Description
IBM is a global IT manufacturing and consulting company, with 335,000
employees across nearly every industrialized country in the world
. Once
largely focused on the sale of mainframes and related software contracts, IBM
has evolved into lucrative technology and business consulting, supported by
a wide range of IBM software platforms and products. Figure 1 shows IBM’s
value system in the marketplace, demonstrating a reliance on knowledgebased
transformation and processes. Products such as hardware and software
are either sold outright, or used (along with competitor’s products) as a basis
for consulting engagements.
Integrated Strategy Project - IBM
Allan Williams
May 5th, 2008
Word Count 7,035
2
Contents
0.1 Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . 5
0.2 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
0.2.1 Assignment Structure . . . . . . . . . . . . . . . . . . . 8
1 Strategic Position Analysis 11
1.1 Strategic Direction . . . . . . . . . . . . . . . . . . . . . . . . 11
1.1.1 External Analysis . . . . . . . . . . . . . . . . . . . . . 11
1.1.2 Internal Analysis . . . . . . . . . . . . . . . . . . . . . 13
1.1.3 IBM Stakeholder Analysis . . . . . . . . . . . . . . . . 15
1.1.4 SWOT Analysis . . . . . . . . . . . . . . . . . . . . . . 16
1.1.5 EVR Congruence . . . . . . . . . . . . . . . . . . . . . 16
1.1.6 Scenarios . . . . . . . . . . . . . . . . . . . . . . . . . 19
1.2 Analysis of Suitability, Feasibility, and Acceptability . . . . . . 22
1.2.1 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . 22
2 Business Transformation 23
2.1 Mobilizing for Change . . . . . . . . . . . . . . . . . . . . . . 23
2.1.1 Communicating the Change Process . . . . . . . . . . . 23
2.1.2 Leadership and Change Agents . . . . . . . . . . . . . 26
2.2 Translating Strategy Into Objectives and Initiatives . . . . . . 33
2.2.1 Process of Implementing Strategy . . . . . . . . . . . . 33
2.2.2 Gap Analysis . . . . . . . . . . . . . . . . . . . . . . . 35
2.2.3 Finance . . . . . . . . . . . . . . . . . . . . . . . . . . 35
2.2.4 Customer Perspectives . . . . . . . . . . . . . . . . . . 36
2.2.5 Process . . . . . . . . . . . . . . . . . . . . . . . . . . 36
2.2.6 Potential . . . . . . . . . . . . . . . . . . . . . . . . . . 37
2.3 The Change Process . . . . . . . . . . . . . . . . . . . . . . . 37
2.3.1 Symbols . . . . . . . . . . . . . . . . . . . . . . . . . . 37
2.3.2 Power Structures . . . . . . . . . . . . . . . . . . . . . 38
2.3.3 Organizational Structures . . . . . . . . . . . . . . . . 39
2.3.4 Control Systems . . . . . . . . . . . . . . . . . . . . . . 40
2.3.5 Routines and Rituals . . . . . . . . . . . . . . . . . . . 41
3
4 CONTENTS
2.3.6 Stories . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
2.3.7 New Paradigm . . . . . . . . . . . . . . . . . . . . . . 42
2.4 Align the Organization . . . . . . . . . . . . . . . . . . . . . . 43
2.4.1 Social Cohesion . . . . . . . . . . . . . . . . . . . . . . 43
2.4.2 Action Plan . . . . . . . . . . . . . . . . . . . . . . . . 43
2.4.3 Monitoring and Evaluating the Change Process . . . . 43
2.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
2.6 Personal Development Report . . . . . . . . . . . . . . . . . . 48
.1 Appendices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
.1.1 PESTLE . . . . . . . . . . . . . . . . . . . . . . . . . . 51
.1.2 Porter’s Five Forces . . . . . . . . . . . . . . . . . . . . 53
.1.3 McKinsey 7S . . . . . . . . . . . . . . . . . . . . . . . 55
.1.4 Market Share . . . . . . . . . . . . . . . . . . . . . . . 57
.1.5 IBM’s Stakeholders . . . . . . . . . . . . . . . . . . . . 58
0.1. EXECUTIVE SUMMARY 5
0.1 Executive Summary
No matter how dismal the US economy may currently be, these are heady
times for IBM. Record pro?ts were announced for 2007, with IBM reporting
$10.4 billion USD on revenues of $98.8 billion. $21 billion were returned
to shareholders through stock buybacks and dividends, and a further $12.2
billion invested into acquisitions and capital expenditures. Unpro?table busi-
nesses were sold o? or divested, new markets entered, allowing IBM to enjoy
a 42.3% gross margin on revenue.
Despite these splendid results, IBM knows full well that it must con-
tinuously put new o?erings in the product lifecycle; rivals are all too keen
to emulate or undercut IBM’s line of products and services. IBM has long
abandoned the traditional practice of customer lock-in, where customers are
forced to use IBM products once they enter an IBM contract
1
. IBM fully sup-
ports any software platform on any hardware system, allowing customers low
entrance and exit barriers. IBM relies on one asset that provides the high-
est value (and margins) – its consultants, contractors, and experts provided
to customers to solve their most di?cult technical and business problems.
To meet client demands, IBM employees are dispersed through the world to
be close to their customers, taking full advantage of ‘virtualization’, or an
o?celess, ‘always on’ working style.
IBM in many ways pioneered the current trend of virtualization, already
having eliminated o?ces for employees and vacated entire buildings, such as
the the famous address of 550 Madison Avenue in New York City. Employ-
ees are equipped with laptops that are their o?ces; they can connect and
work anywhere, from home, client sites, airports, foreign cities, and any con-
ceivable location with an Internet connection of some kind. Employees are
‘always on’, working a nominal 40 hours per week, but reachable at any time.
IBM employees are also isolated, working as individuals, at their own discre-
tion of what the company’s future holds and what skills and developments
they will undertake. IBM employees must regain a common vision, purpose,
camaraderie, and form a learning network that has disappeared with their
cubicles and o?ces.
Many of the components for this transformation is already in place;
knowledge management systems are plentiful, social networks are readily
used, reward mechanisms used, and education well established. What is
missing is an architecture for implementing the new strategy of team-based
learning, customer engagement, and market advantage. The new architec-
ture has its components of high-level objectives mapped to critical success
1
Gerstner, 2002
6 CONTENTS
factors, targets matched with initiatives, and artifacts such as a Balanced
Scorecard will be used to monitor progress and results.
0.2. INTRODUCTION 7
0.2 Introduction
IBM is a global IT manufacturing and consulting company, with 335,000
employees across nearly every industrialized country in the world
2
. Once
largely focused on the sale of mainframes and related software contracts, IBM
has evolved into lucrative technology and business consulting, supported by
a wide range of IBM software platforms and products. Figure 1 shows IBM’s
value system in the marketplace, demonstrating a reliance on knowledge-
based transformation and processes. Products such as hardware and software
are either sold outright, or used (along with competitor’s products) as a basis
for consulting engagements.
Table 0.2 gives an overview of IBM’s ?nances, showing a mildly ?at
growth in revenue, but a steady increase in pro?ts for the past few years
due to widening margins.
Year 2004 2005 2006 2007
Revenue $96.3 $91.1 $91.4 $98.8
Net Income $7.5 $8.0 $9.4 $10.4
Gross Pro?t Margin 36.9% 40.1% $41.9 $42.2
Capital Expenditures $3.7 $3.5 $4.7 $4.9
Working Capital $7.3 $7.7 $4.5 $8.8
Share Repurchase $7.1 $7.7 $8.0 $18.8
Number of Employees 329,001 329,373 355,766 386,558
Table 1: IBM Year-End Financial Results, in Billion $USD
2
IBM Annual Report, 2007
8 CONTENTS
Open Source Initiative
Services
Software
Systems &
Financing
Consulting and Systems Integration
Application Management Services
Strategic Outsourcing
Business Transformation Outsourcing
Integrated Technology Services
Maintenance
Websphere
Information Management
Tivoli
Rational
Operating Systems
Servers
Storage
Retail Store Solutions
Microelectronics
Commercial Financing
Client Financing
Fortune 500 Companies
Small Business/Home Business
Open Source Initiatives
Universities/Education Government/Federal/Military
Retail/POS/e?Commerce
Finance/Banking
Microelectronics
Research & Development
Mainframes/Workstations/Networks
Consulting/Contracting/Services
Integration/Business Transformation
IBM
CUSTOMERS
SUPPLIERS
Competitor Systems and Platforms
Sub?contracting services
University research departments
Joint ventures / alliances
Raw materials for microelectronics
Hardware manufacturers
Internal/external IT workers
Outsourced labor
Figure 1: Value System of IBM
0.2.1 Assignment Structure
The structure of this assignment is in two parts; the ?rst half determines
IBM’s current strategic position in the marketplace, with focus on competi-
tion and customer demands. From this determination, the underlying logical
reasons for IBM’s future directions are analyzed, formulating the basis of
a business transformation. The second part of this assignment details the
0.2. INTRODUCTION 9
mechanics of the transformation, keeping IBM ahead of rivals, preserving
margins, and raising revenue.
* Porter’s 5 Forces
S W
O T
R
V
E
Internal External
* McKinsey’s 7S
* Value System
* Product Portfolio
* Competitive Advantage
Stakeholder Analysis
Scenarios
Strategic Choices
CHAPTER 1
Henley Transformation Framework
* PESTLE
CHAPTER 2
Figure 2: Assignment Structure
10 CONTENTS
Chapter 1
Strategic Position Analysis
1.1 Strategic Direction
1.1.1 External Analysis
PESTLE Analysis
A full PESTLE analysis is performed in Appendix .1.1, and the pressing
issues are discussed in turn below:
• Skilled Employees - Despite the ranks of skilled workers in India and
other countries, competition has shrunk the pool of available candi-
dates. Employees work in a ‘virtual organization’, where location is no
longer de?ned; employees are connected to each other through networks
and technology.
• Commoditization of Technology - As competitors become adept
at duplicating the same types of services IBM develops, competition
increases and pro?ts drop. Because IBM does not force clients to use
any particular product, it is easy for clients to move to IBM, at the
risk of them easily moving elsewhere.
• Pressure to Innovate - Innovation of new products and services (or
the acquisition of the same) is the lifeblood of IBM, missteps in pre-
dicting industry trends can be costly investments with little return.
A dangerous position for IBM is the non-di?erentiation between a skilled
employee working for IBM and the same employee later working for a com-
petitor. Clients may not see value in paying IBM’s premium prices if the
same services can be found cheaper elsewhere. Simply paying employees
11
12 CHAPTER 1. STRATEGIC POSITION ANALYSIS
more merely increases costs all around and may not be an e?ective solution
– a new way to di?erentiate the available pool of talent, raise competitive
barriers, and yet keep overhead costs low must be found.
Porter’s 5 Forces
Figure 1.1 diagrams the detailed Five Forces analysis from Appendix .1.2.
High/Low
growth and sustained advantage
is difficult.
THREAT OF NEW ENTRANTS
Rivals are small compared to IBM,
but can compete on at least one
specialized front, such as a
narrow or unique service or
product, or more often, on price.
BARGAINING POWER OF
SUPPLIERS
Suppliers are skilled workers
employed by companies,
specialized skills can be
rare and expensive.
BARGAINING POWER OF
BUYERS
High if the service or product
can be bought elsewhere,
low if the service is
propietary, or the vendor has
a close relationship with client
THREAT OF SUBSTITUTION
Low for IBM’s recent technology
from R&D efforts, or products
given away for free by IBM.
High if service is copied or
available from the competition.
INTENSITY OF RIVALRY
IBM, as the dominant player in
the market, is the natural focus
of rivals. IBM can expect small
outfits to attempt to chip away
at every weakness it has.
High
Medium
High
High/Low
Market is easy to enter, but
Figure 1.1: Porter’s Five Forces
Competition is intense, although IBM holds the largest share of any one
company (see Appendix .1.4), it does not hold a dominant position. Much of
its competition is small companies and individuals who may have a focus as
narrow as IBM’s is wide. Few companies can hold their own against IBM’s
breadth and depth of software products and platforms, but the lucrative
business of providing skilled individuals (the ‘suppliers’) is attractive to any
company, large or small.
1.1. STRATEGIC DIRECTION 13
1.1.2 Internal Analysis
McKinsey’s 7S
Figure 1.2 illustrates the e?ectiveness of each of the elements of the McK-
insey’s 7S model (please see Appendix .1.3 for more detail). The biggest
weakness in this diagram is the Structure, putting IBM in a critical risk with
competitors. Employees deployed in consulting positions often are working
alone, with their learning self-directed. While materials are available for
learning on any conceivable subject that IBM has interest in, there is lit-
tle direction in which materials to study or the relevance of subjects not in
the immediate scope of the employee’s current position or project. In turn,
Structure weakens the Strategy and Shared Vision portions of the 7S dia-
gram. IBM’s strategy pertaining to its consulting base is strongly linked to
employees sharing the same corporate vision.
Effectiveness: Good
Effectiveness: Good
Effectiveness: Good
Effectiveness: Good
Structure
Systems
Shared Vision
Strategy
Skills
Style
Staff
*Defines
Indusry Standards
Well developed
platforms
Flexible,
work oriented
networks for
dispersed
employees
Highly skilled
and diverse from
all industrialized
nations in the
world
Employees
working on
solitary projects
Individuals
responsible for
developmenr
Company
wide vision is
good, individual
or specialist
vision needs
improvement
Good company
wide strategy
for systems,
but improvements
for analyists/
consultants
Highly developed
skills, top notch
training available
as well as active
recruitment
Weakness
Neither
Strength
Interaction with other elements: Good
Interaction with other elements: Good
Interaction with other elements: Good
Interaction with other elements: Good
Effectiveness: Poor
Interaction with other elements: Good
Effectiveness: Good
Interaction with other elements: Poor
Effectiveness: Fair
Interaction with other elements: Good
Figure 1.2: McKinsey’s 7S
14 CHAPTER 1. STRATEGIC POSITION ANALYSIS
Value Chain
IBM can be split into its components using Porter’s Value Chain, as shown in
Figure 1.3. In this ?gure, arrows in red indicate weak linkages, while arrows
in green show strong links.
Playing to IBM’s strengths is the strong link between Technology Develop-
ment, Procurement and Inbound Logistics, as IBM has aggressively acquired
or developed a wide array of technology platforms that meet the challenges
of clients’ needs, as well as a willingness to support non-IBM products.
Weak links
Organization’s Infrastructure
Human resource management
Technology development
Procurement
Inbound
Logistics
Operations Outbound
Logistics
Service
Marketing
and
Sales
M
a
r
g
i
n
M
a
r
g
i
n
Weak contribution to margin.
Strong links
Figure 1.3: Value Chain
As Table 0.2 shows, IBM’s pro?ts have increased as a direct result of
widening margins despite ?at revenues. This is a result of cutting overhead
and improving e?ciency, but there is a natural limit to how long this trend
can continue. To increase pro?ts, revenues must increase. The weak link
between Human Resource Management, Organization’s Infrastructure, and
Operations is the lack of di?erentiation between IBM’s pool of consultants
and the same pool at IBM’s closest competitors. Areas that need stronger
contributions to margins are indicated in yellow.
Product Portfolio
IBM has an enormous product portfolio, encompassing every aspect of IT
and business consulting for clients. IBM relies on wide margins and ability
1.1. STRATEGIC DIRECTION 15
to use its specialized knowledge to attract clients, rather than competing on
price. For this reason, IBM puts great e?ort in creating new markets and
responding to early trends. Figure 1.4 shows (in red) the random nature of
employees directing their learning without guidance. Green arrows show the
desired direction of learning e?ort. This requires a nimble mobilization of
IBM consultants with readily available skills and experience in areas that
represent a competitive business advantage for clients. It is essential that
IBM orchestrates the learning e?orts of employees to capitalize on emerging
and potentially lucrative opportunities.
Current Learning Efforts
Development Maturity Decline Shakeout Growth
Market
Growth
Profit
Highest Profit Margins for IBM
IBM Exits Market
Desired Directed Learning Efforts
Figure 1.4: IBM Product Lifecycle
Mature or declining markets with diminishing pro?t margins are routinely
exited, leaving the cost advantage model to lower priced rivals.
1.1.3 IBM Stakeholder Analysis
As a large public corporation with a global presence, IBM has many stake-
holders with varied interests. The stakeholders of key concern are shown in
Figure 1.5. Clients who are cost-sensitive are generally not pursued by IBM,
and have a diminishing relevance. However, companies who provide dis-
counted prices set the price ?oor for IBM, and hence IBM’s exit point from
the market. Quicker capabilities and entries by low-cost rivals puts pressure
on IBM maintaining market lead. Clients with technological leading-edge
needs who are willing to pay high initial prices are the most desired cus-
tomers for IBM, as well as its closest competitors. IBM’s critical asset, its
own consultants, need to migrate up the Power scale to edge out competition
with a early market capture advantage.
