on the successful launch of the advertising campaign designed by Ogilvy & Mather. It highlights the importance of the marketing campaigns and the need for these campaigns to not only create a buzz in the market but also embody the spirit of the product and help the consumer connect with the product. Competitive Pricing – In the book the Aptiva Series of IBM PC Company lost out to its competition not because of lack of features or product quality but because of expensive pricing. It is important for an organization to restructure its cost of production by utilizing its networks so that it is competitive in the market. Mergers & Acquisitions – In the book it is mentioned that the merger with Lotus was one of the most successful highlights of Lou Gerstner’s career with IBM. It is important for an organization to look at growth options other than in house investment in order to recapture market share.
?
?
?
?
?
Group 7
Page 6
IBM Redux Doug Garr PRACTICAL APPLICATION
IBM Redux illustrates a very classic example of a business turnaround. In the current economy when there is threat of recession the need for change leaders is very urgent. The book is not only an illustration of how one can employ various cost cutting measures in order to boost sales. It also brings to the reader’s notice the importance of reorganization and productivity driven planning to recapture market share. One company that can be compared with IBM of 1992 is Revlon. With consecutive 27 quarter losses and a focus on selling Non Performing Assets rather than making them productive again, the learning of IBM can be applied to it. The importance of understanding customers, competition and innovation is central to the success of any organization. Any organization is dependent on its customers for its success but it is important to understand that most of the successful organizations concentrate on delivering customer satisfaction with the help of its entire delivery structure including suppliers and employees. For an organization to deliver operational excellence it is important to leverage all its resources so that they continuously strive to fulfil the customer’s needs. An organization which is not the market leader needs to understand the importance of innovation to achieve success. The importance of innovative products is not aimed at recapturing existing market share but creating entirely new markets. An organization needs to promote the feeling of entrepreneurship in order to successfully develop innovative products. An organization which is operating in a highly competitive market should concentrate on delivering the most high quality products at the lowest prices. This can be made possible by understanding the strengths of the competitors as well as continuously assessing methods of reducing the cost.
Group 7
Page 7
doc_554371601.pdf