16 CHAPTER 1. STRATEGIC POSITION ANALYSIS
I
N
T
E
R
E
S
T
POWER
Low
High
High
Shareholders
Minimal Effort
Keep Satisfied
Keep Informed
Principal
Leading edge
Customers
Competition
Low?Cost
Preminum Service
Competition
IBM Consultants
Platforms
Competitor
Cost sensitive customers
Figure 1.5: IBM Stakeholder Mapping
1.1.4 SWOT Analysis
Table 1.1 is a SWOT analysis for IBM. IBM has enviable strengths in market
leadership and responding to new trends, in addition to having billions $USD
to spend as necessary.
The weaknesses that IBM faces are skills shortages in critical areas, es-
pecially in new products and services IBM wishes to dominate. Timing is
critical, waiting too long to get employees up to speed on needed puts IBM
at risk of losing business to lower-cost rivals. Motivating and directing em-
ployees in a learning corporation requires shaping and driving a common set
of values. A lack of competitive advantage in retaining and deploying skilled
employees shortens the time when IBM can count on the wide margins driv-
ing pro?ts.
1.1.5 EVR Congruence
IBM is a tightly run organization; careful strategies, positioning of products,
and level of service has resulted in a e?ective EVR congruence. However,
Values is in danger of drifting out of congruence, due to the need to co-
ordinate the vision and direction of IBM consultant employees (Figure 1.6).
1.1. STRATEGIC DIRECTION 17
Strengths
• Industry Leadership
• Deep resources
• Nimble response
Weaknesses
• Undirected learning
• Reliance on high
margins
• Employee values
Opportunities
• Emerging markets
• Immediate client
needs
• Skills demand
Continuously scout
for new market
opportunities and
develop products and
services, cultivate
demand through
marketing.
Systemize employee
learning e?orts to
point to emerging
markets and areas
of high demand.
Mobilize teams to
support client needs.
Threats
• Cost competition
• Low entry barriers
• Skills shortage
Formulate new strat-
egy that makes skills
provisioning hard to
duplicate by compe-
tition.
Address skills-
building and em-
ployee values issues.
Table 1.1: IBM SWOT Analysis
18 CHAPTER 1. STRATEGIC POSITION ANALYSIS
E
V R
Figure 1.6: IBM EVR Congruence
Environment
IBM has responded to an environment of high competition and a constant
need for innovative and emerging technology from clients seeking out any
business advantage. The business model of creating new markets and re-
sponding to emerging trends is critical to maintaining IBM’s wide pro?t
margins.
Resources
IBM has considerable resources, in cash, assets, intellectual property, and
product lines. Despite these assets, IBM’s principal method of creating share-
holder value is to buy back its own shares. Table 1.1.5 shows IBM’s stock
price and market capitalization vs. the amount spent on share repurchase
1
.
Year 2005 2006 2007 2008
Share Repurchase $7.7 $8.0 $18.8 N/A
(Billions, USD)
IBM Stock Price, January $98 $85 $98 $110
Market Capitalization $163 $129 $146 $160
(Billions, USD)
Table 1.2: IBM E?ects of Stock Repurchase
The ?at market capitalization and stock price seems to indicate that
investors do not see IBM as a growth company. It is not clear that the share
repurchase is having any signi?cant e?ect on value creation. This money
1
http://fortboise.org
1.1. STRATEGIC DIRECTION 19
may be better spent on innovating new ways to create growth and revenue
increases for IBM.
Values
IBM currently has a working process, but in order to energize value creation
at IBM, a more focused vision and strategy is needed. Values is an area of
critical attention, and must be prevented from drifting. The disconnect that
employees feel as they work in a virtual environment enforces drift; each
employee makes the best choice from the information that is available to
them and applicable to their situation.
Conclusion
IBM is in danger of becoming an ‘unconsciously competent organization’
without a strict correction of its values
2
. A better redirection of IBM’s con-
siderable resources can tighten the EVR congruence.
1.1.6 Scenarios
In the near future there is a best case and a worst case scenario for IBM to
consider:
IBM’s Worst Case
IBM can experience a natural limit to improvements in e?ciency and cost
reduction that is currently driving margins. Revenue remains ?at, stalling
pro?t growth. Competitors take advantage of IBM’s isolated consultants and
employees by poaching them, providing focused teams vs. IBM’s unorganized
ranks, and chip away at widening niche advantages (cost and expertise) over
IBM.
IBM’s Best Case
IBM can increase pro?ts by both increasing revenue and lowering overhead,
and di?erentiate their consulting services to raise entry barriers for rivals.
Figure 1.7 shows the ideal position for IBM’s consulting o?erings, which is
done by identifying and enhancing IBM’s sweet spot advantages over the
competition
3
.
2
Thompson, Page 125
3
Collins & Ruckstad, 2008
20 CHAPTER 1. STRATEGIC POSITION ANALYSIS
Sweet Spot
IBM’s
Capabilities
Competitor’s
Offerings
Customers’
Needs
IBM Strategic
Figure 1.7: IBM Strategic Sweet Spot
Option 1
IBM counters the downsides of virtualization, bringing IBM employees to-
gether to address the needs of a ‘Learning Organization’
4
:
A Shared Mindset
Speed of New Ideas
Learning And Knowledge Management
Accountability
Collaboration
Leadership
Option 2
IBM leaves employees to ?nd their own learning plan based on their position
and understanding of industry trends. IBM devises a reward scheme to
employees who successfully reach levels of skills that clients demand.
Option 3
IBM aggressively hires employees with high-demand skills, and sheds em-
ployees with skills that are in industries that IBM plans to exit.
4
Henley Critique 11
1.1. STRATEGIC DIRECTION 21
Conclusion
Options 2 and 3 are the most easily implementable and may use ?nancial
rewards as incentive for employees to ?nd the best solution to gain skills,
perhaps in ways IBM has not thought of. Unfortunately, this does not pro-
vide any distinct capabilities that cannot easily be copied by competition.
Employees who have independently achieved high skills through their own
initiative may not feel that they must remain loyal to IBM, and can easily
leave to work for competitors or themselves.
Option 1 is the hardest to implement, but ?ts with the new goal of creat-
ing a sustainable competitive advantage. This option makes the assumption
that employees can become capable in new skills, avoiding the problem of
recruitment in a tight labor market. Option 1 is chosen for the Business
Transformation in the next Chapter, to implement the goal of continuous
retraining as shown on Figure 1.4. This type of change will not be a sudden
shift for IBM, as it will take advantage of many programs and facilities al-
ready available, marking it as an ‘Incremental Transformation’ as shown in
Figure 1.8.
S
c
o
p
e
o
f
C
h
a
n
g
e
Direction
Proposed
Transformation
B
i
g
B
a
n
g
I
n
c
r
e
m
e
n
t
a
l
Evolution
Revolution Reconstruction
Adaption
Realignment
Outcome
Figure 1.8: IBM’s Scope of Change
22 CHAPTER 1. STRATEGIC POSITION ANALYSIS
1.2 Analysis of Suitability, Feasibility, and Ac-
ceptability
The strategy from the previous section is analyzed through a SFA test, as
shown in Table 1.2.
Suitability The chosen strategy ?ts in with the
aims of creating sustainable and hard-to-
duplicate competitive advantage for IBM,
while avoiding problems with recruitment
or ine?cient training mechanisms.
Feasibility IBM has spent much energy solving the
‘hard’ factors of virtualization, the balance
remains on focusing on the ‘soft’ factors.
The transformation is based on behavioral
and people management issues, and not re-
liant on technology that needs to be in-
vented or software that may not be used
or accepted.
Acceptability There will be certain employees who will
not accept any changes, no matter how
bene?cial these changes are thought to be.
For this reason, this transformation must
be targeted to employees who are recep-
tive to changes that will be bene?cial for
themselves, their career, and for IBM.
Table 1.3: SFA Analysis - Johnson and Scholes
1.2.1 Conclusion
From the SFA analysis, the Transformation will target IBM’s highly moti-
vated employees, with a suitable reward mechanism, to alleviate the isolation
from the virtual work environment. The end result will be a migration into
learning teams that cannot easily transferred to competitors if an employee
leaves IBM.
Chapter 2
Business Transformation
In this Chapter, the Henley Business Transformation model is used to lead
the change for IBM to sustain competitive advantage.
2.1 Mobilizing for Change
At the center of the Transformation, IBM will address the following ?ve core
categories of behavior
1
:
Challenging the Processes
Inspiring a Shared Vision
Enabling Others
Modeling the Way
Encouraging the Heart
The focus of changes will be in the ‘Structure’, ‘Strategy’, and ‘Shared
Vision’ components of the McKinsey’s 7S model (Figure 2.1). Many of the
components necessary for the transformation exist (as indicated by ‘Struc-
ture’), but are poorly utilized or disorganized.
The ultimate focus is to instill a new ‘Shared Vision’ that will lead IBM
forward.
2.1.1 Communicating the Change Process
At this juncture, IBM faces a di?culty in mounting any transformation ef-
forts; the balance sheet is too good (Table 0.2), IBM beat Wall Street esti-
mates for 2007
2
, and continued ‘wins’, or signi?cant contracts with important
1
Kouzes and Posner (1998)
2
IBM Annual Report, 2007
23
24 CHAPTER 2. BUSINESS TRANSFORMATION
Structure
Shared Vision
Strategy
Employees
working on
solitary projects
Individuals
responsible for
developmenr
Company
wide vision is
good, individual
or specialist
vision needs
improvement
Weakness
but improvements
wide strategy
for systems,
Good company
for analyists/
consultants
Neither
Figure 2.1: IBM’s Changes in the McKinsey 7S
clients, continue to be signed. There is little urgency for change; it is not
plausible to state IBM is in trouble. A sense of urgency therefore must be
created to motivate employees to look forward to what may be in store in
the future. Unmotivated or change-resistant employees will be bypassed,
with the expectation that employees who go along with the changes will set
a good example by having an advantage in lean times.
Figure 2.2 shows the targeted stakeholders in this change e?ort:
In addition, IBM’s e?orts in the commitment curve shown in Figure 2.3
will focus on employees at the ‘Adoption’ stage, and not spend any signif-
icant energy on employees in the ‘Denial’ or ‘Resistance’ stage. Employee
participation will be optional.
IBM, by no means, is a static company; there are many programs and ini-
tiatives that currently exist. IBM employees have responsibilities for impor-
tant ongoing goals, such as a personal development plan, skills assessment,
certi?cations, professional interest groups. In addition, there are classes,
workshops, electronic community groups, electronic forums, and education
available. What is missing is a formal structure, as shown in Figure 2.4.
The new structure for employees is to form formal learning groups, in
which employees belong to groups that are expected to achieve levels of com-
petencies in speci?c technical areas, increase communication among similar
groups, provide mentoring opportunities, and award professional recognition
for accomplishments. This structure is described in Section 2.4.
2.1. MOBILIZING FOR CHANGE 25
L
o
w
H
i
g
h
High Low
Commitment to Change
E
n
e
r
g
y
f
o
r
A
c
t
i
o
n
Sleepers
Champions
Preachers
Focus
Low
Focus
Medium
Focus
High
Blockers
Figure 2.2: IBM Stakeholder Mapping
For IBM Effort
TIME/EFFORT
5. Commitment
4. Acceptance
2. Resistance
1. Denial
3. Adaption
Cutoff Point
Figure 2.3: IBM Commitment Curve Focus
Unfreeze, Move, and Sustain
A communications strategy will be complex, especially in an organization the
size of IBM. The focus will draw and attract receptive employees, with the
26 CHAPTER 2. BUSINESS TRANSFORMATION
Competency Groups
IBM CONSULTANT POOL
CURRENT STRUCTURE
Professional Development
Mentoring Programs
Technical Jam Session
Electronic Groupware
Technology Fairs
Certification Program
Balanced Scorecard
Performance Bonuses
Business Commitments
Training and Education
Individual Development Plan
Figure 2.4: IBM Employee Structure Now
message of ‘promoting your career’; the desired segment will be employees
who have an interest in moving ahead in their line of work.
2.1.2 Leadership and Change Agents
IBM has no shortage of good leaders, and can rely on skilled employees who
are experts in their specialty to ‘give back’ to the community. The focus
of leaders and change will be the emotional needs of employees to ensure
success.
In this transformation, the leaders are given the goal to form a sense
of community and to enhance morale among IBM employees who may not
be located in the same geographic area. With support from upper manage-
ment, leaders will be recruited from current IBM ranks that demonstrate the
following characteristics:
1. A desire to lead and to inspire workers
2. Highly charismatic and champions for employees
3. Deep experts in a distinct, specialized ?eld
4. Are able to design learning programs and certi?cation levels
Dozens to a few hundred leaders may be recruited, for specialized com-
munities (for example, database development), with a learning plan, drawn
from IBM’s wide range of training materials. Leaders will be in charge of or-
ganizing recruits, fostering networks, and giving recognition to achievements
– in an environment where employee participation is strictly voluntary.
2.1. MOBILIZING FOR CHANGE 27
Change Phase Communications Aims Method
Purpose
Unfreeze Mobilizing
• Bring awareness to
IBM sta?
• Generate interest
• Create momentum
Begin advertising in IBM in-
ternal web pages before roll-
out. Pamphlets, e-mail dis-
tributed to managers and
sta?. Transformation de-
tails released.
Move Inform
• Describe changes
• Bene?ts
• How to participate
Provide full details in web-
sites, how to get started,
workshops, conference calls,
kick-o? meetings.
Sustain Update
• Sustain interest
• Provide progress up-
dates
• Success stories
Announce successes; em-
ployees who have gone
through the transformation,
encourage employees to list
credentials earned, periodic
workshops to invite non-
participants to take part of
transformation.
Table 2.1: IBM Unfreeze, Move, Sustain
28 CHAPTER 2. BUSINESS TRANSFORMATION
The next sections appraise the cultural changes that may be needed
within IBM to realize the transformation.
Operational Culture Focus
Table 2.1.2 shows the analysis from the Garrison Diamond Test Model to
determine the necessary issues that must be focused on to make the trans-
formation e?ective.
Behavior Current Desired
Activity Focused on employee’s current as-
signment, dependent on values and
goals of client. Employee’s sense
of activity is out of alignment with
IBM due to isolation.
Employee encouraged to keep up
with latest developments, con-
tribute to peer learning, and forge
emotional and professional ties to
co-workers.
Excellence Rewarded through client work and
at IBM, based on client feedback.
Honorary and ?nancial incentives
exist.
Continue focus on excellence, using
any additional resources that be-
come available.
Balance Balance is skewed toward success of
clients. Development and career de-
sires of employees are sometimes ne-
glected due to lack of communica-
tion from IBM side. Career advice
often comes from clients’ employees
rather than IBM.
Adjust balance so that IBM em-
ployee has a ready and sympathetic
group to discuss concerns and de-
sires, and to get advice and help
from IBM resources.
Friendliness Camaraderie exists within IBM
ranks, with recognition for working
for the same company.
Leverage this friendliness into a
true networking, learning, and en-
gaging experience.
Table 2.2: IBM Garrison Diamond Test
From the Garrison Diamond test model, the need to move the dependency
for connection and ful?llment away from the client and back into IBM.
2.1. MOBILIZING FOR CHANGE 29
Management Style & Structure
Figure 2.5 shows the current and desired position of IBM in the Blake-
Mouton-McCanse model. IBM’s current orientation lies between ‘Production
Pusher’ and ‘Do Nothing Manager’. This re?ects IBM focusing on results
(success at the client engagement) while leaving IBM employees to ?nd their
own culture and guidance. The desired position is to be in the ’Team Builder’
quadrant.
Desired
Country Club
Builder
Team
Management
Pusher
Production
Do Nothing
Manager
Current
Position
Position
Figure 2.5: IBM in the Blake Mouton McCanse Model
Using the Handy model, IBM is currently leaning toward the ‘Task Cul-
ture’, with the desired emphasis on ‘Person Culture’. The goal being to
recognize the IBM employee as a person needing a person-oriented network,
rather than being focused only on the tasks on their current assignments.
Risk Orientation
IBM is a great risk taker, as indicated in the Deal & Kennedy model in Figure
2.7. As IBM, by necessity, must always ?nd new markets and eventually must
abandon entire industries as low-cost competition catch up in capability. IBM
is in a constant position of needing to ‘bet your company’, and will likely
keep this culture in the foreseeable future.
30 CHAPTER 2. BUSINESS TRANSFORMATION
Culture
Desired
Current
Position
Person
Culture
Culture
Role
Power
Culture
Task
Position
Figure 2.6: IBM in the Handy Model
The previous models show that IBM is task-and-results oriented, with
little in the way of addressing the employee as an individual. Figure 2.8
supports this conclusion by showing control through great emphasis on tech-
nological achievement, but not following through on the softer organizational
needs.
Learning Organization Structure
A new organizational structure is necessary to implement the learning and
community environment to re-introduce a sense of common values to IBM
employees. The new structure, shown in Figure 2.9, is replicated across
speci?c technical subjects, and is designed to accomplish these objectives:
1. Address need for emotional sense of belonging and loyalty to
IBM
A single face is given to each technical specialty, usually a recognized
domain expert. Chosen for charismatic leadership, this Resident Do-
main Expert is responsible for organizing IBM courses for training,
setting up networks, being a point of contact, and driving momentum
in networking e?orts.
2.1. MOBILIZING FOR CHANGE 31
High Risk
Position
Bet
Work Hard
Macho
Your Company
Play Hard
Process
Low Risk
Slow Feedback
High Risk
Slow Feedback
Fast Feedback
Fast Feedback
Low Risk
Current
Figure 2.7: IBM in the Deal & Kennedy Model
Yearly review with
Routines and Rituals
Control Systems
Technically competent
IBM = "I’m By Myself"
Success through ’wins’
manager
IBM employee fit
in with client power
structure
IBM employees on
their own
Little supervision once
IBM employee is
engaged in client project
Technical focus
Stories
Power Structures
Paradigm
Organization Structures
Professional Development
Behaviors
other than IBM logo
deployed with client
No distinctive logo Values
Employee is OK if
Symbols
Figure 2.8: IBM’s Cultural Levers
32 CHAPTER 2. BUSINESS TRANSFORMATION
1
Expert
Level
Level
Beginner
Level
Intermediate
Certificate Award
Certificate Award
Certificate Award
Cohort
Cohort
Cohort
Cohort
Certified
Domain Expert
Beginner
Mentoring
Mentoring
Mentoring
Communication
Newsletters
Events
Groupware
Announcements
Recognition
Achievement
ceremonies
Networking
Cohort timeline
Class studies
Expert
Domain
Resident
2
3
4
5
6
Figure 2.9: Transformational Organization for IBM
2. Build networks among employees with similar interests IBM
employees are placed into ‘cohorts’, or groups formed at speci?c times
with a timetable to complete a course of study for a certi?cate. Team
assignments, regular calls, and a small and intimate group will form
bonds and a sense of obligation between members.
3. Give informal advice about career and skills
Employees in cohorts will be encouraged to mentor employees in less
advanced cohorts.
4. Promote learning in chosen specialty
A staggered learning course with awarded certi?cates are given at each
level of learning. Cohorts and networking facilities allow remote learn-
ing.
5. Reward and recognize achievement among peers
Formal awards ceremonies are held to present achievements; if geo-
graphic considerations make this impossible, then other forms of recog-
nition are given, such as personal congratulations from the Resident
Domain Expert, publication in a company wide newsletter, and the
right to use a title on presenting quali?cations in IBM’s ’Blue Pages’
directory and resum´es sent to clients.
6. Use existing IBM resources and initiatives
2.2. TRANSLATINGSTRATEGYINTOOBJECTIVES ANDINITIATIVES33
Courses and facilities are simpli?ed by using IBM’s established training
programs, tailored to ?t the schedule of the cohort so each member
learns alongside familiar people.
2.2 Translating Strategy Into Objectives and
Initiatives
2.2.1 Process of Implementing Strategy
To determine the eventual result of the Transformation, analysis must be
performed to determine the speci?c actions to be taken. The strategic goals
are taken from Section 1.2 and are mapped in a network of strategic goals in
Figure 2.10.
8
P
e
r
s
p
e
c
t
i
v
e
C
u
s
t
o
m
e
r
P
e
r
s
p
e
c
t
i
v
e
P
r
o
c
e
s
s
P
e
r
s
p
e
c
t
i
v
e
P
o
t
e
n
t
i
a
l
P
e
r
s
p
e
c
t
i
v
e
Increase revenues
by 10%
Gain more ‘wins’ by
predicting future
in?demand skillsets
Build employee loyalty
Through nonfinancial
incentives
We deliver superior
services
Our employees
feel connected
and fulfilled
Lower costs
of recruiting
We go beyond
supplying a
consultant
Our technology
fits every need
possible
We do not have
skills shortages
Our services are
cutting edge and
cannot be had
elsewhere
We position our
skillsets to the
forefront of market
demand
We generate new
ideas and innovate
new solutions and
products
Our employees
are trained in the
latest technologies
We are not
affected by
talent wars
Our employees
anywhere
and can work
are virtualized
We see new markets
before our rivals
and opportunities
1
2
3
4
5
6
7
F
i
n
a
n
c
i
a
l
Figure 2.10: IBM Strategic Goal Network (Ahn, 2001)
Strategic links point to the ultimate strategic goal of raising revenue by
10%, a point raised in Section 0.2. Reducing costs and overhead sets the
?oor of margins, while total revenue sets the ceiling. The links are discussed
below in turn:
34 CHAPTER 2. BUSINESS TRANSFORMATION
1. Link 1
IBM employees feelings of ful?llment and connection builds loyalty and
makes IBM an employer of choice. Salary is not the only consideration
for employees who have choices of where to work.
2. Link 2
By seeing where the market is going and new opportunities, IBM can
position training programs to meet skills demand ahead of time. Em-
ployees often only see the day-to-day responsibilities of their jobs and
not long-term industry trends, or strategy positions IBM may be tak-
ing.
3. Link 3
By being in a company that o?ers the latest training, IBM employees
become aware that they lose this bene?t in the long term by moving
to a competitor.
4. Link 4
By making the training regimen team and network oriented, the client
is assured that they are not bene?ting just from the talent of the IBM
consultant, but also from the personal network and resources available
to the consultant. The client has penetration into IBM’s total knowl-
edge.
5. Link 5
Keeping in with IBM’s strategy of pursuing the high-end market, IBM
assures the client of superior services to any other in the market. This
assurance rests on the quality of IBM employees.
6. Link 6
Superior services means going above what a competitor can o?er, in
this case, more than just what the consultant is experienced with – the
potential to tap into other experts as needed.
7. Link 7
With the position of providing only superior services, more ‘wins’ are
signed, contract negotiations falling to IBM’s favor, with the goal of
boosting an otherwise ?at revenue trend upwards.
2.2. TRANSLATINGSTRATEGYINTOOBJECTIVES ANDINITIATIVES35
2.2.2 Gap Analysis
The gaps between IBM’s present state and the desired state in 3 years is
analyzed in Table 2.3.
2008 2011 Gaps
Loyalty and belong-
ing to immediate sur-
roundings, such as
client worksite.
Loyalty, connec-
tions, and ful?llment
within IBM.
Create network-
ing structures to
overcome draw-
backs of ‘virtualized’
workplaces.
IBM employees must
decide their own
learning strategy on
own perception of
industry trends.
Directed training
programs to keep
ahead of client de-
mands and industry
trends.
Create training pro-
grams based on in-
formed decision on
technology and de-
mand trends.
IBM Employees can
move to a competitor
easily.
IBM Employees re-
luctant to move to
competitors because
of loss of peer net-
works.
Enhance and encour-
age employees to
work together, even
with geographical
gaps and across
projects.
Clients get the
knowledge that
comes with the IBM
employee.
Clients get the same
knowledge plus ev-
eryone else on the
employee’s network.
Encourage network-
ing and track met-
rics and e?ectiveness
of teamwork.
Revenues remain ?at. Revenues increase
markedly, goal is
10% over three years.
Implement strategic
planning with ulti-
mate goal of revenue
enhancement.
Table 2.3: IBM Gap Analysis
2.2.3 Finance
The ?nancial goals are a 3.3% growth over 2007 revenues, as shown in Table
2.2.3.
36 CHAPTER 2. BUSINESS TRANSFORMATION
2007 2008 2009 2010 2011
$98.8 102 105 108.58 111.84
Table 2.4: IBM Financial Goals, in $USD, billions
Initiatives
The ?nancial goals are a 10% increase of 2007 revenues over 3 years, rep-
resenting $10 billion USD in 2011. Consultants with desired skillsets in de-
mand, and IBM gaining a ‘?rst to market’ advantage, drives extra revenue.
Revenue can come from new clients, negotiating a higher rate for existing
clients, or follow-up contracts from completed work. IBM is not to lose any
business by not having skilled contractors ready to work on a proposed con-
tract ready to sign.
2.2.4 Customer Perspectives
Set goals for Customer Perspectives:
1. IBM provides clients with competitive advantage
2. IBM has a reliable supply of skilled consultants
3. IBM commands a premium fee, not discounted services
Initiatives
To realize this goal, marketing focuses on IBM’s consulting initiatives with
the message that ‘clients get more than just an IBM consultant’. This
promise is followed up by superior customer satisfaction, a perceived gap be-
tween IBM’s level of service vs. a competitor, and delivery of service based
on competitive value rather than on price. Marketing campaigns, readily
available resources, and clear leadership in industry trends are vital.
2.2.5 Process
Set goals for Processes:
1. Create directed learning in skills identi?ed to be especially valuable to
IBM’s clients.
2. Create groups of networks for IBM employees to participate in.
3. Encourage peer networking, track e?ectiveness through metrics.
2.3. THE CHANGE PROCESS 37
Initiatives
The initiatives to create this new process follows these stages:
1. Identify areas of skills that are in short supply and lucrative.
2. Identify and recruit leaders responsible for encouraging and driving
learning and networking activities.
3. Create certi?cate levels and curriculum (from IBM’s existing education
courses), depending on industry needs.
4. Standardize communications through IT systems, such as wikis, fo-
rums, newsletters, personal communication, mentoring.
5. Track networking activity (such as awarding points for answering peo-
ple’s questions), and continuously improving program.
2.2.6 Potential
The Potential perspective has two main goals:
1. IBM Employees are connected and ful?lled at IBM.
2. IBM is not a?ected by talent shortages.
Initiatives
To achieve these goals, IBM must pay special attention to the human net-
working needs of employees who are not working in traditional o?ces, and
follow through with directed learning initiatives.
2.3 The Change Process
The Transformation will focus on the change levers shown in Figure 2.11 to
a?ect a new paradigm.
2.3.1 Symbols
IBM employees value marks of technological distinction, such as titles con-
veying a level of achievement (‘Certi?ed IT Specialist’, ’Distinguished Engi-
neer’). These titles give status to employees, especially in a situation where
employees work at home and rarely meet their peers in person. Traditional
38 CHAPTER 2. BUSINESS TRANSFORMATION
Change Architecture
New Paradigm
Targeting Levers
Figure 2.11: IBM Culture Change
symbols such as company cars and corner o?ces are not e?ective if employees
are not seen in them.
In the virtual world, symbols appear in the form of employee resum´es
(viewable by anyone), the number of times a name appears in a search engine,
and mentions in company newsletters. Taking advantage of this focus, a
new symbol will be introduced for employees who have achieved a high level
of certi?cation in a directed learning course. This symbol will be displayed
prominently in an employee’s entry in the ‘Blue Pages’, or company directory.
The employee will have the right to use this symbol in his resum´e, and
to reinforce the prestige of such symbols, a real-life manifestation will be
awarded as well. This manifestation may be a small plaque, pin, or other
item meant to be displayed at home or in an o?ce.
2.3.2 Power Structures
The Transformation is designed to be voluntary, with IBM employees choos-
ing if and when they will participate in the directed learning and networking.
This is designed to ensure a high level of commitment and enthusiasm in
those that participate. IBM employees are empowered in this regard, with
the focus of power on those who freely share their knowledge rather than
their position in the management hierarchy.
2.3. THE CHANGE PROCESS 39
2.3.3 Organizational Structures
IBM employees currently have a networked organizational structure, which
follows the non-geographical nature of virtualized workspaces, and the fact
that employees often change assignments, with new project managers and
co-workers with each change. Figure 2.12 shows a typical network of an IBM
employee in red, and the new elements in blue. The new elements are the
cohorts that are also taking the directed training as the employee, and the
professional network instituted by IBM.
IBM EMPLOYEE
RESOURCES
HUMAN
MENTOR
MANAGER
PERSONAL
DEVELOPMENT
CLIENT
MANAGER
MENTOREE
RESOURCE
DEPLOYMENT
MANAGER
COHORT
NETWORK
IBM
MANAGER
IBM EDUCATION
AND TRAINING
Figure 2.12: IBM Employee Organization
40 CHAPTER 2. BUSINESS TRANSFORMATION
2.3.4 Control Systems
IT Systems
IBM has a heavy investment and dependence on IT systems, and the existing
infrastructure will be vital in measuring the success of the Transformation.
As employees will have very little chance to network in person, the basis of
communication will be nearly entirely electronic. Figure 2.13 shows the nec-
essary metrics to be collected. Key to encouraging networking and commu-
nication is keeping score in how often the employee accesses the networking
facilities, the frequency and nature of interactions, and focus on timesaving
shortcuts to make the system convenient and easy to use.
IBM
CLIENT
IBM EMPLOYEE
Contributions
to body of
(newsletters,
training)
Activity in
electronic
resources,
answers to
queries, etc.
1
2
6
3
4
5
Metrics Gathered
1) Existing metrics of client satisfaction
2) Employee’s contribution to body of knowledge
3) Progress in keeping up with cohort in learning
4) Employee interaction with others in networks
5) Activity in supporting IBM engagements
6) Employee’s use of network resources
COHORT
NETWORK
knowledge
Figure 2.13: IBM Controls
Management
Central to the Transformation is the desired increase of human interaction;
the “Resident Domain Experts” (Figure 2.9) to encourage and drive this
interaction. They may choose to publish regular newsletters, answer inquires,
communicate one-to-one with individuals. Their purpose is to put a human
2.3. THE CHANGE PROCESS 41
face on to the process, and serve to draw interest and interaction to issues
and topics of the day. More importantly, these leaders continuously improve
the process in a cycle shown in Figure 2.14.
In addition to existing criteria considered at the employee’s annual review,
participation and notable contributions to networking will be a factor in
determining the outcome of the employee’s review.
Comparison
Gaps identified
Stable System
Improvements implemented
New metrics gathered
Feedback
Accurate and
timely data,
relevant to
users
Corrective
Action
Correction plan
initiated
Figure 2.14: IBM Performance Monitoring
2.3.5 Routines and Rituals
On an ongoing basis in the interest of recognizing achievements and peri-
odically reviewing the performance of the directed learning and networks
installed by the Transformation, routines will include:
• Quarterly reports of metrics and performance by Resident Domain Ex-
perts
• Periodic newsletters, ‘meet and greet’ events, workshops
• Individual one-on-one discussions between the Resident Domain Ex-
perts and constituents of directed learning and networking e?orts
42 CHAPTER 2. BUSINESS TRANSFORMATION
Rituals will include:
• Awards ceremonies, recognition for achievements
• Feedback for annual review giving metrics for employee’s participation
in Transformation e?orts
• Balanced Scorecard results tying Transformation to ultimate goal of
10% revenue increase.
2.3.6 Stories
Stories will re?ect the success of individuals who have completed a course
of education in a given skillset, focusing on how they contributed to IBM’s
success as well as their own. The positive bene?ts of networking and how
employees relied on it to solve di?cult problems are highlighted, while plans
are discussed to address areas where drawbacks or di?culties have been un-
covered. These stories will be used to draw non-participants into the Trans-
formation scheme, using all available communications channels within IBM.
2.3.7 New Paradigm
As a result of modifying the change levers, Figure 2.15 shows the outcome
of the Transformation.
Control Systems
Symbols
Right to use icons
on online directory
and resume’ for
learning
achievements
IBM power focused
on knowledgable
individuals who share
with other employees
IBM works together
Success through
networking
Invitation to all
to join as well
Technical and social
focus in professional
life within IBM,
bringing successes
to all clients
Network of many
individuals to draw
knowledge from
Periodic improvement
reviews
Achievement
recognition
IT systems to implement
networking channels
Management tracks
networking metrics
Paradigm
Stories
Power Structures
Organization Structures Routines and Rituals
Behaviors
Values
Figure 2.15: IBM Culture Change
2.4. ALIGN THE ORGANIZATION 43
2.4 Align the Organization
2.4.1 Social Cohesion
The desired alignment of the Transformation is to raise ‘social capital’, or
social cohesion among IBM employees in a virtual workplace
3
. Figure 2.16
shows IBM moving through Phase 5, where growth is a result of collabora-
tion
4
. To lead IBM employees through this phase change, management will
stress that the action is voluntary on the employee’s part. This sidesteps
employees who may resist or oppose the change, while giving ambitious and
willing employees an opportunity to build and create the missing social cap-
ital in their day to day activities. By setting an example, they may entice
those with a ‘wait and see’ attitude to join as well. A voluntary approach ties
managements’ hands in the number of approaches they can employ; namely,
coercion is ruled out, leaving only positive change behaviors such as personal
encouragement, acting on feedback and criticism, as well as setting the tone
of mutual respect, power of knowledge, and recognition of achievements.
2.4.2 Action Plan
The timeline for this action plan is shown in Table 2.5, giving the events
and their outcomes. Cost is not detailed here, as the costs are either sunk
(such as development of existing training modules) or already allocated to
a general budget (paying for servers and computing resources for any legiti-
mate business need). Employees chosen to be Resident Domain Experts will
already be on the payroll, with their duties shifted to this endeavor. A mod-
est budget will be allocated to each Resident Domain expert to host awards
functions and prizes as appropriate.
2.4.3 Monitoring and Evaluating the Change Process
For a large scale e?ort involving many people and their needs, criticism and
feedback are to be expected immediately after inception and implementation.
For this reason, the Resident Domain Experts are given a wide latitude on
actions taken to improve the Transformation e?orts. Periodically, feedback
and metrics measurements are gathered, analyzed, and acted upon, as shown
in Figure 2.9, showing a double-loop learning feedback system.
3
Greenier 1972
4
Henley Critique 8
44 CHAPTER 2. BUSINESS TRANSFORMATION
Event Time Outcomes Principals
Identify skillsets, now and fu-
ture, that are in short supply
and lucrative.
July 2008 List of skillsets, in priority of
projected market returns
Industry forecasters, top
strategy managers, expert
employees, HR
Identify and appoint Resi-
dent Domain Experts, each in
charge of skillsets identi?ed.
August
2008
Appointments made, job de-
scriptions changed to focus
on Transformation.
Top expert employees, HR,
Strategic management
Domain Resident Experts to
design core curriculum for
’Immediate’, ’Advanced’, and
’Expert’ quali?cations, de-
signed for part-time study for
cohorts at a ?xed time
October
2008
Curriculum using existing
IBM training courses, with
absolute minimum of new
materials created.
Domain Resident Experts
Create standardized struc-
ture for electronic resources,
libraries, wikis, newsletters,
allow for maximum ease-of-
use and multiple networks for
users.
November
2008
Directed learning and net-
working platform that is eas-
ily replicated as new skillsets
are created, using existing
IBM technology.
IT Services, Domain Resident
Experts
Begin advertising and com-
municating to IBM employ-
ees about directed learning
and networking opportuni-
ties, stressing bene?ts and
calls to participation.
December
2008
IBM Employees form ?rst co-
horts, undergo training as de-
signed, begin use of network-
ing.
HR, Senior Management,
Resident Domain Experts,
IBM Employees
Ongoing collection of metrics,
focusing on performance, ef-
fectiveness, and bottom line
scores.
Ongoing Metrics collected and ana-
lyzed, feedback acted upon,
improvements made
Senior Management, Resi-
dent Domain Experts
Ongoing Awards recognition,
periodic newsletters, one-on-
ones with individual IBM
employees participating in
Transformation program.
Ongoing Activities to drive metrics
collected
Resident Domain Experts
Halfway point in 3 year
program - measure progress
of company against eventual
goal of 10% revenue increase
in 3 years after inception.
Jan 2010 General report on program
e?ectiveness, successes & is-
sues to act upon.
Senior Management, Resi-
dent Domain Experts
End of 3 year program -
measure progress of company
against goal of 10% revenue
increase in 3 years after in-
ception.
July 2011 Decision to continue Trans-
formation program or termi-
nate due to lack of perfor-
mance.
Senior Management
Table 2.5: IBM Transformation Action Plan
2.5. CONCLUSION 45
through creativity
Small
Large
S
i
z
e
o
f
O
r
g
a
n
i
z
a
t
i
o
n
Age of Organization
Young
Mature
Current
Post?
Transformation
Phase
Phase
2. Growth through
direction
3. Growth through
delegation
4. Growth through
co?ordination
5. Growth through
collaboration
1. Crisis of
leadership
2. Crisis of
autonomy
3. Crisis of
Control
4. Crisis of
red tape
1. Growth
5 ?
Figure 2.16: IBM Growth through Phases
2.5 Conclusion
This paper has detailed the proposed Transformation, on how IBM can give
itself a distinctive advantage over rivals who constantly try to duplicate IBM’s
o?erings at lower cost points. IBM gained a good deal from its virtual work-
force, being the pioneer in many cases, but now must address the downside
- the loss of camaraderie and knowledge sharing within a traditional o?ce
setting. The end result of the Transformation is to restore the social setting
of the IBM employee, building loyalty to the company, promoting teamwork
and reliance among peers, giving joy to the work experience, and satisfying
clients with excellent service that cannot be obtained anywhere else in the
market.
46 CHAPTER 2. BUSINESS TRANSFORMATION
Monitor
Collect and
evaluate
metrics
Manage
Implement
changes with
data from
collected
metrics
Search
For new
opportunities
for competitive
advantage
Monitor
Manage
Recreate
Create
Create vision/
strategy with
Transformation
Figure 2.17: IBM Double Loop Learning
2.5. CONCLUSION 47
Henley Transformation
Process
Pre?Transformation
Desired Post?Transformation
State
Figure 2.18: IBM’s Transformation Process
48 CHAPTER 2. BUSINESS TRANSFORMATION
2.6 Personal Development Report
IBM has been an excellent place to work, and in many ways I feel fortunate
to have joined IBM when I did, just at the very beginning of the dot.com
collapse. In some ways IBM presented credibility and security, being ‘old
economy’ and an established company. IBM may not be glamorous as work-
ing for Google or Facebook might be, but in exchange, working on decidedly
bread-and-butter industries such as insurance and investment banking gives
me invaluable experience on projects that have no hype to sell; whatever
IBM project I am on is successful because of the many experienced people I
?nd myself working with.
In a company of experienced and talented leaders, it is di?cult for any
one person to stand out from over a quarter million employees, and the
ones that do are employees who have done a great deal for IBM’s bottom
line. Standouts include salesmen, inventors of market creating products,
visionaries, and people who have shown prescience in the way the markets
are heading. While I have certainly done well on projects with a technical
focus or delivery, I’ve always been only somewhat aware of the business
deliberations that took place before I became involved in the work. With
the MBA studies, even with the basics in ‘Foundations of Management’, I’ve
found it much easier to make sense of what IBM was doing in its business
dealings, such as in its acquisitions or courting of certain clients. In my own
personal daily worklife, merely mentioning an interest in business processes
has opened doors to working closer with business analysts on projects most
noted for its strict divide between technology and business interests.
One way I’ve found that would allow me to stand out at IBM is to bridge
the gap between technology and business. It is rare to ?nd anyone willing
to work with both groups. Usually when the business analysts are done
with their requirements, it’s tossed over a fence to the technology group to
implement to be tossed back at some future date. With my knowledge and
tools I have learned from Henley, hopefully some day on my projects there
will be no fence.
Bibliography
[1] Bragg, Steven M. (2006) Financial Analysis: A Controller’s Guide New
York: Wiley and Sons.
[2] Collis, Davis and Ruksand, Michael(1993) Can You Say What Your
Strategy Is? Harvard Business Review, April 2008
[3] Gerstner, Louis V. Jr. Who Says Elephants Can’t Dance? New York:
HarperCollins Publishers, 2002
[4] IBM Annual Report, 2007, 2006, 2005
[5] Kaplan R S and Norton D P The Balanced Scorecard: Translating Strat-
egy into Action Harvard Business School Press 1996
[6] Larson, Carl E. and LaFasto, Frank M.J. (1989) Teamwork: What Must
Go Right; What Can Go Wrong. Newbury Park, Calif.: Sage.
[7] Lewin : Business Transformation Instruction Material, Henley Manage-
ment College. 1941
[8] Marchand, D (2000) Competing with Information, John Wiley and Sons
[9] McFarland: Managing Information Material, Henley Management Col-
lege. 1963
[10] Nellis, D. Parker. (2002) Principles of Business Economics Essex: Fi-
nancial Times
[11] Oakland, J.S.(1992), Total Quality Management, Oxford: Butterwo rth
Heineman.
[12] Porter M (1980) Competitive Strategy: Techniques for Analysing Indus-
tries and Competitors, The Free Press
[13] Porter, M E & Millar, V E (1985) How Information gives you Compet-
itive Advantage Harvard Business Review, Jul/Aug 1985
49
50 BIBLIOGRAPHY
[14] Porter, M. The Value Chain and Competitive Advantage. Free Pres s.
New York. p.33-61. 1985
[15] Thompson, John and Martin, Frank (2004) Strategic Management:
Awareness and Change, Thomson Publishing
[16] Treacy/Weirsema (1993) Customer Intimacy and Other Value Discip
lines, Harvard Business Review, Jan/Feb 1993
.1. APPENDICES 51
.1 Appendices
.1.1 PESTLE
Table 6 gives a PESTLE analysis of IBM.
Drivers External In?uence Impact (A)*(B) Probability
Factors on Industry on Company of Change
0 to 10 (A) -5 to 5 (B)
Political/Legal Con?icting regulations be-
tween di?erent countries;
compliance with local laws
vs. global operations.
4 -1 -4 Low
Patent laws are in a ?ux
in the US and worldwide;
patent reform changes nature
of competition.
8 3 24 Medium
Economical Global recession from US eco-
nomic troubles
9 -4 -36 High
Shift away from US as pri-
mary market
7 3 21 High
Social Workforce growing older;
fewer young employees and
more diverse workers
6 2 12 High
Workers separated geograph-
ically; trend of employees
working from home or re-
gional o?ces
8 3 24 High
Technological Technology quickly becomes
widespread / copied by low
cost rivals
8 -4 32 High
Disruptive technology; new
invention creates or destroys
an industry quickly
9 +/-5 +/-95 Medium
Environmental Focus on ‘green’ or low-
consumption sustainable en-
ergy
4 2 8 Medium
Natural disasters 2 -4 -8 Low
Table 6: Environmental factors a?ecting IBM
Political / Legal
- IBM is a multinational company operating in many countries, often result-
ing in IBM needing to navigate con?icting regulations. What may be legal in
one country may not be in another, ?nancial practices may di?er. Worker’s
rights, patent laws, export controls are all factors that need to be taken to
consideration.
52 BIBLIOGRAPHY
Economical
- Economic recessions can impact clients who may cut back on spending on
IT and business operations. IBM may ?nd that it needs to rely less on US
operations for pro?t as emerging countries come on line, for example, Chinese
companies looking for premium IT service.
Social
- Workers are gradually graying, becoming older as boomers move toward
retirement. Employee needs and desires change as workforce becomes more
diverse. Technology allows employees to collaborate and work far away from
each other, downsides of isolation and separation need to be addressed.
Technological
- IBM is the trendsetter and market maker for new technology for IT automa-
tion and business. It is likely that old standards can be disrupted overnight
with introduction of a new technology. IBM needs to continuously innovate
as anything can be copied or adopted by rivals.
Environmental
- Natural disasters can disrupt IBM operations, as facilities are located world-
wide. Focus on ‘green’ technology an important issue as clients and govern-
ments try to address global warming.
.1. APPENDICES 53
.1.2 Porter’s Five Forces
Threat of New Entrants
As the IT and business consulting market is lucrative and a global business,
new entrants are constantly entering the market in response to new oppor-
tunities. This is especially true of emerging countries, where skilled and
low-cost workers in countries such as China and Vietnam are underbidding
India, once the leading low-cost bidder for Western outsourcing business. As
having an advantage through business automation and cost savings through
outsourcing means a advantage over competition, any business of appreciable
size will welcome new products and services that will work to their favor.
Threat: High
Supplier Bargaining Power
IBM can no longer engage in customer lock-in, in which the customer is forced
to use IBM products exclusively once entering a contract. Open standards
allows a client to migrate their data and process to competitor platforms
as needed. For this reason, IBM embraces competitor products as well and
provides service with the same depth as a similar IBM brand. ‘Suppliers’
can also mean IBM’s consulting base, employees who can work for IBM, a
competitor, or hang out their own shingle as an independent consultant.
Threat: Low
Buyer Bargaining Power
Buyers are divided into two camps, one seeking low-cost service and the
other camp seeking leading edge IT products and services. Low-cost service
reduces overhead for clients, but requires a mature market with an adequate
number of competitors. Leading-edge clients often will pay a premium for
new products and services, and have few vendors to choose from. IBM nearly
exclusively positions itself in the leading-edge market, and must constantly
cede business to low-cost competition once margins become unsatisfactory.
Threat: Medium
Threat of Substitute Products & Services
When a new service or product is developed, a new market is created, one
that promises a new level of automation or a new way to reach customers.
In the time of market creation, products and knowledge (in the form of
consultants) are limited. Over time, as competing products are made and
54 BIBLIOGRAPHY
more consultants gain knowledge, customers have more choices and the threat
of substitution increases.
Threat: Medium
Competitor Rivalry
Competition is ?erce, but IBM enjoys a large share of the leading-edge IT
consultancy market. Many of IBM’s products set the market standard, al-
lowing IBM to control the direction and progress of the market. Many of
IBM’s competition are niche-oriented or cost-leaders, or are complementary
(using IBM’s products to drive demand for a specialized service).
Threat: Medium
.1. APPENDICES 55
.1.3 McKinsey 7S
• Hard Elements
– Structure A company of IBM’s size is split along three lines:
Software, Services, and Systems & Financing. By necessity, there
are diverse structures suited to the nature of a particular business.
The structure that is in question is the ranks of IBM consultants,
who are generally individuals on assignment and are not necessar-
ily aligned with any direction other than their own.
– Strategy IBM summarized their strategy succinctly with “... to
solve our clients’ hardest problems”; IBM continuously seeks op-
portunities which represent a technological advantage or a cost
savings for clients. Service contracts based on IBM products and
platforms are lucrative for growth markets.
– Systems IBM often sets the industry standards for systems and
automation, and has an interest in being ?exible and responsive to
market conditions. Many mechanisms, such as training, HR, and
assignment deployment are well developed, although often left to
employees to discover and determine how best to use them.
• Soft Elements
– Style IBM has a surprisingly informal and collaborative style for
an organization of its size. Gone are the days of pinstripe suits and
‘sincere’ ties, replaced by a global collaborative network in which
IBM employees work on projects from any location. A full third
of IBM employees work from home, with the rest in ‘solutions
delivery centers’, IBM campuses, or in client sites.
– Shared Values IBM places emphasis on integrity and customer
satisfaction, and every IBM employee must read and sign a doc-
ument de?ning what IBM stands for. Because of the dispersed
nature of IBM, often values may be that of a client the IBM em-
ployee is working for, or assumed values from a temporary group
working together. Transient assignments tend not to reinforce
values over time.
– Skills IBM places a high premium on skills, as it is what makes
the company marketable to clients. IBM is often the company of
?rst resort to solve complex issues or introduce new technology to
clients. Despite the importance of skills, cultivating and directing
learning e?orts is left to the individual employee.
56 BIBLIOGRAPHY
– Sta? With nearly 400,000 employees, IBM has a wide pool of la-
bor to draw from. Cleanly divided into ‘bands’, or levels of respon-
sibility (and pay) as well as broad job de?nitions, IBM marks out
stepping stones in advancement for the employee. A yearly perfor-
mance based bonus (both individual, department, and company)
motivates employees. Special programs such as ‘certi?cation’ and
titles such as ‘distinguished engineers’ give special recognition to
employees who have achieved a remarkable level of skill.
.1. APPENDICES 57
.1.4 Market Share
IBM
SUN
Microsoft
HP
Accenture
Infosys
Other
Figure 19: IBM Market Share 2006
IBM’s market share for IT and Business services in 2006, showing that
while IBM has a large portion of the market, an even larger portion is held by
small IT consultancies. Individual consultants, small shops, and universities
lending scholars make up for the largest share of the IT market. Rivals
such as HP, Infosys, and Microsoft have a small market share now, but are
expected to invest and stake out a larger share over time.
58 BIBLIOGRAPHY
.1.5 IBM’s Stakeholders
Competitor Platforms
IBM supports all IT platforms and products as a normal course of business.
IBM has no stake in providing service exclusively for its own products. As a
result, competitors often take an interest in IBM supporting their platform
as it can drive sales. On the other hand, IBM’s openness also allows the
possibility of a customer migrating to an IBM product as well.
Shareholders
Shareholders have not treated IBM as a ‘hot stock’, and IBM’s P/E ratio
remains low compared with other similar companies within the industry.
This treatment makes it di?cult to retain key executives with stock options
and employees who may own IBM stock through company plans. Even with
record pro?ts, IBM is not treated as a growth company.
IBM Consultants
IBM Consultants are the stock in trade when giving customers advice and
supplying skilled labor. Consultants ?nd themselves in high demand when
their skill set is in short supply. However, consultants can ?nd themselves
isolated from any sense of direction or corporate vision as they are isolated,
either by being embedded in client corporations or working alone from home.
While IBM may see emerging trends, this is often not shared with individual
consultants.
Cost Sensitive Customers
Cost sensitive customers are clients that have found a cheaper alternative to
IBM, usually when a technology matures enough that low-cost competitors
have developed su?cient skills to provide the same service IBM does, but at
a discount. IBM cannot compete on cost so must ?nd ways to provide clients
value that low-cost competition cannot.
Low Cost Competition
Low cost competition are competitors who have developed su?cient skills to
compete against IBM, especially in mature or declining markets. Low cost
competition sets the price ?oor for IBM, driving IBM forward to ?nding new
markets in which IBM can charge higher prices.
.1. APPENDICES 59
Premium Service Competition
Premium service competition are competitors who have the same business
model as IBM, eschewing competition on price and instead focusing on value
delivered to the client. IBM may either compete head-on or else form partner-
ships and alliances with this competition, especially for technology requiring
substantial knowledge and investment.
Leading Edge Customers
Leading edge customers are customers who will pay a high price for products
and services that will give them a business advantage or signi?cant cost sav-
ings. These clients seek to gain an edge over their own competition, and are
willing to make the required investments. Leading edge customers can also
be cost sensitive customers, especially when portions of their infrastructure
has matured enough to make it di?cult to justify retaining IBM to service
it.
doc_509782479.pdf
IBM is a global IT manufacturing and consulting company, with 335,000
employees across nearly every industrialized country in the world
. Once
largely focused on the sale of mainframes and related software contracts, IBM
has evolved into lucrative technology and business consulting, supported by
a wide range of IBM software platforms and products. Figure 1 shows IBM’s
value system in the marketplace, demonstrating a reliance on knowledgebased
transformation and processes. Products such as hardware and software
are either sold outright, or used (along with competitor’s products) as a basis
for consulting engagements.
Integrated Strategy Project - IBM
Allan Williams
May 5th, 2008
Word Count 7,035
2
Contents
0.1 Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . 5
0.2 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
0.2.1 Assignment Structure . . . . . . . . . . . . . . . . . . . 8
1 Strategic Position Analysis 11
1.1 Strategic Direction . . . . . . . . . . . . . . . . . . . . . . . . 11
1.1.1 External Analysis . . . . . . . . . . . . . . . . . . . . . 11
1.1.2 Internal Analysis . . . . . . . . . . . . . . . . . . . . . 13
1.1.3 IBM Stakeholder Analysis . . . . . . . . . . . . . . . . 15
1.1.4 SWOT Analysis . . . . . . . . . . . . . . . . . . . . . . 16
1.1.5 EVR Congruence . . . . . . . . . . . . . . . . . . . . . 16
1.1.6 Scenarios . . . . . . . . . . . . . . . . . . . . . . . . . 19
1.2 Analysis of Suitability, Feasibility, and Acceptability . . . . . . 22
1.2.1 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . 22
2 Business Transformation 23
2.1 Mobilizing for Change . . . . . . . . . . . . . . . . . . . . . . 23
2.1.1 Communicating the Change Process . . . . . . . . . . . 23
2.1.2 Leadership and Change Agents . . . . . . . . . . . . . 26
2.2 Translating Strategy Into Objectives and Initiatives . . . . . . 33
2.2.1 Process of Implementing Strategy . . . . . . . . . . . . 33
2.2.2 Gap Analysis . . . . . . . . . . . . . . . . . . . . . . . 35
2.2.3 Finance . . . . . . . . . . . . . . . . . . . . . . . . . . 35
2.2.4 Customer Perspectives . . . . . . . . . . . . . . . . . . 36
2.2.5 Process . . . . . . . . . . . . . . . . . . . . . . . . . . 36
2.2.6 Potential . . . . . . . . . . . . . . . . . . . . . . . . . . 37
2.3 The Change Process . . . . . . . . . . . . . . . . . . . . . . . 37
2.3.1 Symbols . . . . . . . . . . . . . . . . . . . . . . . . . . 37
2.3.2 Power Structures . . . . . . . . . . . . . . . . . . . . . 38
2.3.3 Organizational Structures . . . . . . . . . . . . . . . . 39
2.3.4 Control Systems . . . . . . . . . . . . . . . . . . . . . . 40
2.3.5 Routines and Rituals . . . . . . . . . . . . . . . . . . . 41
3
4 CONTENTS
2.3.6 Stories . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
2.3.7 New Paradigm . . . . . . . . . . . . . . . . . . . . . . 42
2.4 Align the Organization . . . . . . . . . . . . . . . . . . . . . . 43
2.4.1 Social Cohesion . . . . . . . . . . . . . . . . . . . . . . 43
2.4.2 Action Plan . . . . . . . . . . . . . . . . . . . . . . . . 43
2.4.3 Monitoring and Evaluating the Change Process . . . . 43
2.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
2.6 Personal Development Report . . . . . . . . . . . . . . . . . . 48
.1 Appendices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
.1.1 PESTLE . . . . . . . . . . . . . . . . . . . . . . . . . . 51
.1.2 Porter’s Five Forces . . . . . . . . . . . . . . . . . . . . 53
.1.3 McKinsey 7S . . . . . . . . . . . . . . . . . . . . . . . 55
.1.4 Market Share . . . . . . . . . . . . . . . . . . . . . . . 57
.1.5 IBM’s Stakeholders . . . . . . . . . . . . . . . . . . . . 58
0.1. EXECUTIVE SUMMARY 5
0.1 Executive Summary
No matter how dismal the US economy may currently be, these are heady
times for IBM. Record pro?ts were announced for 2007, with IBM reporting
$10.4 billion USD on revenues of $98.8 billion. $21 billion were returned
to shareholders through stock buybacks and dividends, and a further $12.2
billion invested into acquisitions and capital expenditures. Unpro?table busi-
nesses were sold o? or divested, new markets entered, allowing IBM to enjoy
a 42.3% gross margin on revenue.
Despite these splendid results, IBM knows full well that it must con-
tinuously put new o?erings in the product lifecycle; rivals are all too keen
to emulate or undercut IBM’s line of products and services. IBM has long
abandoned the traditional practice of customer lock-in, where customers are
forced to use IBM products once they enter an IBM contract
1
. IBM fully sup-
ports any software platform on any hardware system, allowing customers low
entrance and exit barriers. IBM relies on one asset that provides the high-
est value (and margins) – its consultants, contractors, and experts provided
to customers to solve their most di?cult technical and business problems.
To meet client demands, IBM employees are dispersed through the world to
be close to their customers, taking full advantage of ‘virtualization’, or an
o?celess, ‘always on’ working style.
IBM in many ways pioneered the current trend of virtualization, already
having eliminated o?ces for employees and vacated entire buildings, such as
the the famous address of 550 Madison Avenue in New York City. Employ-
ees are equipped with laptops that are their o?ces; they can connect and
work anywhere, from home, client sites, airports, foreign cities, and any con-
ceivable location with an Internet connection of some kind. Employees are
‘always on’, working a nominal 40 hours per week, but reachable at any time.
IBM employees are also isolated, working as individuals, at their own discre-
tion of what the company’s future holds and what skills and developments
they will undertake. IBM employees must regain a common vision, purpose,
camaraderie, and form a learning network that has disappeared with their
cubicles and o?ces.
Many of the components for this transformation is already in place;
knowledge management systems are plentiful, social networks are readily
used, reward mechanisms used, and education well established. What is
missing is an architecture for implementing the new strategy of team-based
learning, customer engagement, and market advantage. The new architec-
ture has its components of high-level objectives mapped to critical success
1
Gerstner, 2002
6 CONTENTS
factors, targets matched with initiatives, and artifacts such as a Balanced
Scorecard will be used to monitor progress and results.
0.2. INTRODUCTION 7
0.2 Introduction
IBM is a global IT manufacturing and consulting company, with 335,000
employees across nearly every industrialized country in the world
2
. Once
largely focused on the sale of mainframes and related software contracts, IBM
has evolved into lucrative technology and business consulting, supported by
a wide range of IBM software platforms and products. Figure 1 shows IBM’s
value system in the marketplace, demonstrating a reliance on knowledge-
based transformation and processes. Products such as hardware and software
are either sold outright, or used (along with competitor’s products) as a basis
for consulting engagements.
Table 0.2 gives an overview of IBM’s ?nances, showing a mildly ?at
growth in revenue, but a steady increase in pro?ts for the past few years
due to widening margins.
Year 2004 2005 2006 2007
Revenue $96.3 $91.1 $91.4 $98.8
Net Income $7.5 $8.0 $9.4 $10.4
Gross Pro?t Margin 36.9% 40.1% $41.9 $42.2
Capital Expenditures $3.7 $3.5 $4.7 $4.9
Working Capital $7.3 $7.7 $4.5 $8.8
Share Repurchase $7.1 $7.7 $8.0 $18.8
Number of Employees 329,001 329,373 355,766 386,558
Table 1: IBM Year-End Financial Results, in Billion $USD
2
IBM Annual Report, 2007
8 CONTENTS
Open Source Initiative
Services
Software
Systems &
Financing
Consulting and Systems Integration
Application Management Services
Strategic Outsourcing
Business Transformation Outsourcing
Integrated Technology Services
Maintenance
Websphere
Information Management
Tivoli
Rational
Operating Systems
Servers
Storage
Retail Store Solutions
Microelectronics
Commercial Financing
Client Financing
Fortune 500 Companies
Small Business/Home Business
Open Source Initiatives
Universities/Education Government/Federal/Military
Retail/POS/e?Commerce
Finance/Banking
Microelectronics
Research & Development
Mainframes/Workstations/Networks
Consulting/Contracting/Services
Integration/Business Transformation
IBM
CUSTOMERS
SUPPLIERS
Competitor Systems and Platforms
Sub?contracting services
University research departments
Joint ventures / alliances
Raw materials for microelectronics
Hardware manufacturers
Internal/external IT workers
Outsourced labor
Figure 1: Value System of IBM
0.2.1 Assignment Structure
The structure of this assignment is in two parts; the ?rst half determines
IBM’s current strategic position in the marketplace, with focus on competi-
tion and customer demands. From this determination, the underlying logical
reasons for IBM’s future directions are analyzed, formulating the basis of
a business transformation. The second part of this assignment details the
0.2. INTRODUCTION 9
mechanics of the transformation, keeping IBM ahead of rivals, preserving
margins, and raising revenue.
* Porter’s 5 Forces
S W
O T
R
V
E
Internal External
* McKinsey’s 7S
* Value System
* Product Portfolio
* Competitive Advantage
Stakeholder Analysis
Scenarios
Strategic Choices
CHAPTER 1
Henley Transformation Framework
* PESTLE
CHAPTER 2
Figure 2: Assignment Structure
10 CONTENTS
Chapter 1
Strategic Position Analysis
1.1 Strategic Direction
1.1.1 External Analysis
PESTLE Analysis
A full PESTLE analysis is performed in Appendix .1.1, and the pressing
issues are discussed in turn below:
• Skilled Employees - Despite the ranks of skilled workers in India and
other countries, competition has shrunk the pool of available candi-
dates. Employees work in a ‘virtual organization’, where location is no
longer de?ned; employees are connected to each other through networks
and technology.
• Commoditization of Technology - As competitors become adept
at duplicating the same types of services IBM develops, competition
increases and pro?ts drop. Because IBM does not force clients to use
any particular product, it is easy for clients to move to IBM, at the
risk of them easily moving elsewhere.
• Pressure to Innovate - Innovation of new products and services (or
the acquisition of the same) is the lifeblood of IBM, missteps in pre-
dicting industry trends can be costly investments with little return.
A dangerous position for IBM is the non-di?erentiation between a skilled
employee working for IBM and the same employee later working for a com-
petitor. Clients may not see value in paying IBM’s premium prices if the
same services can be found cheaper elsewhere. Simply paying employees
11
12 CHAPTER 1. STRATEGIC POSITION ANALYSIS
more merely increases costs all around and may not be an e?ective solution
– a new way to di?erentiate the available pool of talent, raise competitive
barriers, and yet keep overhead costs low must be found.
Porter’s 5 Forces
Figure 1.1 diagrams the detailed Five Forces analysis from Appendix .1.2.
High/Low
growth and sustained advantage
is difficult.
THREAT OF NEW ENTRANTS
Rivals are small compared to IBM,
but can compete on at least one
specialized front, such as a
narrow or unique service or
product, or more often, on price.
BARGAINING POWER OF
SUPPLIERS
Suppliers are skilled workers
employed by companies,
specialized skills can be
rare and expensive.
BARGAINING POWER OF
BUYERS
High if the service or product
can be bought elsewhere,
low if the service is
propietary, or the vendor has
a close relationship with client
THREAT OF SUBSTITUTION
Low for IBM’s recent technology
from R&D efforts, or products
given away for free by IBM.
High if service is copied or
available from the competition.
INTENSITY OF RIVALRY
IBM, as the dominant player in
the market, is the natural focus
of rivals. IBM can expect small
outfits to attempt to chip away
at every weakness it has.
High
Medium
High
High/Low
Market is easy to enter, but
Figure 1.1: Porter’s Five Forces
Competition is intense, although IBM holds the largest share of any one
company (see Appendix .1.4), it does not hold a dominant position. Much of
its competition is small companies and individuals who may have a focus as
narrow as IBM’s is wide. Few companies can hold their own against IBM’s
breadth and depth of software products and platforms, but the lucrative
business of providing skilled individuals (the ‘suppliers’) is attractive to any
company, large or small.
1.1. STRATEGIC DIRECTION 13
1.1.2 Internal Analysis
McKinsey’s 7S
Figure 1.2 illustrates the e?ectiveness of each of the elements of the McK-
insey’s 7S model (please see Appendix .1.3 for more detail). The biggest
weakness in this diagram is the Structure, putting IBM in a critical risk with
competitors. Employees deployed in consulting positions often are working
alone, with their learning self-directed. While materials are available for
learning on any conceivable subject that IBM has interest in, there is lit-
tle direction in which materials to study or the relevance of subjects not in
the immediate scope of the employee’s current position or project. In turn,
Structure weakens the Strategy and Shared Vision portions of the 7S dia-
gram. IBM’s strategy pertaining to its consulting base is strongly linked to
employees sharing the same corporate vision.
Effectiveness: Good
Effectiveness: Good
Effectiveness: Good
Effectiveness: Good
Structure
Systems
Shared Vision
Strategy
Skills
Style
Staff
*Defines
Indusry Standards
Well developed
platforms
Flexible,
work oriented
networks for
dispersed
employees
Highly skilled
and diverse from
all industrialized
nations in the
world
Employees
working on
solitary projects
Individuals
responsible for
developmenr
Company
wide vision is
good, individual
or specialist
vision needs
improvement
Good company
wide strategy
for systems,
but improvements
for analyists/
consultants
Highly developed
skills, top notch
training available
as well as active
recruitment
Weakness
Neither
Strength
Interaction with other elements: Good
Interaction with other elements: Good
Interaction with other elements: Good
Interaction with other elements: Good
Effectiveness: Poor
Interaction with other elements: Good
Effectiveness: Good
Interaction with other elements: Poor
Effectiveness: Fair
Interaction with other elements: Good
Figure 1.2: McKinsey’s 7S
14 CHAPTER 1. STRATEGIC POSITION ANALYSIS
Value Chain
IBM can be split into its components using Porter’s Value Chain, as shown in
Figure 1.3. In this ?gure, arrows in red indicate weak linkages, while arrows
in green show strong links.
Playing to IBM’s strengths is the strong link between Technology Develop-
ment, Procurement and Inbound Logistics, as IBM has aggressively acquired
or developed a wide array of technology platforms that meet the challenges
of clients’ needs, as well as a willingness to support non-IBM products.
Weak links
Organization’s Infrastructure
Human resource management
Technology development
Procurement
Inbound
Logistics
Operations Outbound
Logistics
Service
Marketing
and
Sales
M
a
r
g
i
n
M
a
r
g
i
n
Weak contribution to margin.
Strong links
Figure 1.3: Value Chain
As Table 0.2 shows, IBM’s pro?ts have increased as a direct result of
widening margins despite ?at revenues. This is a result of cutting overhead
and improving e?ciency, but there is a natural limit to how long this trend
can continue. To increase pro?ts, revenues must increase. The weak link
between Human Resource Management, Organization’s Infrastructure, and
Operations is the lack of di?erentiation between IBM’s pool of consultants
and the same pool at IBM’s closest competitors. Areas that need stronger
contributions to margins are indicated in yellow.
Product Portfolio
IBM has an enormous product portfolio, encompassing every aspect of IT
and business consulting for clients. IBM relies on wide margins and ability
1.1. STRATEGIC DIRECTION 15
to use its specialized knowledge to attract clients, rather than competing on
price. For this reason, IBM puts great e?ort in creating new markets and
responding to early trends. Figure 1.4 shows (in red) the random nature of
employees directing their learning without guidance. Green arrows show the
desired direction of learning e?ort. This requires a nimble mobilization of
IBM consultants with readily available skills and experience in areas that
represent a competitive business advantage for clients. It is essential that
IBM orchestrates the learning e?orts of employees to capitalize on emerging
and potentially lucrative opportunities.
Current Learning Efforts
Development Maturity Decline Shakeout Growth
Market
Growth
Profit
Highest Profit Margins for IBM
IBM Exits Market
Desired Directed Learning Efforts
Figure 1.4: IBM Product Lifecycle
Mature or declining markets with diminishing pro?t margins are routinely
exited, leaving the cost advantage model to lower priced rivals.
1.1.3 IBM Stakeholder Analysis
As a large public corporation with a global presence, IBM has many stake-
holders with varied interests. The stakeholders of key concern are shown in
Figure 1.5. Clients who are cost-sensitive are generally not pursued by IBM,
and have a diminishing relevance. However, companies who provide dis-
counted prices set the price ?oor for IBM, and hence IBM’s exit point from
the market. Quicker capabilities and entries by low-cost rivals puts pressure
on IBM maintaining market lead. Clients with technological leading-edge
needs who are willing to pay high initial prices are the most desired cus-
tomers for IBM, as well as its closest competitors. IBM’s critical asset, its
own consultants, need to migrate up the Power scale to edge out competition
with a early market capture advantage.
16 CHAPTER 1. STRATEGIC POSITION ANALYSIS
I
N
T
E
R
E
S
T
POWER
Low
High
High
Shareholders
Minimal Effort
Keep Satisfied
Keep Informed
Principal
Leading edge
Customers
Competition
Low?Cost
Preminum Service
Competition
IBM Consultants
Platforms
Competitor
Cost sensitive customers
Figure 1.5: IBM Stakeholder Mapping
1.1.4 SWOT Analysis
Table 1.1 is a SWOT analysis for IBM. IBM has enviable strengths in market
leadership and responding to new trends, in addition to having billions $USD
to spend as necessary.
The weaknesses that IBM faces are skills shortages in critical areas, es-
pecially in new products and services IBM wishes to dominate. Timing is
critical, waiting too long to get employees up to speed on needed puts IBM
at risk of losing business to lower-cost rivals. Motivating and directing em-
ployees in a learning corporation requires shaping and driving a common set
of values. A lack of competitive advantage in retaining and deploying skilled
employees shortens the time when IBM can count on the wide margins driv-
ing pro?ts.
1.1.5 EVR Congruence
IBM is a tightly run organization; careful strategies, positioning of products,
and level of service has resulted in a e?ective EVR congruence. However,
Values is in danger of drifting out of congruence, due to the need to co-
ordinate the vision and direction of IBM consultant employees (Figure 1.6).
1.1. STRATEGIC DIRECTION 17
Strengths
• Industry Leadership
• Deep resources
• Nimble response
Weaknesses
• Undirected learning
• Reliance on high
margins
• Employee values
Opportunities
• Emerging markets
• Immediate client
needs
• Skills demand
Continuously scout
for new market
opportunities and
develop products and
services, cultivate
demand through
marketing.
Systemize employee
learning e?orts to
point to emerging
markets and areas
of high demand.
Mobilize teams to
support client needs.
Threats
• Cost competition
• Low entry barriers
• Skills shortage
Formulate new strat-
egy that makes skills
provisioning hard to
duplicate by compe-
tition.
Address skills-
building and em-
ployee values issues.
Table 1.1: IBM SWOT Analysis
18 CHAPTER 1. STRATEGIC POSITION ANALYSIS
E
V R
Figure 1.6: IBM EVR Congruence
Environment
IBM has responded to an environment of high competition and a constant
need for innovative and emerging technology from clients seeking out any
business advantage. The business model of creating new markets and re-
sponding to emerging trends is critical to maintaining IBM’s wide pro?t
margins.
Resources
IBM has considerable resources, in cash, assets, intellectual property, and
product lines. Despite these assets, IBM’s principal method of creating share-
holder value is to buy back its own shares. Table 1.1.5 shows IBM’s stock
price and market capitalization vs. the amount spent on share repurchase
1
.
Year 2005 2006 2007 2008
Share Repurchase $7.7 $8.0 $18.8 N/A
(Billions, USD)
IBM Stock Price, January $98 $85 $98 $110
Market Capitalization $163 $129 $146 $160
(Billions, USD)
Table 1.2: IBM E?ects of Stock Repurchase
The ?at market capitalization and stock price seems to indicate that
investors do not see IBM as a growth company. It is not clear that the share
repurchase is having any signi?cant e?ect on value creation. This money
1
http://fortboise.org
1.1. STRATEGIC DIRECTION 19
may be better spent on innovating new ways to create growth and revenue
increases for IBM.
Values
IBM currently has a working process, but in order to energize value creation
at IBM, a more focused vision and strategy is needed. Values is an area of
critical attention, and must be prevented from drifting. The disconnect that
employees feel as they work in a virtual environment enforces drift; each
employee makes the best choice from the information that is available to
them and applicable to their situation.
Conclusion
IBM is in danger of becoming an ‘unconsciously competent organization’
without a strict correction of its values
2
. A better redirection of IBM’s con-
siderable resources can tighten the EVR congruence.
1.1.6 Scenarios
In the near future there is a best case and a worst case scenario for IBM to
consider:
IBM’s Worst Case
IBM can experience a natural limit to improvements in e?ciency and cost
reduction that is currently driving margins. Revenue remains ?at, stalling
pro?t growth. Competitors take advantage of IBM’s isolated consultants and
employees by poaching them, providing focused teams vs. IBM’s unorganized
ranks, and chip away at widening niche advantages (cost and expertise) over
IBM.
IBM’s Best Case
IBM can increase pro?ts by both increasing revenue and lowering overhead,
and di?erentiate their consulting services to raise entry barriers for rivals.
Figure 1.7 shows the ideal position for IBM’s consulting o?erings, which is
done by identifying and enhancing IBM’s sweet spot advantages over the
competition
3
.
2
Thompson, Page 125
3
Collins & Ruckstad, 2008
20 CHAPTER 1. STRATEGIC POSITION ANALYSIS
Sweet Spot
IBM’s
Capabilities
Competitor’s
Offerings
Customers’
Needs
IBM Strategic
Figure 1.7: IBM Strategic Sweet Spot
Option 1
IBM counters the downsides of virtualization, bringing IBM employees to-
gether to address the needs of a ‘Learning Organization’
4
:
A Shared Mindset
Speed of New Ideas
Learning And Knowledge Management
Accountability
Collaboration
Leadership
Option 2
IBM leaves employees to ?nd their own learning plan based on their position
and understanding of industry trends. IBM devises a reward scheme to
employees who successfully reach levels of skills that clients demand.
Option 3
IBM aggressively hires employees with high-demand skills, and sheds em-
ployees with skills that are in industries that IBM plans to exit.
4
Henley Critique 11
1.1. STRATEGIC DIRECTION 21
Conclusion
Options 2 and 3 are the most easily implementable and may use ?nancial
rewards as incentive for employees to ?nd the best solution to gain skills,
perhaps in ways IBM has not thought of. Unfortunately, this does not pro-
vide any distinct capabilities that cannot easily be copied by competition.
Employees who have independently achieved high skills through their own
initiative may not feel that they must remain loyal to IBM, and can easily
leave to work for competitors or themselves.
Option 1 is the hardest to implement, but ?ts with the new goal of creat-
ing a sustainable competitive advantage. This option makes the assumption
that employees can become capable in new skills, avoiding the problem of
recruitment in a tight labor market. Option 1 is chosen for the Business
Transformation in the next Chapter, to implement the goal of continuous
retraining as shown on Figure 1.4. This type of change will not be a sudden
shift for IBM, as it will take advantage of many programs and facilities al-
ready available, marking it as an ‘Incremental Transformation’ as shown in
Figure 1.8.
S
c
o
p
e
o
f
C
h
a
n
g
e
Direction
Proposed
Transformation
B
i
g
B
a
n
g
I
n
c
r
e
m
e
n
t
a
l
Evolution
Revolution Reconstruction
Adaption
Realignment
Outcome
Figure 1.8: IBM’s Scope of Change
22 CHAPTER 1. STRATEGIC POSITION ANALYSIS
1.2 Analysis of Suitability, Feasibility, and Ac-
ceptability
The strategy from the previous section is analyzed through a SFA test, as
shown in Table 1.2.
Suitability The chosen strategy ?ts in with the
aims of creating sustainable and hard-to-
duplicate competitive advantage for IBM,
while avoiding problems with recruitment
or ine?cient training mechanisms.
Feasibility IBM has spent much energy solving the
‘hard’ factors of virtualization, the balance
remains on focusing on the ‘soft’ factors.
The transformation is based on behavioral
and people management issues, and not re-
liant on technology that needs to be in-
vented or software that may not be used
or accepted.
Acceptability There will be certain employees who will
not accept any changes, no matter how
bene?cial these changes are thought to be.
For this reason, this transformation must
be targeted to employees who are recep-
tive to changes that will be bene?cial for
themselves, their career, and for IBM.
Table 1.3: SFA Analysis - Johnson and Scholes
1.2.1 Conclusion
From the SFA analysis, the Transformation will target IBM’s highly moti-
vated employees, with a suitable reward mechanism, to alleviate the isolation
from the virtual work environment. The end result will be a migration into
learning teams that cannot easily transferred to competitors if an employee
leaves IBM.
Chapter 2
Business Transformation
In this Chapter, the Henley Business Transformation model is used to lead
the change for IBM to sustain competitive advantage.
2.1 Mobilizing for Change
At the center of the Transformation, IBM will address the following ?ve core
categories of behavior
1
:
Challenging the Processes
Inspiring a Shared Vision
Enabling Others
Modeling the Way
Encouraging the Heart
The focus of changes will be in the ‘Structure’, ‘Strategy’, and ‘Shared
Vision’ components of the McKinsey’s 7S model (Figure 2.1). Many of the
components necessary for the transformation exist (as indicated by ‘Struc-
ture’), but are poorly utilized or disorganized.
The ultimate focus is to instill a new ‘Shared Vision’ that will lead IBM
forward.
2.1.1 Communicating the Change Process
At this juncture, IBM faces a di?culty in mounting any transformation ef-
forts; the balance sheet is too good (Table 0.2), IBM beat Wall Street esti-
mates for 2007
2
, and continued ‘wins’, or signi?cant contracts with important
1
Kouzes and Posner (1998)
2
IBM Annual Report, 2007
23
24 CHAPTER 2. BUSINESS TRANSFORMATION
Structure
Shared Vision
Strategy
Employees
working on
solitary projects
Individuals
responsible for
developmenr
Company
wide vision is
good, individual
or specialist
vision needs
improvement
Weakness
but improvements
wide strategy
for systems,
Good company
for analyists/
consultants
Neither
Figure 2.1: IBM’s Changes in the McKinsey 7S
clients, continue to be signed. There is little urgency for change; it is not
plausible to state IBM is in trouble. A sense of urgency therefore must be
created to motivate employees to look forward to what may be in store in
the future. Unmotivated or change-resistant employees will be bypassed,
with the expectation that employees who go along with the changes will set
a good example by having an advantage in lean times.
Figure 2.2 shows the targeted stakeholders in this change e?ort:
In addition, IBM’s e?orts in the commitment curve shown in Figure 2.3
will focus on employees at the ‘Adoption’ stage, and not spend any signif-
icant energy on employees in the ‘Denial’ or ‘Resistance’ stage. Employee
participation will be optional.
IBM, by no means, is a static company; there are many programs and ini-
tiatives that currently exist. IBM employees have responsibilities for impor-
tant ongoing goals, such as a personal development plan, skills assessment,
certi?cations, professional interest groups. In addition, there are classes,
workshops, electronic community groups, electronic forums, and education
available. What is missing is a formal structure, as shown in Figure 2.4.
The new structure for employees is to form formal learning groups, in
which employees belong to groups that are expected to achieve levels of com-
petencies in speci?c technical areas, increase communication among similar
groups, provide mentoring opportunities, and award professional recognition
for accomplishments. This structure is described in Section 2.4.
2.1. MOBILIZING FOR CHANGE 25
L
o
w
H
i
g
h
High Low
Commitment to Change
E
n
e
r
g
y
f
o
r
A
c
t
i
o
n
Sleepers
Champions
Preachers
Focus
Low
Focus
Medium
Focus
High
Blockers
Figure 2.2: IBM Stakeholder Mapping
For IBM Effort
TIME/EFFORT
5. Commitment
4. Acceptance
2. Resistance
1. Denial
3. Adaption
Cutoff Point
Figure 2.3: IBM Commitment Curve Focus
Unfreeze, Move, and Sustain
A communications strategy will be complex, especially in an organization the
size of IBM. The focus will draw and attract receptive employees, with the
26 CHAPTER 2. BUSINESS TRANSFORMATION
Competency Groups
IBM CONSULTANT POOL
CURRENT STRUCTURE
Professional Development
Mentoring Programs
Technical Jam Session
Electronic Groupware
Technology Fairs
Certification Program
Balanced Scorecard
Performance Bonuses
Business Commitments
Training and Education
Individual Development Plan
Figure 2.4: IBM Employee Structure Now
message of ‘promoting your career’; the desired segment will be employees
who have an interest in moving ahead in their line of work.
2.1.2 Leadership and Change Agents
IBM has no shortage of good leaders, and can rely on skilled employees who
are experts in their specialty to ‘give back’ to the community. The focus
of leaders and change will be the emotional needs of employees to ensure
success.
In this transformation, the leaders are given the goal to form a sense
of community and to enhance morale among IBM employees who may not
be located in the same geographic area. With support from upper manage-
ment, leaders will be recruited from current IBM ranks that demonstrate the
following characteristics:
1. A desire to lead and to inspire workers
2. Highly charismatic and champions for employees
3. Deep experts in a distinct, specialized ?eld
4. Are able to design learning programs and certi?cation levels
Dozens to a few hundred leaders may be recruited, for specialized com-
munities (for example, database development), with a learning plan, drawn
from IBM’s wide range of training materials. Leaders will be in charge of or-
ganizing recruits, fostering networks, and giving recognition to achievements
– in an environment where employee participation is strictly voluntary.
2.1. MOBILIZING FOR CHANGE 27
Change Phase Communications Aims Method
Purpose
Unfreeze Mobilizing
• Bring awareness to
IBM sta?
• Generate interest
• Create momentum
Begin advertising in IBM in-
ternal web pages before roll-
out. Pamphlets, e-mail dis-
tributed to managers and
sta?. Transformation de-
tails released.
Move Inform
• Describe changes
• Bene?ts
• How to participate
Provide full details in web-
sites, how to get started,
workshops, conference calls,
kick-o? meetings.
Sustain Update
• Sustain interest
• Provide progress up-
dates
• Success stories
Announce successes; em-
ployees who have gone
through the transformation,
encourage employees to list
credentials earned, periodic
workshops to invite non-
participants to take part of
transformation.
Table 2.1: IBM Unfreeze, Move, Sustain
28 CHAPTER 2. BUSINESS TRANSFORMATION
The next sections appraise the cultural changes that may be needed
within IBM to realize the transformation.
Operational Culture Focus
Table 2.1.2 shows the analysis from the Garrison Diamond Test Model to
determine the necessary issues that must be focused on to make the trans-
formation e?ective.
Behavior Current Desired
Activity Focused on employee’s current as-
signment, dependent on values and
goals of client. Employee’s sense
of activity is out of alignment with
IBM due to isolation.
Employee encouraged to keep up
with latest developments, con-
tribute to peer learning, and forge
emotional and professional ties to
co-workers.
Excellence Rewarded through client work and
at IBM, based on client feedback.
Honorary and ?nancial incentives
exist.
Continue focus on excellence, using
any additional resources that be-
come available.
Balance Balance is skewed toward success of
clients. Development and career de-
sires of employees are sometimes ne-
glected due to lack of communica-
tion from IBM side. Career advice
often comes from clients’ employees
rather than IBM.
Adjust balance so that IBM em-
ployee has a ready and sympathetic
group to discuss concerns and de-
sires, and to get advice and help
from IBM resources.
Friendliness Camaraderie exists within IBM
ranks, with recognition for working
for the same company.
Leverage this friendliness into a
true networking, learning, and en-
gaging experience.
Table 2.2: IBM Garrison Diamond Test
From the Garrison Diamond test model, the need to move the dependency
for connection and ful?llment away from the client and back into IBM.
2.1. MOBILIZING FOR CHANGE 29
Management Style & Structure
Figure 2.5 shows the current and desired position of IBM in the Blake-
Mouton-McCanse model. IBM’s current orientation lies between ‘Production
Pusher’ and ‘Do Nothing Manager’. This re?ects IBM focusing on results
(success at the client engagement) while leaving IBM employees to ?nd their
own culture and guidance. The desired position is to be in the ’Team Builder’
quadrant.
Desired
Country Club
Builder
Team
Management
Pusher
Production
Do Nothing
Manager
Current
Position
Position
Figure 2.5: IBM in the Blake Mouton McCanse Model
Using the Handy model, IBM is currently leaning toward the ‘Task Cul-
ture’, with the desired emphasis on ‘Person Culture’. The goal being to
recognize the IBM employee as a person needing a person-oriented network,
rather than being focused only on the tasks on their current assignments.
Risk Orientation
IBM is a great risk taker, as indicated in the Deal & Kennedy model in Figure
2.7. As IBM, by necessity, must always ?nd new markets and eventually must
abandon entire industries as low-cost competition catch up in capability. IBM
is in a constant position of needing to ‘bet your company’, and will likely
keep this culture in the foreseeable future.
30 CHAPTER 2. BUSINESS TRANSFORMATION
Culture
Desired
Current
Position
Person
Culture
Culture
Role
Power
Culture
Task
Position
Figure 2.6: IBM in the Handy Model
The previous models show that IBM is task-and-results oriented, with
little in the way of addressing the employee as an individual. Figure 2.8
supports this conclusion by showing control through great emphasis on tech-
nological achievement, but not following through on the softer organizational
needs.
Learning Organization Structure
A new organizational structure is necessary to implement the learning and
community environment to re-introduce a sense of common values to IBM
employees. The new structure, shown in Figure 2.9, is replicated across
speci?c technical subjects, and is designed to accomplish these objectives:
1. Address need for emotional sense of belonging and loyalty to
IBM
A single face is given to each technical specialty, usually a recognized
domain expert. Chosen for charismatic leadership, this Resident Do-
main Expert is responsible for organizing IBM courses for training,
setting up networks, being a point of contact, and driving momentum
in networking e?orts.
2.1. MOBILIZING FOR CHANGE 31
High Risk
Position
Bet
Work Hard
Macho
Your Company
Play Hard
Process
Low Risk
Slow Feedback
High Risk
Slow Feedback
Fast Feedback
Fast Feedback
Low Risk
Current
Figure 2.7: IBM in the Deal & Kennedy Model
Yearly review with
Routines and Rituals
Control Systems
Technically competent
IBM = "I’m By Myself"
Success through ’wins’
manager
IBM employee fit
in with client power
structure
IBM employees on
their own
Little supervision once
IBM employee is
engaged in client project
Technical focus
Stories
Power Structures
Paradigm
Organization Structures
Professional Development
Behaviors
other than IBM logo
deployed with client
No distinctive logo Values
Employee is OK if
Symbols
Figure 2.8: IBM’s Cultural Levers
32 CHAPTER 2. BUSINESS TRANSFORMATION
1
Expert
Level
Level
Beginner
Level
Intermediate
Certificate Award
Certificate Award
Certificate Award
Cohort
Cohort
Cohort
Cohort
Certified
Domain Expert
Beginner
Mentoring
Mentoring
Mentoring
Communication
Newsletters
Events
Groupware
Announcements
Recognition
Achievement
ceremonies
Networking
Cohort timeline
Class studies
Expert
Domain
Resident
2
3
4
5
6
Figure 2.9: Transformational Organization for IBM
2. Build networks among employees with similar interests IBM
employees are placed into ‘cohorts’, or groups formed at speci?c times
with a timetable to complete a course of study for a certi?cate. Team
assignments, regular calls, and a small and intimate group will form
bonds and a sense of obligation between members.
3. Give informal advice about career and skills
Employees in cohorts will be encouraged to mentor employees in less
advanced cohorts.
4. Promote learning in chosen specialty
A staggered learning course with awarded certi?cates are given at each
level of learning. Cohorts and networking facilities allow remote learn-
ing.
5. Reward and recognize achievement among peers
Formal awards ceremonies are held to present achievements; if geo-
graphic considerations make this impossible, then other forms of recog-
nition are given, such as personal congratulations from the Resident
Domain Expert, publication in a company wide newsletter, and the
right to use a title on presenting quali?cations in IBM’s ’Blue Pages’
directory and resum´es sent to clients.
6. Use existing IBM resources and initiatives
2.2. TRANSLATINGSTRATEGYINTOOBJECTIVES ANDINITIATIVES33
Courses and facilities are simpli?ed by using IBM’s established training
programs, tailored to ?t the schedule of the cohort so each member
learns alongside familiar people.
2.2 Translating Strategy Into Objectives and
Initiatives
2.2.1 Process of Implementing Strategy
To determine the eventual result of the Transformation, analysis must be
performed to determine the speci?c actions to be taken. The strategic goals
are taken from Section 1.2 and are mapped in a network of strategic goals in
Figure 2.10.
8
P
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r
s
p
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r
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e
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e
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t
i
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o
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a
l
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c
t
i
v
e
Increase revenues
by 10%
Gain more ‘wins’ by
predicting future
in?demand skillsets
Build employee loyalty
Through nonfinancial
incentives
We deliver superior
services
Our employees
feel connected
and fulfilled
Lower costs
of recruiting
We go beyond
supplying a
consultant
Our technology
fits every need
possible
We do not have
skills shortages
Our services are
cutting edge and
cannot be had
elsewhere
We position our
skillsets to the
forefront of market
demand
We generate new
ideas and innovate
new solutions and
products
Our employees
are trained in the
latest technologies
We are not
affected by
talent wars
Our employees
anywhere
and can work
are virtualized
We see new markets
before our rivals
and opportunities
1
2
3
4
5
6
7
F
i
n
a
n
c
i
a
l
Figure 2.10: IBM Strategic Goal Network (Ahn, 2001)
Strategic links point to the ultimate strategic goal of raising revenue by
10%, a point raised in Section 0.2. Reducing costs and overhead sets the
?oor of margins, while total revenue sets the ceiling. The links are discussed
below in turn:
34 CHAPTER 2. BUSINESS TRANSFORMATION
1. Link 1
IBM employees feelings of ful?llment and connection builds loyalty and
makes IBM an employer of choice. Salary is not the only consideration
for employees who have choices of where to work.
2. Link 2
By seeing where the market is going and new opportunities, IBM can
position training programs to meet skills demand ahead of time. Em-
ployees often only see the day-to-day responsibilities of their jobs and
not long-term industry trends, or strategy positions IBM may be tak-
ing.
3. Link 3
By being in a company that o?ers the latest training, IBM employees
become aware that they lose this bene?t in the long term by moving
to a competitor.
4. Link 4
By making the training regimen team and network oriented, the client
is assured that they are not bene?ting just from the talent of the IBM
consultant, but also from the personal network and resources available
to the consultant. The client has penetration into IBM’s total knowl-
edge.
5. Link 5
Keeping in with IBM’s strategy of pursuing the high-end market, IBM
assures the client of superior services to any other in the market. This
assurance rests on the quality of IBM employees.
6. Link 6
Superior services means going above what a competitor can o?er, in
this case, more than just what the consultant is experienced with – the
potential to tap into other experts as needed.
7. Link 7
With the position of providing only superior services, more ‘wins’ are
signed, contract negotiations falling to IBM’s favor, with the goal of
boosting an otherwise ?at revenue trend upwards.
2.2. TRANSLATINGSTRATEGYINTOOBJECTIVES ANDINITIATIVES35
2.2.2 Gap Analysis
The gaps between IBM’s present state and the desired state in 3 years is
analyzed in Table 2.3.
2008 2011 Gaps
Loyalty and belong-
ing to immediate sur-
roundings, such as
client worksite.
Loyalty, connec-
tions, and ful?llment
within IBM.
Create network-
ing structures to
overcome draw-
backs of ‘virtualized’
workplaces.
IBM employees must
decide their own
learning strategy on
own perception of
industry trends.
Directed training
programs to keep
ahead of client de-
mands and industry
trends.
Create training pro-
grams based on in-
formed decision on
technology and de-
mand trends.
IBM Employees can
move to a competitor
easily.
IBM Employees re-
luctant to move to
competitors because
of loss of peer net-
works.
Enhance and encour-
age employees to
work together, even
with geographical
gaps and across
projects.
Clients get the
knowledge that
comes with the IBM
employee.
Clients get the same
knowledge plus ev-
eryone else on the
employee’s network.
Encourage network-
ing and track met-
rics and e?ectiveness
of teamwork.
Revenues remain ?at. Revenues increase
markedly, goal is
10% over three years.
Implement strategic
planning with ulti-
mate goal of revenue
enhancement.
Table 2.3: IBM Gap Analysis
2.2.3 Finance
The ?nancial goals are a 3.3% growth over 2007 revenues, as shown in Table
2.2.3.
36 CHAPTER 2. BUSINESS TRANSFORMATION
2007 2008 2009 2010 2011
$98.8 102 105 108.58 111.84
Table 2.4: IBM Financial Goals, in $USD, billions
Initiatives
The ?nancial goals are a 10% increase of 2007 revenues over 3 years, rep-
resenting $10 billion USD in 2011. Consultants with desired skillsets in de-
mand, and IBM gaining a ‘?rst to market’ advantage, drives extra revenue.
Revenue can come from new clients, negotiating a higher rate for existing
clients, or follow-up contracts from completed work. IBM is not to lose any
business by not having skilled contractors ready to work on a proposed con-
tract ready to sign.
2.2.4 Customer Perspectives
Set goals for Customer Perspectives:
1. IBM provides clients with competitive advantage
2. IBM has a reliable supply of skilled consultants
3. IBM commands a premium fee, not discounted services
Initiatives
To realize this goal, marketing focuses on IBM’s consulting initiatives with
the message that ‘clients get more than just an IBM consultant’. This
promise is followed up by superior customer satisfaction, a perceived gap be-
tween IBM’s level of service vs. a competitor, and delivery of service based
on competitive value rather than on price. Marketing campaigns, readily
available resources, and clear leadership in industry trends are vital.
2.2.5 Process
Set goals for Processes:
1. Create directed learning in skills identi?ed to be especially valuable to
IBM’s clients.
2. Create groups of networks for IBM employees to participate in.
3. Encourage peer networking, track e?ectiveness through metrics.
2.3. THE CHANGE PROCESS 37
Initiatives
The initiatives to create this new process follows these stages:
1. Identify areas of skills that are in short supply and lucrative.
2. Identify and recruit leaders responsible for encouraging and driving
learning and networking activities.
3. Create certi?cate levels and curriculum (from IBM’s existing education
courses), depending on industry needs.
4. Standardize communications through IT systems, such as wikis, fo-
rums, newsletters, personal communication, mentoring.
5. Track networking activity (such as awarding points for answering peo-
ple’s questions), and continuously improving program.
2.2.6 Potential
The Potential perspective has two main goals:
1. IBM Employees are connected and ful?lled at IBM.
2. IBM is not a?ected by talent shortages.
Initiatives
To achieve these goals, IBM must pay special attention to the human net-
working needs of employees who are not working in traditional o?ces, and
follow through with directed learning initiatives.
2.3 The Change Process
The Transformation will focus on the change levers shown in Figure 2.11 to
a?ect a new paradigm.
2.3.1 Symbols
IBM employees value marks of technological distinction, such as titles con-
veying a level of achievement (‘Certi?ed IT Specialist’, ’Distinguished Engi-
neer’). These titles give status to employees, especially in a situation where
employees work at home and rarely meet their peers in person. Traditional
38 CHAPTER 2. BUSINESS TRANSFORMATION
Change Architecture
New Paradigm
Targeting Levers
Figure 2.11: IBM Culture Change
symbols such as company cars and corner o?ces are not e?ective if employees
are not seen in them.
In the virtual world, symbols appear in the form of employee resum´es
(viewable by anyone), the number of times a name appears in a search engine,
and mentions in company newsletters. Taking advantage of this focus, a
new symbol will be introduced for employees who have achieved a high level
of certi?cation in a directed learning course. This symbol will be displayed
prominently in an employee’s entry in the ‘Blue Pages’, or company directory.
The employee will have the right to use this symbol in his resum´e, and
to reinforce the prestige of such symbols, a real-life manifestation will be
awarded as well. This manifestation may be a small plaque, pin, or other
item meant to be displayed at home or in an o?ce.
2.3.2 Power Structures
The Transformation is designed to be voluntary, with IBM employees choos-
ing if and when they will participate in the directed learning and networking.
This is designed to ensure a high level of commitment and enthusiasm in
those that participate. IBM employees are empowered in this regard, with
the focus of power on those who freely share their knowledge rather than
their position in the management hierarchy.
2.3. THE CHANGE PROCESS 39
2.3.3 Organizational Structures
IBM employees currently have a networked organizational structure, which
follows the non-geographical nature of virtualized workspaces, and the fact
that employees often change assignments, with new project managers and
co-workers with each change. Figure 2.12 shows a typical network of an IBM
employee in red, and the new elements in blue. The new elements are the
cohorts that are also taking the directed training as the employee, and the
professional network instituted by IBM.
IBM EMPLOYEE
RESOURCES
HUMAN
MENTOR
MANAGER
PERSONAL
DEVELOPMENT
CLIENT
MANAGER
MENTOREE
RESOURCE
DEPLOYMENT
MANAGER
COHORT
NETWORK
IBM
MANAGER
IBM EDUCATION
AND TRAINING
Figure 2.12: IBM Employee Organization
40 CHAPTER 2. BUSINESS TRANSFORMATION
2.3.4 Control Systems
IT Systems
IBM has a heavy investment and dependence on IT systems, and the existing
infrastructure will be vital in measuring the success of the Transformation.
As employees will have very little chance to network in person, the basis of
communication will be nearly entirely electronic. Figure 2.13 shows the nec-
essary metrics to be collected. Key to encouraging networking and commu-
nication is keeping score in how often the employee accesses the networking
facilities, the frequency and nature of interactions, and focus on timesaving
shortcuts to make the system convenient and easy to use.
IBM
CLIENT
IBM EMPLOYEE
Contributions
to body of
(newsletters,
training)
Activity in
electronic
resources,
answers to
queries, etc.
1
2
6
3
4
5
Metrics Gathered
1) Existing metrics of client satisfaction
2) Employee’s contribution to body of knowledge
3) Progress in keeping up with cohort in learning
4) Employee interaction with others in networks
5) Activity in supporting IBM engagements
6) Employee’s use of network resources
COHORT
NETWORK
knowledge
Figure 2.13: IBM Controls
Management
Central to the Transformation is the desired increase of human interaction;
the “Resident Domain Experts” (Figure 2.9) to encourage and drive this
interaction. They may choose to publish regular newsletters, answer inquires,
communicate one-to-one with individuals. Their purpose is to put a human
2.3. THE CHANGE PROCESS 41
face on to the process, and serve to draw interest and interaction to issues
and topics of the day. More importantly, these leaders continuously improve
the process in a cycle shown in Figure 2.14.
In addition to existing criteria considered at the employee’s annual review,
participation and notable contributions to networking will be a factor in
determining the outcome of the employee’s review.
Comparison
Gaps identified
Stable System
Improvements implemented
New metrics gathered
Feedback
Accurate and
timely data,
relevant to
users
Corrective
Action
Correction plan
initiated
Figure 2.14: IBM Performance Monitoring
2.3.5 Routines and Rituals
On an ongoing basis in the interest of recognizing achievements and peri-
odically reviewing the performance of the directed learning and networks
installed by the Transformation, routines will include:
• Quarterly reports of metrics and performance by Resident Domain Ex-
perts
• Periodic newsletters, ‘meet and greet’ events, workshops
• Individual one-on-one discussions between the Resident Domain Ex-
perts and constituents of directed learning and networking e?orts
42 CHAPTER 2. BUSINESS TRANSFORMATION
Rituals will include:
• Awards ceremonies, recognition for achievements
• Feedback for annual review giving metrics for employee’s participation
in Transformation e?orts
• Balanced Scorecard results tying Transformation to ultimate goal of
10% revenue increase.
2.3.6 Stories
Stories will re?ect the success of individuals who have completed a course
of education in a given skillset, focusing on how they contributed to IBM’s
success as well as their own. The positive bene?ts of networking and how
employees relied on it to solve di?cult problems are highlighted, while plans
are discussed to address areas where drawbacks or di?culties have been un-
covered. These stories will be used to draw non-participants into the Trans-
formation scheme, using all available communications channels within IBM.
2.3.7 New Paradigm
As a result of modifying the change levers, Figure 2.15 shows the outcome
of the Transformation.
Control Systems
Symbols
Right to use icons
on online directory
and resume’ for
learning
achievements
IBM power focused
on knowledgable
individuals who share
with other employees
IBM works together
Success through
networking
Invitation to all
to join as well
Technical and social
focus in professional
life within IBM,
bringing successes
to all clients
Network of many
individuals to draw
knowledge from
Periodic improvement
reviews
Achievement
recognition
IT systems to implement
networking channels
Management tracks
networking metrics
Paradigm
Stories
Power Structures
Organization Structures Routines and Rituals
Behaviors
Values
Figure 2.15: IBM Culture Change
2.4. ALIGN THE ORGANIZATION 43
2.4 Align the Organization
2.4.1 Social Cohesion
The desired alignment of the Transformation is to raise ‘social capital’, or
social cohesion among IBM employees in a virtual workplace
3
. Figure 2.16
shows IBM moving through Phase 5, where growth is a result of collabora-
tion
4
. To lead IBM employees through this phase change, management will
stress that the action is voluntary on the employee’s part. This sidesteps
employees who may resist or oppose the change, while giving ambitious and
willing employees an opportunity to build and create the missing social cap-
ital in their day to day activities. By setting an example, they may entice
those with a ‘wait and see’ attitude to join as well. A voluntary approach ties
managements’ hands in the number of approaches they can employ; namely,
coercion is ruled out, leaving only positive change behaviors such as personal
encouragement, acting on feedback and criticism, as well as setting the tone
of mutual respect, power of knowledge, and recognition of achievements.
2.4.2 Action Plan
The timeline for this action plan is shown in Table 2.5, giving the events
and their outcomes. Cost is not detailed here, as the costs are either sunk
(such as development of existing training modules) or already allocated to
a general budget (paying for servers and computing resources for any legiti-
mate business need). Employees chosen to be Resident Domain Experts will
already be on the payroll, with their duties shifted to this endeavor. A mod-
est budget will be allocated to each Resident Domain expert to host awards
functions and prizes as appropriate.
2.4.3 Monitoring and Evaluating the Change Process
For a large scale e?ort involving many people and their needs, criticism and
feedback are to be expected immediately after inception and implementation.
For this reason, the Resident Domain Experts are given a wide latitude on
actions taken to improve the Transformation e?orts. Periodically, feedback
and metrics measurements are gathered, analyzed, and acted upon, as shown
in Figure 2.9, showing a double-loop learning feedback system.
3
Greenier 1972
4
Henley Critique 8
44 CHAPTER 2. BUSINESS TRANSFORMATION
Event Time Outcomes Principals
Identify skillsets, now and fu-
ture, that are in short supply
and lucrative.
July 2008 List of skillsets, in priority of
projected market returns
Industry forecasters, top
strategy managers, expert
employees, HR
Identify and appoint Resi-
dent Domain Experts, each in
charge of skillsets identi?ed.
August
2008
Appointments made, job de-
scriptions changed to focus
on Transformation.
Top expert employees, HR,
Strategic management
Domain Resident Experts to
design core curriculum for
’Immediate’, ’Advanced’, and
’Expert’ quali?cations, de-
signed for part-time study for
cohorts at a ?xed time
October
2008
Curriculum using existing
IBM training courses, with
absolute minimum of new
materials created.
Domain Resident Experts
Create standardized struc-
ture for electronic resources,
libraries, wikis, newsletters,
allow for maximum ease-of-
use and multiple networks for
users.
November
2008
Directed learning and net-
working platform that is eas-
ily replicated as new skillsets
are created, using existing
IBM technology.
IT Services, Domain Resident
Experts
Begin advertising and com-
municating to IBM employ-
ees about directed learning
and networking opportuni-
ties, stressing bene?ts and
calls to participation.
December
2008
IBM Employees form ?rst co-
horts, undergo training as de-
signed, begin use of network-
ing.
HR, Senior Management,
Resident Domain Experts,
IBM Employees
Ongoing collection of metrics,
focusing on performance, ef-
fectiveness, and bottom line
scores.
Ongoing Metrics collected and ana-
lyzed, feedback acted upon,
improvements made
Senior Management, Resi-
dent Domain Experts
Ongoing Awards recognition,
periodic newsletters, one-on-
ones with individual IBM
employees participating in
Transformation program.
Ongoing Activities to drive metrics
collected
Resident Domain Experts
Halfway point in 3 year
program - measure progress
of company against eventual
goal of 10% revenue increase
in 3 years after inception.
Jan 2010 General report on program
e?ectiveness, successes & is-
sues to act upon.
Senior Management, Resi-
dent Domain Experts
End of 3 year program -
measure progress of company
against goal of 10% revenue
increase in 3 years after in-
ception.
July 2011 Decision to continue Trans-
formation program or termi-
nate due to lack of perfor-
mance.
Senior Management
Table 2.5: IBM Transformation Action Plan
2.5. CONCLUSION 45
through creativity
Small
Large
S
i
z
e
o
f
O
r
g
a
n
i
z
a
t
i
o
n
Age of Organization
Young
Mature
Current
Post?
Transformation
Phase
Phase
2. Growth through
direction
3. Growth through
delegation
4. Growth through
co?ordination
5. Growth through
collaboration
1. Crisis of
leadership
2. Crisis of
autonomy
3. Crisis of
Control
4. Crisis of
red tape
1. Growth
5 ?
Figure 2.16: IBM Growth through Phases
2.5 Conclusion
This paper has detailed the proposed Transformation, on how IBM can give
itself a distinctive advantage over rivals who constantly try to duplicate IBM’s
o?erings at lower cost points. IBM gained a good deal from its virtual work-
force, being the pioneer in many cases, but now must address the downside
- the loss of camaraderie and knowledge sharing within a traditional o?ce
setting. The end result of the Transformation is to restore the social setting
of the IBM employee, building loyalty to the company, promoting teamwork
and reliance among peers, giving joy to the work experience, and satisfying
clients with excellent service that cannot be obtained anywhere else in the
market.
46 CHAPTER 2. BUSINESS TRANSFORMATION
Monitor
Collect and
evaluate
metrics
Manage
Implement
changes with
data from
collected
metrics
Search
For new
opportunities
for competitive
advantage
Monitor
Manage
Recreate
Create
Create vision/
strategy with
Transformation
Figure 2.17: IBM Double Loop Learning
2.5. CONCLUSION 47
Henley Transformation
Process
Pre?Transformation
Desired Post?Transformation
State
Figure 2.18: IBM’s Transformation Process
48 CHAPTER 2. BUSINESS TRANSFORMATION
2.6 Personal Development Report
IBM has been an excellent place to work, and in many ways I feel fortunate
to have joined IBM when I did, just at the very beginning of the dot.com
collapse. In some ways IBM presented credibility and security, being ‘old
economy’ and an established company. IBM may not be glamorous as work-
ing for Google or Facebook might be, but in exchange, working on decidedly
bread-and-butter industries such as insurance and investment banking gives
me invaluable experience on projects that have no hype to sell; whatever
IBM project I am on is successful because of the many experienced people I
?nd myself working with.
In a company of experienced and talented leaders, it is di?cult for any
one person to stand out from over a quarter million employees, and the
ones that do are employees who have done a great deal for IBM’s bottom
line. Standouts include salesmen, inventors of market creating products,
visionaries, and people who have shown prescience in the way the markets
are heading. While I have certainly done well on projects with a technical
focus or delivery, I’ve always been only somewhat aware of the business
deliberations that took place before I became involved in the work. With
the MBA studies, even with the basics in ‘Foundations of Management’, I’ve
found it much easier to make sense of what IBM was doing in its business
dealings, such as in its acquisitions or courting of certain clients. In my own
personal daily worklife, merely mentioning an interest in business processes
has opened doors to working closer with business analysts on projects most
noted for its strict divide between technology and business interests.
One way I’ve found that would allow me to stand out at IBM is to bridge
the gap between technology and business. It is rare to ?nd anyone willing
to work with both groups. Usually when the business analysts are done
with their requirements, it’s tossed over a fence to the technology group to
implement to be tossed back at some future date. With my knowledge and
tools I have learned from Henley, hopefully some day on my projects there
will be no fence.
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50 BIBLIOGRAPHY
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.1. APPENDICES 51
.1 Appendices
.1.1 PESTLE
Table 6 gives a PESTLE analysis of IBM.
Drivers External In?uence Impact (A)*(B) Probability
Factors on Industry on Company of Change
0 to 10 (A) -5 to 5 (B)
Political/Legal Con?icting regulations be-
tween di?erent countries;
compliance with local laws
vs. global operations.
4 -1 -4 Low
Patent laws are in a ?ux
in the US and worldwide;
patent reform changes nature
of competition.
8 3 24 Medium
Economical Global recession from US eco-
nomic troubles
9 -4 -36 High
Shift away from US as pri-
mary market
7 3 21 High
Social Workforce growing older;
fewer young employees and
more diverse workers
6 2 12 High
Workers separated geograph-
ically; trend of employees
working from home or re-
gional o?ces
8 3 24 High
Technological Technology quickly becomes
widespread / copied by low
cost rivals
8 -4 32 High
Disruptive technology; new
invention creates or destroys
an industry quickly
9 +/-5 +/-95 Medium
Environmental Focus on ‘green’ or low-
consumption sustainable en-
ergy
4 2 8 Medium
Natural disasters 2 -4 -8 Low
Table 6: Environmental factors a?ecting IBM
Political / Legal
- IBM is a multinational company operating in many countries, often result-
ing in IBM needing to navigate con?icting regulations. What may be legal in
one country may not be in another, ?nancial practices may di?er. Worker’s
rights, patent laws, export controls are all factors that need to be taken to
consideration.
52 BIBLIOGRAPHY
Economical
- Economic recessions can impact clients who may cut back on spending on
IT and business operations. IBM may ?nd that it needs to rely less on US
operations for pro?t as emerging countries come on line, for example, Chinese
companies looking for premium IT service.
Social
- Workers are gradually graying, becoming older as boomers move toward
retirement. Employee needs and desires change as workforce becomes more
diverse. Technology allows employees to collaborate and work far away from
each other, downsides of isolation and separation need to be addressed.
Technological
- IBM is the trendsetter and market maker for new technology for IT automa-
tion and business. It is likely that old standards can be disrupted overnight
with introduction of a new technology. IBM needs to continuously innovate
as anything can be copied or adopted by rivals.
Environmental
- Natural disasters can disrupt IBM operations, as facilities are located world-
wide. Focus on ‘green’ technology an important issue as clients and govern-
ments try to address global warming.
.1. APPENDICES 53
.1.2 Porter’s Five Forces
Threat of New Entrants
As the IT and business consulting market is lucrative and a global business,
new entrants are constantly entering the market in response to new oppor-
tunities. This is especially true of emerging countries, where skilled and
low-cost workers in countries such as China and Vietnam are underbidding
India, once the leading low-cost bidder for Western outsourcing business. As
having an advantage through business automation and cost savings through
outsourcing means a advantage over competition, any business of appreciable
size will welcome new products and services that will work to their favor.
Threat: High
Supplier Bargaining Power
IBM can no longer engage in customer lock-in, in which the customer is forced
to use IBM products exclusively once entering a contract. Open standards
allows a client to migrate their data and process to competitor platforms
as needed. For this reason, IBM embraces competitor products as well and
provides service with the same depth as a similar IBM brand. ‘Suppliers’
can also mean IBM’s consulting base, employees who can work for IBM, a
competitor, or hang out their own shingle as an independent consultant.
Threat: Low
Buyer Bargaining Power
Buyers are divided into two camps, one seeking low-cost service and the
other camp seeking leading edge IT products and services. Low-cost service
reduces overhead for clients, but requires a mature market with an adequate
number of competitors. Leading-edge clients often will pay a premium for
new products and services, and have few vendors to choose from. IBM nearly
exclusively positions itself in the leading-edge market, and must constantly
cede business to low-cost competition once margins become unsatisfactory.
Threat: Medium
Threat of Substitute Products & Services
When a new service or product is developed, a new market is created, one
that promises a new level of automation or a new way to reach customers.
In the time of market creation, products and knowledge (in the form of
consultants) are limited. Over time, as competing products are made and
54 BIBLIOGRAPHY
more consultants gain knowledge, customers have more choices and the threat
of substitution increases.
Threat: Medium
Competitor Rivalry
Competition is ?erce, but IBM enjoys a large share of the leading-edge IT
consultancy market. Many of IBM’s products set the market standard, al-
lowing IBM to control the direction and progress of the market. Many of
IBM’s competition are niche-oriented or cost-leaders, or are complementary
(using IBM’s products to drive demand for a specialized service).
Threat: Medium
.1. APPENDICES 55
.1.3 McKinsey 7S
• Hard Elements
– Structure A company of IBM’s size is split along three lines:
Software, Services, and Systems & Financing. By necessity, there
are diverse structures suited to the nature of a particular business.
The structure that is in question is the ranks of IBM consultants,
who are generally individuals on assignment and are not necessar-
ily aligned with any direction other than their own.
– Strategy IBM summarized their strategy succinctly with “... to
solve our clients’ hardest problems”; IBM continuously seeks op-
portunities which represent a technological advantage or a cost
savings for clients. Service contracts based on IBM products and
platforms are lucrative for growth markets.
– Systems IBM often sets the industry standards for systems and
automation, and has an interest in being ?exible and responsive to
market conditions. Many mechanisms, such as training, HR, and
assignment deployment are well developed, although often left to
employees to discover and determine how best to use them.
• Soft Elements
– Style IBM has a surprisingly informal and collaborative style for
an organization of its size. Gone are the days of pinstripe suits and
‘sincere’ ties, replaced by a global collaborative network in which
IBM employees work on projects from any location. A full third
of IBM employees work from home, with the rest in ‘solutions
delivery centers’, IBM campuses, or in client sites.
– Shared Values IBM places emphasis on integrity and customer
satisfaction, and every IBM employee must read and sign a doc-
ument de?ning what IBM stands for. Because of the dispersed
nature of IBM, often values may be that of a client the IBM em-
ployee is working for, or assumed values from a temporary group
working together. Transient assignments tend not to reinforce
values over time.
– Skills IBM places a high premium on skills, as it is what makes
the company marketable to clients. IBM is often the company of
?rst resort to solve complex issues or introduce new technology to
clients. Despite the importance of skills, cultivating and directing
learning e?orts is left to the individual employee.
56 BIBLIOGRAPHY
– Sta? With nearly 400,000 employees, IBM has a wide pool of la-
bor to draw from. Cleanly divided into ‘bands’, or levels of respon-
sibility (and pay) as well as broad job de?nitions, IBM marks out
stepping stones in advancement for the employee. A yearly perfor-
mance based bonus (both individual, department, and company)
motivates employees. Special programs such as ‘certi?cation’ and
titles such as ‘distinguished engineers’ give special recognition to
employees who have achieved a remarkable level of skill.
.1. APPENDICES 57
.1.4 Market Share
IBM
SUN
Microsoft
HP
Accenture
Infosys
Other
Figure 19: IBM Market Share 2006
IBM’s market share for IT and Business services in 2006, showing that
while IBM has a large portion of the market, an even larger portion is held by
small IT consultancies. Individual consultants, small shops, and universities
lending scholars make up for the largest share of the IT market. Rivals
such as HP, Infosys, and Microsoft have a small market share now, but are
expected to invest and stake out a larger share over time.
58 BIBLIOGRAPHY
.1.5 IBM’s Stakeholders
Competitor Platforms
IBM supports all IT platforms and products as a normal course of business.
IBM has no stake in providing service exclusively for its own products. As a
result, competitors often take an interest in IBM supporting their platform
as it can drive sales. On the other hand, IBM’s openness also allows the
possibility of a customer migrating to an IBM product as well.
Shareholders
Shareholders have not treated IBM as a ‘hot stock’, and IBM’s P/E ratio
remains low compared with other similar companies within the industry.
This treatment makes it di?cult to retain key executives with stock options
and employees who may own IBM stock through company plans. Even with
record pro?ts, IBM is not treated as a growth company.
IBM Consultants
IBM Consultants are the stock in trade when giving customers advice and
supplying skilled labor. Consultants ?nd themselves in high demand when
their skill set is in short supply. However, consultants can ?nd themselves
isolated from any sense of direction or corporate vision as they are isolated,
either by being embedded in client corporations or working alone from home.
While IBM may see emerging trends, this is often not shared with individual
consultants.
Cost Sensitive Customers
Cost sensitive customers are clients that have found a cheaper alternative to
IBM, usually when a technology matures enough that low-cost competitors
have developed su?cient skills to provide the same service IBM does, but at
a discount. IBM cannot compete on cost so must ?nd ways to provide clients
value that low-cost competition cannot.
Low Cost Competition
Low cost competition are competitors who have developed su?cient skills to
compete against IBM, especially in mature or declining markets. Low cost
competition sets the price ?oor for IBM, driving IBM forward to ?nding new
markets in which IBM can charge higher prices.
.1. APPENDICES 59
Premium Service Competition
Premium service competition are competitors who have the same business
model as IBM, eschewing competition on price and instead focusing on value
delivered to the client. IBM may either compete head-on or else form partner-
ships and alliances with this competition, especially for technology requiring
substantial knowledge and investment.
Leading Edge Customers
Leading edge customers are customers who will pay a high price for products
and services that will give them a business advantage or signi?cant cost sav-
ings. These clients seek to gain an edge over their own competition, and are
willing to make the required investments. Leading edge customers can also
be cost sensitive customers, especially when portions of their infrastructure
has matured enough to make it di?cult to justify retaining IBM to service
it.
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